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What’s Next for Toronto’s Trendy Retail Market

Carmen Siegel • 9/18/2019
Toronto is the fastest expanding city in North America with record-high population growth and development levels. With increasing populations comes a higher demand for retail.

What's Next for Toronto's Trendy Retail Market Article

Developers and landlords have been capitalizing on this trend through the development of mixed-use residential and commercial assets that include more attractive retail and food options. However, even with all this additional space coming to market, securing a prime retail location in Toronto is a competitive game, where off-market deals against multiple offers are sometimes the only way to enter a neighborhood.

One of the most active tenant groups currently in Toronto are quick-service restaurants (QSR) in the sub-2,000 square foot (sf) category. We’re seeing QSR groups further downsizing to sub-1,000-sf spaces with decreased seating, on account of tech platforms like Uber Eats, foodora, Ritual, and off-site ghost kitchens making face-to-face traffic less frequent. Retailers have confirmed that in certain cases over 50% of their lunchtime revenue is generated through these apps. The increased use of these apps, smaller living spaces, and retail presence in new developments has allowed QSRs to thrive despite the competition. With tax hikes and bullish rental expectations based on growing property values, tenants are continuing to downsize to keep their rent costs between 10-15% of their revenue. In some cases, landlords and developers have missed opportunities to capitalize on this ‘in- demand’ space category, with consistent multiple-offer situations on sub-1,500-sf space (especially sub-1,000 sf), making units in the 2,000–4,000 sf range more challenging to fill and putting downward pressure on rents.

Another ongoing trend is the shift of fashion and apparel tenants from high streets to enclosed malls. Yorkdale Shopping Centre (Yorkdale) and CF Toronto Eaton Centre have poached tenants from the traditional Toronto high street neighborhoods like Queen West and Bloor-Yorkville which has resulted in positive growth for the malls. Yorkdale’s popularity has grown exponentially – with many new-to-market retailers opening flagships in the reconfigured spaces and the newly designed high-end wings. For the luxury retailers still thriving in the Bloor-Yorkville market, a shift from the traditional large format retail flagships on Bloor Street to smaller boutiques can be seen along the newly developed and currently expanding Yorkville Avenue strip, where select luxury retailers have opened boutiques and are transforming the once-dated street to a more European-style shopping experience.

Trends aside, perhaps the most interesting aspect in the Toronto retail market right now is the opportunity to be a part of the multiple mass communities being developed over the next 5-10 years. Mixed-use developments with dense office buildings, condos, purpose-built rentals, hotels, and schools make it possible for retailers to enter into a new market with an entirely new customer base. While this concept boasts great potential for retailers, those communities that are developed in phases have struggled with getting tenants engaged, as moving in prior to the project’s completion poses a higher risk to the retailer who is at the mercy of a limited population to serve. It will be interesting to see how these communities come together and which retailers will thrive, and not thrive, in these new urban landscapes.

Despite today’s market being coined the ‘retail apocalypse’, this asset class is alive and well, but it’s rapidly changing demands require tenants to be highly strategic and forward thinking in order to assimilate and stay relevant.

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