Backfill workout
Retail real estate might be one of the most dynamic sectors these days, with multiple channels competing for consumer attention, several paying options and a host of delivery options.
Pity the retailers trying to find a place to cater to consumers who might buy in-store today, then shop online for pickup in-store for that item they forgot. During a trip back home to New Brunswick, yours truly saw the confusion among shoppers and store staff alike as the local Loblaw Cos. Ltd.-owned supermarket reconfigured its layout to make it easier for workers to fill online orders.
Vancouver is fortunate to have a population base that can support a range of options, and that includes what’s touted as the largest T&T Supermarket in Canada. The giant, 74,000-square-foot location at Lansdowne Centre backfills the former Target premises, while a 22,000-square-foot space formerly occupied by T&T at President Plaza remains vacant.
While the net result is a reduction in Richmond retail vacancies, T&T’s move underscores the challenges Colliers International outlines for landlords in the current retail environment.
When one anchor tenant leaves, the options include finding another one or several smaller tenants to fill the space or tapping a tenant from outside the retail sector. Colliers flags supermarkets as a viable anchor for strip centres, but Lansdowne is obviously hoping T&T will stay until the property’s redevelopment takes shape a decade down the road.
Then there’s the pitch that recently hit this writer’s inbox headlined, “How Fitness is Saving Brick and Mortar Retail.”
The message tipped B.C.-based Steve Nash Fitness World & Sports Clubs as helping shopping centres “combat the anticipated drop in revenue associated with the lower foot traffic to brick and mortar stores.”
However, Colliers vice-president Jim Smerdon, director of the firm’s retail consulting division, said gyms aren’t sufficient in themselves. Rather, they work best when part of a co-ordinated backfill program.
“Gyms have not proven to be the best way to reuse vacant anchor spaces as a single use,” he said. “They generate foot traffic, but the key role of an anchor isn’t simply on-site volumes of people but of shoppers.”
Redevelopment play
Whatever direction retail takes, some investors see it as a bright spot because of the broad options.
Speaking as part of commercial real estate association NAIOP’s investment panel a couple of weeks ago, Wesgroup Properties LP executive vice-president David Wesik noted that “income is the new land.”
Or, put another way, income-producing assets are being judged not on what they can do now but on their redevelopment potential.
This is blurring the line between investment and land deals, as Avison Young principal Bob Levine remarked in his review of 2017 investment deals: “The acquisition of retail assets has morphed in many cases into land deals with lesser consideration or interest for the income in place or the retail asset itself. This approach has spread to office and even industrial properties as investors seek to secure land in hopes of redevelopment.”
“I think you’re going to see more and more properties acquired not because of their interim income but because long term, 20 to 25 years from now, somebody says, ‘I can put a tower here,’” Wesik said.
This attitude is what prompted Steve Smith, managing director, Western Canada, Manulife Real Estate Ltd., to pick grocery-anchored retail as his asset class of choice, particularly if it’s in the middle of a residential area.
“Some people say retail’s going away and e-com is replacing it. Amazon wouldn’t have bought Whole Foods if that was true,” he said. “[And] if I need to redevelop it, I have a great, high-density [residential site].” •
