Does Canada have a weak retail leasing market?

showwindow in modern shop

Target Canada’s sale of its store leases fetched far less than the amount the retailer spent initially acquiring them. Industry experts suggest that this challenge reflects the softening of Canada’s retail real estate market.

While Target lawyers have said the property sale process sparked “robust” interest, industry insiders say there has been a generally indifferent response from retailers for Target leases. According to court documents, after filing for bankruptcy protection in January and closing all 133 of its outlets, the retailer was forced to hand back 75 store leases to its landlords.

As a result, many landlords have been left rushing to replace Target, whose stores can be more than 10 times larger than a typical clothing outlet. “We are talking to potential tenants,” says Rai Sahi, chief executive officer of landlord Morguard Real Estate Investment Trust. “Some of them we will divide and make smaller stores [from]. The whole industry is doing the same thing.”

Adding to the uncertainty is a recent and widespread shift to e-commerce, which has resulted in an increasing transfer of brick-and-mortar stores into the online realm. “Internet sales have not helped the malls,” adds Sahi.

In all, an estimated 21 million square feet of retail real estate will be vacant in 2015, with 16 million of it coming from former Target stores. John Crombie, senior vice-president of Triovest Realty Advisors, notes that this is almost three times the amount of new retail development that comes on the market annually. CJ