Regional Shopping Centres Stake Out Market Turf: Reinvestment Cycle in Progress
UPSCALE AMBIENCE FOR FOOD COURTS AND COMMON AREAS
The food court is evolving from a basic service to a defining element of retail ambience. Almost all the redevelopment projects now underway in regional malls across Canada include a redesign and expansion of the food court, in part to modernize it in sync with other interior mall upgrades, but also to take it upscale.
"The food court is one key area that we've found needs to change to meet our standards. Initially, it had a very simple purpose and it wasn't intended to create a wonderful food experience," says Finley McEwen, Vice President, Development, with Cadillac Fairview Corporation. "We are introducing different foods at different price points and we are moving away from long rows of utilitarian seating to a less formal and more intimate seating arrangement."
Other common areas are likewise becoming a factor in how malls position themselves in the market. "We've come up with the concept of comfort shopping and that's the brand we are promoting as a shopping centre," says Shawn Hanson, General Manager of Calgary's Southcentre Mall where a $102-million renovation and expansion project is underway.
Themed zones in the common areas of the mall will provide much of the envisioned atmosphere. These include: a sports zone with comfortable seating and a big screen TV broadcasting sporting events; a tranquility zone designed as a quiet, restful enclave within the mall; and two children's zones. Recent installation of wireless technology also gives patrons free access to the Internet from anywhere in the mall.
"We were the first mall in Alberta to go 100% wireless," Hanson reports. "Shopping centres have to find a way to differentiate themselves, especially with the amount of redevelopment and dollars being spent in other shopping centres and retail markets."
By Barbara Carss
Retail renovations are covert operations in the most public of places. Nighttime work schedules and meticulous daily cleanup are standard for a jobsite that has thousands of people moving through it during regular business hours.
"It's open heart surgery," quips Finley McEwen, Vice President, Development, with Cadillac Fairview Corporation. "They are some of the most difficult construction conditions you can imagine. In many cases we're trying to stay open for business throughout the construction project, and it's often a completely internal construction site in the middle of the footprint of the building so you have to bring workers and equipment in through the common areas."
"We insist on employing contractors who have experience with interior mall renovations," says David Baffa, Vice President, Development with Ivanhoe Cambridge's central region. "We insist on after hours work and a lot of the work is done during the night."
Such scenarios are now occurring in regional shopping centres across the country as owners invest hundreds of millions of dollars in expansion and redevelopment projects. Cadillac Fairview, for example, is in the midst of extensive renovations at Le Carrefour in Laval, Chinook Centre in Calgary and Pacific Centre in Vancouver, and is just completing work at Polo Park in Winnipeg.
Ivanhoe Cambridge has major projects underway at Southcentre Mall in Calgary, Southgate Centre in Edmonton, Mapleview Shopping Centre in Burlington, Ontario and Conestoga Mall in Waterloo, Ontario. Oxford Properties has also recently completed an interior renovation at Yorkdale Shopping Centre in Toronto to create a harmonious look in older areas of the mall and the 420,000-square-foot component of newly built and redeveloped space that opened in 2005.
Aspirations for prestigious tenants, competition from other types of retail, consumer expectations, demographic change, and aging infrastructure and building systems are all contributing factors to the redevelopment trend. In some cases, lease expiries open the way to reposition space. Alternatively, demand for space in a fully leased mall makes the business case for expansion.
"Most landlords right now, at least in the Toronto area, have been in a cycle of reinvesting back into their properties. I think it's based on market conditions and competitiveness and a lot of it has to do with protecting market share," observes John Giddings, Oxford Properties' Director of Retail for the Greater Toronto Area. "We're asking retailers to make an investment in our properties. It is difficult to do that without doing it ourselves."
Likewise, a retail boom is clearly evident in major cities in western Canada. Vancouver's retail vacancy rate dropped to a five-year low of 2.12% in 2007 and Colliers International projects a 3 to 5% increase in net rental rates in 2008 despite the 2.5 million square feet of new retail space that will come onto to the market in the Greater Vancouver region this year. Edmonton's overall retail vacancy rate sat at 2.8% as 2007 ended, while the vacancy rate in regional shopping malls had dropped to 3.24% from 5.7% two years earlier.
Calgary's eight regional shopping centres collectively offered a vacancy rate of less than 0.2% in the fall of 2007 in a city with an overall retail vacancy rate of 1.3%. Colliers reports that approximately 7.6 million square feet of retail space in 34 projects is now in the planning, marketing or construction stages.
Ivanhoe Cambridge is also currently building a 1.1-million-square-foot enclosed shopping centre, known at Cross Iron Mills, in the municipality of Rocky View just north of Calgary's city limits. This will be the first new enclosed regional shopping centre in Alberta since the 1980s.
Offering something of a geographical bookend, major projects are underway at both regional shopping centres located in Calgary's southern quadrants. A $275-milllion, 180,000-square-foot expansion at Chinook Centre follows the $300-million redevelopment completed eight years ago. At that time, the mall grew to more than one million square feet.
A little farther south on MacLeod Trail, a $102-million redevelopment project at Southcentre Mall will add a relatively modest 35,000 square feet of newly constructed space, but the existing 34-year-old mall is slated for a complete overhaul, including replacement of flooring, lighting, bulkheads, elevators and escalators. "You name it, and basically we are looking at upgrades," says Shawn Hanson, the mall's General Manager.
Prosperity provides obvious motivation for the initiatives. "Calgary has seen a lot of growth in population and a lot of growth in retail spending," McEwen notes.
Even so, a vibrant economy doesn't necessarily change the fundamentals of attracting tenants and patrons. Ambience, amenities and services have always been key to creating an environment where shoppers will linger and spend. Maintenance and housekeeping are critical. So, too, is the adaptability to remain contemporary as consumers' tastes and standards change.
ONGOING UPKEEP REQUIRED
"Retail properties are probably more temporal than any other type of property," McEwen reflects. "They can become dated looking and will slide into dysfunctionality if you don't keep them up."
On the flipside, a slate of unique and elite tenants can pull customers from a wide territory and create the cachet that will draw still more high profile players. "There's that level of retailer that will only do maybe two or three stores in a market. I think most of us want to capture those retailers," Giddings says.
Other capital upgrades are far less apparent to customers. Major renovations invariably trigger Building Code compliance requirements to meet new standards that have come into effect since the mall was originally built. At Pacific Centre in Vancouver, for example, this includes some pricey seismic upgrades.
Renovations also present opportunities to improve accessibility ahead of potential mandatory requirements. Notably, the Accessibility for Ontarians with Disabilities Act includes directives and deadlines for developing, implementing and enforcing standards, and a Built Environment Standards Development Committee has just begun work on a proposed standard that is to be submitted to the Minister of Community and Social Services in the fall of 2008. Yet, regardless of government mandates, most mall owners simply see accessibility as a good business practice.
"Many of these properties were built before people understood barrier-free access and before they were required to build in a barrier-free way," McEwen says. "We have worked constantly to remove barriers and in redevelopment projects we are trying to remove barriers as we go."
GREEN MARKETING AND OPERATIONAL ADVANTAGES
The general public tends to be unaware of many of the specific environmental and energy efficiency upgrades implemented in a retrofit. A new storm water retention pond to capture runoff from the parking lot at Mapleview Shopping Centre isn't necessarily going to lure shoppers, for example, but surveys suggest that mall owners can reap positive feedback from tenants and the public at large for investing in sustainability.
Tenants should also garner flow-through operating cost savings from more energy-efficient systems and practices, although that stills comes up against long held perceptions about adequate lighting and cooling levels for a retail business. "We look at opportunities to do more improvements from an environmental perspective, but the consumer is finicky," Baffa acknowledges. "I can go for LEED certification on a core and shell, but I really can't dictate what retailers do inside of their spaces."
Mapleview Shopping Centre in Burlington will be enrolled in the Builder Owners and Managers Association's (BOMA) Go Green program to monitor and benchmark environmental performance once the $60-million expansion and renovation project is complete. Energy-efficient design and technology can be applied relatively straightforwardly since the project is primarily a 100,000-square-foot expansion with some complementary cosmetic changes planned for the common areas of the 18-year-old mall.
EVOLVING URBAN SETTING
Mapleview's rapidly growing market area on the booming western side of the Greater Toronto Area provided a boost that helped it transcend a somewhat slow start. "It came on the market at the worst time there was, just before the recession hit," Baffa recalls. "It wasn't fully leased and it took awhile to get to the point where it was fully leased."
Expansion plans are now driven by completely different circumstances. "We found that there was interest from the new retailers of today for space of a certain size and we weren't able to accommodate that because we're fully leased," reports Ellen Kennedy, Mapleview's General Manager.
Growth and urban intensification have similarly transformed many of the trade areas that regional malls serve. Sites that were originally suburban have become more central and are often strategically connected to important transportation routes, commercial nodes and residential communities.
On-site public transportation hubs are common and several of the current or recently completed redevelopment projects include reconfigurations to link to new rapid transit routes. Notably, the new Canada Line in Vancouver will connect to Pacific Centre; Southgate Centre in Edmonton will host an LRT station, as will Chinook Centre in Calgary. Redevelopment at Fairview Shopping Centre in Toronto earlier this decade included the on-site connection to the city's new Sheppard subway line.
"Mass transit is being extended to many of our properties and, in many cases, we have helped pay to bring it there," McEwen says. "At Fairview, it impacted us a lot. It changed how we planned the pedestrian routes through the mall and the parking infrastructure. Because the mall is at the end of the subway line, we have become, essentially, a commuter parking lot, but we think it's worth it."