Thoughts and Observations from the Floor of the ICSC Whistler Conference

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By Arlyn Stoik

I recently attended the annual ICSC Whistler Conference at the Fairmont Chateau Whistler Resort, in Whistler, BC. The event ran from Sunday, January 27th to Tuesday, January 29th. As always, this conference attracts retailers and retail development professionals from across Canada, and presents a fascinating snapshot of industry trends and developments.

Strategic and deliberate

While I haven’t seen official numbers yet, my overall impression was that conference attendance seemed healthy, but certainly not record-setting. I suspect one of the reasons why attendance may have lagged slightly behind some of the busiest years in the past is that there seemed to be fewer large groups from Eastern Canada attending this signature Western Canadian conference. There were plenty of executives and high-end decision-makers, but few larger entourages in town from the East. That dovetails with something else I’ve picked up on: relative to past years, attendees at Whistler seemed keenly focused on being productive and getting business done. The conference wasn’t quite as much of a social event as it has been at times in the past.

This business-first approach seems fitting, at a time when there has been a great deal of turbulence in the industry. The tone at the conference was generally somewhat thoughtful and cautious. Deal-making seemed to continue on an ongoing industry trend of proceeding more slowly and with more deliberation than in the past. Whether it’s real estate transactions, or the behavior and decision-making of landlords, developers and retailers, it feels like potential opportunities are being scrutinized more carefully. There is more discretion in the way capital dollars are spent, and deals are taking noticeably longer to put together.

Photos: Econo-Malls at ICSC Whistler 2019

Industry trends

One thing that’s clear across many different retail sectors is that there’s a great deal of thought going into what delivery models will look like in the future, and how to balance online offerings and brick-and-mortar assets. In many cases that means smaller store sizes and more thoughtfully positioned locations.

Other notable trends include:

Financial Institutions: One category that has been materially impacted by the move to e-commerce is the banking segment. This has always been a very profitable category for landlords/developers as this category traditionally paid the highest rates and offered the best covenant. What we are now seeing is the banks realize that bricks and mortar is an integral part of customer acquisition and service. Although in a much smaller format and often without drive thru, this category is becoming increasingly active again.

Densification on the rise: We continue to see several institutional real estate owners in Canada working to curate their holdings and dispose of non-core assets (typically in secondary markets). Consequently, repurchasing of existing assets continues—especially enclosed malls or big box power centers. Their focus seems to be solely on major urban markets - densification opportunities and transit oriented development. 

Opportunities in tight markets: We are starting to see some cracks in retail markets where there’s been little or no vacancies/opportunities in the past. Calgary is a great example. A conservative planning and approval process has avoided overdevelopment and kept vacancy rates in quality retail trade areas in the low single digits. Today, however, we are seeing some opportunities via closures and down-sizing, which is allowing some retailers to capitalize on new opportunities.

Rezoning reversals: As multifamily slows, more and more smaller multifamily sites are getting rezoned for commercial development—especially in some of the prairie markets. This is the exact opposite trend of several years ago, when a booming multifamily space was prompting zoning changes to accommodate more multifamily opportunities.

Categories and capital

It was clear from the conference that the fitness segment remains among the most active retail categories right now. Big names like Planet Fitness and L.A. Fitness, as well as some trendier concepts like Orange Theory, are all aggressively pursuing new expansion opportunities.

The proliferation of Asian grocery stores, including brands like Seafood City Supermarket and H-Mart Korean grocer, is also a noteworthy development. Especially because the success of this sub-segment stands in contrast to traditional large-format grocery, which has slowed noticeably. Grocers are being fairly cautious with their capital right now: taking their time to think about the future of grocery delivery and getting a better feel for what the right footprint might be in different markets.

The fast food segment remains sluggish, although we are seeing some American QSR groups looking at Canada (Chick-fil-A will open its first international location in Toronto in 2019). The overall U.S.-to-Canada retail pipeline is not as strong as it once was, however. The devaluation of Canadian currency and food/labor costs have had an adverse impact that’s contributed to that slowdown. Big Canadian markets like Toronto and Vancouver continue to get the lion’s share of the attention from U.S. retailers.

The expansion of U.S. concepts into Canada is also a prominent trend worth mentioning from the conference floor. Particularly, big box discount retailers like Nordstrom Rack and Saks Off Fifth continue to seek real estate and expansion opportunities in the Great White North. Don’t be surprised if you see more of these concepts popping up this year.

Question marks

There are two interesting issues to watch going forward. A lot of talk at the conference consisted of rising property tax assessments for commercial real estate, and the potential challenges that presents for the development market. Combine that with rising construction costs, and it’s easy to see why some developers are feeling the heat.

The other issue is the significant amount of property acquired by retail cannabis groups including the real estate that is sitting unused because of supply or licensing issues. It will be fascinating to see what happens in that market going forward, and what (if any) kind of ripple effect that could have in select Canadian markets. Canada is setting the stage for the retail sales of cannabis and the world is watching.  

Arlyn Stoik is a principal with Avison Young specializing in retail. His expertise includes the market analysis and site selection for a number of leading retailers and advising on some of Canada’s most exciting developments. Arlyn can be reached directly at arlyn.stoik@avisonyoung.com.

 

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