Target’s pullout from Canada is going to leave shopping centre landlords with some challenging space to fill — tops among them is condo builder Menkes Developments which was banking on the U.S. retailer to be the anchor tenant of its new Harbour Plaza development in the South Core.
Its first downtown store was slated to open in October of 2016 as part of the two million square foot office, retail and condo complex on southerly York St.
“The pullout leaves Menkes, and its partner in part of the project, the Healthcare of Ontario Pension Plan (HOOPP), in an unusual bind in that Target would have filled 145,000 square feet of the 200,000 square foot retail podium of the project and acted as a major draw for other retailers.
Menkes said Thursday that it had yet to hear from Target officials directly about their intentions for the Harbour Plaza site.”
“ … We remain very confident in this landmark mixed-use office, retail and residential location in the heart of Toronto’s South Core, and believe that it will be fully leased by world-class retail partners upon the completion of construction in two years,” said company president Peter Menkes in a statement.
It’s unlikely that any other retailer would snap up all 133 Target stores slated for shutdown, especially because many were in less than ideal locations, retail experts say.
“At the end of the day it will all come down to how good is the space.”
The drastic decision to shut down all 133 stores across Canada — many of them anchor stores and major shopping attractions in secondary, suburban malls — is likely to further shake consumer confidence in the wake of slumping oil prices, said retail expert John Crombie, a former retail real estate broker who is now senior vice president of Triovest, a commercial real estate investment and management company.
“It’s going to have a further dampening effect,” said Crombie in a telephone interview. “This is going to take more jobs and consumer spending out of the Canadian economy. That’s a lot of square footage suddenly coming to the market.”
The shutdown will inevitably drive up mall vacancy rates and drive down rents and force some mall owners to subdivide the space, where possible.
Some older malls will likely be driven out of business altogether because secondary tenants are bound to lose traffic without Target as a neighbour, said Alan Middleton, a marketing professor at York University’s Schulich School of Business.
“One of the many things Target did wrong was bad locations,” added Middleton, which will make many of the big-box stores tough to lease.
As Crombie puts it: “Just because you put on your uncle’s old, worn-out shoes doesn’t mean they’re going to be the best fit for you. I think that was part and parcel of the problems Target had — they ending up taking the lesser locations from a real estate standpoint.”
The South Core location was meant to be a sort of new start — a major, urban location in sparkling new space close to all those downtown professionals and condo-dwelling millennials who, notes Middleton, are value conscious because just living in the city eats up so much of their income.
Other major retailers such as Walmart and Canadian Tire that might be a fit for some of Target’s space — its stores ranged from 80,000 to more than 140,000 square feet — aren’t really in major expansion mode right now.
Another challenge is that Canada is no longer the sought-after darling for U.S. realtors that it has been in the last five years now that the U.S. economy is in recovery mode.
Few of the stores are believed to be suited to dividing into smaller shops.
Target also has some 4.8 million square feet of distribution space across Canada, including 1.3 million square foot facilities it built in Milton, another just north of Calgary and a third in Cornwall. It also leases another 900,000 square feet of space elsewhere.
The Milton facility is likely to be snapped up quickly because the industrial sector is growing in the region right now in the wake of the weak dollar, slumping oil prices and the strengthening U.S. economy, said Stuart Barron, national director of research for commercial brokerage Cushman & Wakefield Ltd.
Others, because they are in much smaller industrial markets, will have a harder time finding new tenants: “This will return some significant additional space to market,” said Barron.
“People will be asking themselves, will this deter other foreign retailers from setting up shop in Canada,” says CBRE’s Moore. “Retailers are a pretty savvy bunch and will see this as a Target-specific story, not a Canadian story.
“They realize that retail is all about logistics and that you’ve got to get it right.”