Retail chain failures should give would-be investors pause

With unpredictability characterizing much of the asset class this year, potential investors would do well to reconsider investing in Canada’s retail property segment, according to Avison Young’s 2019 North America, Europe and Asia Commercial Real Estate Forecast.

In the mid-January report, Avison Young cautioned that vacancy in retail “remains in flux.” The chaotic conditions mainly arose from major failures among some large-scale retail chains, with a considerable proportion of the closures stemming from the ever-growing influence of e-commerce.

“The focus on creating memorable consumer experiences will endure across the Canadian retail landscape in 2019. Significant investment in technology to track millennial behaviour is being made by retailers developing and enhancing their physical locations and online market shares while seeking the correct balance in the symbiotic relationship between bricks and clicks,” Avison Young principal and practice leader of research (Canada) Bill Argeropoulos explained.

Read more: Canadian commercial investment to intensify this year

In a study released late last year, Morguard Corporation noted that leasing performance in retail has indeed become erratic recently, but added that the sector would still enjoy good performance despite these risks.

A large contributor of this predicted strength will stem from the increased purchasing power inherent in a steadily recovering economy.

“Sustained economic expansion over the next few years bodes well for the Canadian commercial real estate sector as a service provider to the economy. Canadian commercial property sales activity will remain robust over the near term, against a backdrop of positive overall sector performance,” Morguard stated.

Argeropoulos agreed with the assessment that the overall commercial market would more than make up for any weaknesses.

“Supported by relatively sound leasing fundamentals in almost every market, debt reduction and asset and geographic diversification will continue in 2019, while asset values are expected to remain elevated and cap rates low for prime assets,” the Avison Young official said.

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