Population boom drives up prices for commercial spaces
Retail rents in Canada are on the rise, driven by a combination of rapid population growth and a slowdown in new construction, according to a recent report by CBRE.
The survey, covering the first half of 2024, revealed a surprising trend that seems to contradict indicators of consumer pessimism.
Retail rents increased in 40 out of 120 areas across the country, marking the highest share in any of CBRE's published reports. Only two areas experienced reductions in benchmark rent prices.
“Market conditions continue to push up rental rates across the board with no single format type being left behind amidst incredible demand and the race for space,” the report stated.
Alex Edmison, senior vice president at CBRE, was surprised at the sector's robustness given current economic sentiment.
"Most people have burned through COVID savings, many are pessimistic about the economy but are still spending, and we don't really have a logical reason for this," he told Yahoo Finance Canada. "It's just what we are seeing in the data."
The demand spanned various sectors, with health and wellness, grocery, and discount retailers leading the charge. Despite economic pressures on consumers, luxury and high-profile domestic brands have also been expanding across the country, opening new and first-to-market flagship stores.
A key factor contributing to the rent increases is the severe shortage of new retail space. High construction costs and elevated interest rates in recent years have halted new projects.
However, Edmison pointed out that the recent spike in population growth also plays a significant role. "Even if people tighten their belts, if there are more people, we still see growth in retail sales," he explained.
Toronto and Ottawa emerged as particularly hot markets in the first half of 2024. In Ottawa, a "lack of quality inventory" has hindered several companies' expansion plans.
Meanwhile, in Toronto, "tenants are starting to widen their search area" to locations further east and west of downtown.
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While construction costs "are starting to show signs of stabilization, which could open the development pipeline once again," the report noted that any new construction would not provide immediate relief to the current supply shortage.
“Retailers are being strategic, but are also having to move fast,” said CBRE managing director Molly Westbrook, warning that the competitive environment is expected to drive rental rates even higher in the coming months.
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