Canada, Retail MarketView Q4 2012

Transcription

1 Canada, Retail MarketView Q CBRE Global Research and Consulting RETAIL SALES -2.1% (Dec. 2012) CONSUMER CONFIDENCE 77.9 (Dec. 2012) ANNUALIZED GDP GROWTH 0. (4Q12) AVERAGE CAP RATE 6.11% (4Q12) 1 CANADIAN RETAIL REAL ESTATE CONTINUES TO PERFORM STRONGLY Executive Summary Canadian retail real estate continued to post healthy results in 2012 despite lacklustre retail sales and the continued growth in cross border shopping and online retail Well capitalized retailers, both existing and new, continued to open new stores, if and when space came available The purging of Zellers, and the arrival of Target is sure to be a game changer for the Canadian marketplace, as much as Walmart was in the early/mid 1990 s The announcement by Nordstrom to begin opening stores in 2014 will again force Canadian retailers to raise their game and be price competitive With most markets in short supply of space, rents continued to drift higher, but only at or near general CPI levels Urban mixed use retail continued to thrive in tandem with the influx of downtown residential development augmenting Canada s already healthy downtown retail marketplace Office tower retail continues to gain momentum Investment volume for retail assets stayed very strong in 2012 with transactions totaling $4.9 billion, just slight below 2011 s record $5.7 billion. The Canadian retail marketplace chalked up another respectable year with modest sales growth, more new (and in many cases foreign) retailers, healthy levels of new development and a willingness by investors to continue putting money into bricks n sticks despite the omnipresent threat of online retailing. The Canadian economy sputtered, particularly in the second half of the year, but employment was up almost year-over-year (YoY) and wage gains registered nearly 3.0%. This was particularly true in Western Canada where wage gains were 4.0% to 5.0% YoY in Saskatchewan, Alberta and Manitoba. This was reflected in their respective retail sales where Alberta and Saskatchewan in particular rose 7. and 6. respectively. Two concerns which remained top of mind for retailers was the prospect of a U.S. style correction in the Canadian housing market, and the record level of consumer debt most Canadian were carrying. Providing relief to many, the housing market staged only a modest Figure 1: 2013 Retail Sales Outlook Canada U.S. 3.3% Mexico 8.4% Brazil 9. Argentina U.K. -0.3% France -3.7% Spain Arrow indicates change from previous period pullback and interest rates remained low allowing Canadians to easily service their existing debt loads. For 2013 the opening of 100+ Target stores will be highly destabilizing as competitors react and try to protect market share. Similarly the proliferation of dollar stores will also be a significant challenge for many in the Canadian retail marketplace. Development still remains very subdued with an emphasis on urban infill development with very little greenfield development underway. Many of Canada s top urban and inner-suburban malls are in the midst of sizable expansions and in some cases represents the lions share of new development. This reflects the difficult permitting process in many jurisdictions and the need to be near or on public transit. Investors remain highly attracted to retail properties reflected by 1,215 retail properties changing hands in 2012, a record number. Pricing remained very aggressive with record low cap rates across all retail formats. Germany -3.7% Italy 4.1% Russia 12.3% China 1.1% Australia -0.1% Japan 2. South Korea Source: IHS Global Insight, January 2013

2 Jan-07 Mall Sales (Y/Y) Jan-07 Index: January 2007 = 100 Chart 1: Economic Trends 3.0% 2.5% 1.5% 0.5% Employment % Change GDP % Change *Forecast 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13* 2Q13* 3Q13* 4Q13* Source: Conference Board of Canada & Statistics Canada Chart 2: Retail Sales Canadian Retail Sales U.S. Retail Sales After an encouraging start to 2012, the Canadian economy staged a modest deceleration in the second half of the year with third quarter 2012 gross domestic product (GDP) growth coming in at 0.7% (annualized) and fourth quarter GDP at 0. (annualized). For the coming quarters GDP growth is expected to range between and 2.2%, annualized. Canada s economy continues to be buffeted by slower global trade and a softening in the domestic housing market. Canada s labour market enjoyed a very robust fourth quarter with employment up 101,000. This compares with 56,000 in the third quarter, 73,000 in the second quarter and 82,000 in the first. With sizeable gains in the fourth quarter of 2012, the unemployment rate fell 30 bps quarter-over-quarter (QoQ) to 7.1%; representing a four year low. For 2013 overall employment is expected to increase 1.2%, or 212,000 jobs, which will represent a modest slowdown from the 1.8% increase in Retail sales finished 2012 on a down note falling 2.1% in December leaving full year sales up just 2.5%. Auto sales led the way in 2012 up 5. followed by general merchandise at 3.8%. At the other extreme were electronic and appliance stores with sales down 5.7%. Of note, clothing and apparel stores saw sales grow 3.0% in 2012 while furniture and home furnishings increased 1.4%. Alberta, Saskatchewan and Newfoundland were growth leaders with full year sales up 7., 6. and 4.7% respectively (YoY). Source: Statistics Canada and U.S. Census bureau 2 Chart 3: Canadian Mall Sales 3% 0% -3% - Source: ICSC Mall Sales Growth (sa) Not surprisingly Canadian mall sales largely mirrored retail sales rising 2.4% for the year. Ontario mall sales averaged $636 psf, a 1.8% increase YoY, while Quebec malls saw 2012 sales of $487 psf, a 0. increase YoY. Atlantic Canada also saw relatively benign growth with mall sales up just 1.4%. British Columbia and the Prairie provinces (Manitoba and Saskatchewan) saw more modest growth growing by 2.4% and 3. respectively. Enjoying more robust growth were Alberta malls with sales up 5.7% and average sales per square foot of $709 psf. Edmonton in particular saw mall sales rise 7.3% to $690 per square foot. With mall sales keeping up with general retail spending, it would appear online retail sales have not had an adverse impact on Canadian mall sales. With the upgrading, expansion and arrival of foreign retailers in Canada s premier malls it is unlikely that sales productivity is set to slip. 2

3 Calgary Montreal Edmonton Toronto Vancouver Ottawa SF (Millions) Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Resale Home Price ($2002) Sales to Listings Ratio Canada: 2002 = 100 U.S.: 1966 = 100 Chart 4: Canadian Resale Housing Market $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Sales To Listings Ratio Average Resale Home Price Chart 5: Consumer Confidence Canada U.S. Source: CREA Of critical importance to retailers is the health of the residential real estate market. In recent months some of the lather has been taken off the housing market, especially for high-end homes in Vancouver; however, the national average resale home price declined only slightly in 2012 to $355,800. The sales to listings ratio remains near 50 which suggests most markets are in balanced territory and does not point to significant difficulties despite suggestions to the contrary. Source: Conference Board of Canada, University of Michigan Consumer Sentiment Canadian consumer confidence dipped at year end to the lowest level since October 2011, however, for much of the year the index remained between 75 and 80 suggesting Canadians remain reasonably confident, and feel considerably better than in Causing some consternation was almost undoubtedly the uncertainty around the fiscal cliff, which would have almost certainly caused a ripple effect around the world including Canada. Chart 6: Retail Under Construction by Market Table 1: Scheduled Delivery of Space (SF) H H 2013* 2H 2013* Calgary 190, , , Edmonton 1,427, ,815 - Montreal 0 350, , Ottawa 467, , ,000 Toronto 927, ,875 49, Construction in most of Canada s major metropolitan areas fell at year-end with only Calgary and Montreal seeing a pick-up in new retail developments relative to the end of In Canada s six major cities, 5.0 million SF is projected to be completed in 2013, 2.7 million SF will come online in the first half of the year and 2.3 million SF in the second half. In the first six months of the 2013 Edmonton and Vancouver each will have over 600,000 SF of new retail space coming onto the market, while in the second half of the year Calgary, Ottawa and Montreal will see the bulk of the new supply. Vancouver 508, , ,000 Total 3,521,854 2,673,690 2,343,600 CBRE -EA/Dodge Pipeline Canadian Directory of Shopping Centres * Projected 3

4 Annualized Returns (%) $ (Millions) Chart 7: Strong Performance for Real Estate Assets in % 16.0% 14.0% % 6.0% 4.0% TSX REIT Index Real Property TSX Composite Index* Year Average 10Y GoC Source: Bloomberg, IPD/REALpac, Bank of Canada, Statistics Canada * TSX Composite Index is based on price only returns CPI Chart 8: Retail Investment Volume $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $ , RealNet Canada Inc., and RealTrack Inc. Performance data from Investment Property Databank (IPD) shows direct investment in Canadian real estate provided stellar returns in 2012 measuring 14.1% (income and capital appreciation). Retail slightly underperformed with a total return of 13.5%. Canadian REIT s also performed very well, beating the TSX for the fourth consecutive year with 2012 returns registering 17. with shopping centre REIT s slightly underperforming at 17.4%. The S&P/TSX equity index was more muted with total returns of just 7.1%. Investment volumes for 2012 came very close to equalling those of For all property types (including hotels) dollar volume for the Canadian commercial real estate market in 2012 hit $30.6 billion, just $1.6 billion short of the $32.2 billion reached in Retail trades totalled $4.9 billion, the second best year in recent history after reaching $5.7 billion in By number of transaction, however, 2012 was a record year at 1,215, compared with 1,165 in Private investors were the dominant buyer group accounting for 58.0% of retail trades, followed by REIT s/reoc s at 26.8% and institutional buyers at 9.0%.. Capitalization rates continued their downward trajectory in 2012 with retail, office, industrial and multi-residential cap rates all hitting all-time lows. Strip centres saw the most compression in 2012 falling 57 basis points (bps) to finish 2012 at 6.38%. Regional malls and neighbourhood centres both saw their respective cap rates fall 50 bps to 5.5 (regional) and 6.45% (neighbourhood). Power centre cap rates fell a more modest 36 bps to 6.0. From the peak in 2009 strip centre cap rates have fallen 166 bps followed by neighbourhood centres at 159 bps, power centres at 156 bps and regional malls 138 bps. Chart 9: Cap Rates by Sector 10% 8% 7% Chart 10: Cap Rates by Retail Type 10% 8% 7% 4 5% % Retail - Neighbourhood Industrial - A & B Office - CBD A Multi-Res - High Rise B Retail Average Regional Power Neighbourhood Strip

5 Table 2: Major Retail Construction Projects Project Owner Location SF Target Completion Date StoneGate Common WAM Development Group Calgary, AB 1,500,000 Q Seasons of Tuxedo - Fashion Component Fairweather Properties Winnipeg, MB 1,150,000 Q Bayers Lake Park Paracom Realty Corp Halifax, NS 1,000,000 Q The Stockyards CPPIB, RioCan REIT, Trinity Development Group Toronto, ON 570,000 Q Vancouver Airport Luxury Outlet Mall YVR/McArthurGlen Group Richmond, BC 460,000 Q Table 3: Select Retail Sale Transactions Canada-Wide Purchaser Price Property SF Transaction Date Ivanhoe Cambridge $140,000,000 MicMac Mall, NS 713,876 August 2012 GWL Realty Advisors $49,902,552 SmartCentres - GWL Realty Advisors Retail Portfolio 2012, ON 157,750 July 2012 First Capital Realty $38,000,000 Mount Royal Block SW, AB 50,228 August B.C. Ltd. $23,500,000 The Shops at Robson, BC 13,203 December 2012 Partners REIT $21,900,000 Sandalwood Nuns' Island Retail, QC 106,113 October 2012 Table 4: Select Retail Lease Transactions Canada-Wide Lessee Location SF Retail Format Equinox Commerce Court West, Toronto 41,054 PATH Network Value Village 165 Chain Lake Drive, Halifax 20,365 Power Centre Winners Pembroke Plaza, Ottawa 20,365 Strip Michaels of Canada Carrefour Angrignon, Montreal 19,903 Enclosed Mall Old Navy 720 Robson, Vancouver 17,649 Street Front CONTACTS Ross J. Moore Director of Research, Canada CBRE Limited t: e: ross.moore@cbre.com Roelof van Dijk Research Manager, Canada CBRE Limited t: e: roelof.vandijk@cbre.com TWITTER Global Research and Consulting This report was prepared by the CBRE Canada Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. 5 Disclaimer Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist.