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Investors seeking ‘comfort’ in suburban malls as retail market picks up, broker says

July 22, 2024

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Echoing the findings of several recent studies, a prominent local real estate executive says Ottawa’s retail investment market is buzzing – especially among private buyers who see suburban strip malls as “safe havens” for capital. Graeme Webster, a principal at Avison Young’s capital markets group in the National Capital Region, says investors are snapping up “quality retail assets” in growing suburbs with high average household incomes such as Barrhaven and Kanata, where demand for space in neighbourhood plazas continues to outstrip supply. “Generally, when a For Lease sign goes up in a suburb like Barrhaven, there’s a lineup of tenants,” Webster told OBJ on Monday. “I would say Kanata is very similar. They are arguably underbuilt, and so there is a lot of upward pressure on retail rents, which gives a lot of (investors) comfort in buying there.” The 20-year commercial real estate veteran said investors are also attracted to fast-growing secondary and tertiary markets such as Arnprior, Carleton Place and Kemptville. Webster said that while financing is “still challenging to get” for many buyers, the money markets are slowly starting to loosen up as interest rates begin to fall. Avison Young has brokered several off-market retail transactions in the past few months, Webster noted. “Despite the fact that 50 basis points may not move the needle on a deal, it does change consumer confidence,” he said. “It changes the outlook of the industry.” The firm now has a couple of active listings on its docket, including a 10,500-square-foot plaza on Robertson Road in Bells Corners and a new 42,000-square-foot mall on Greenbank Road in Barrhaven. Both properties are fully leased to a mix of local and national tenants. The Bells Corners site, which is anchored by a Kentucky Fried Chicken restaurant, garnered half a dozen offers in just a few days and has been conditionally sold for about $4.5 million, Webster said. Many would-be investors expressing interest in retail properties are “new names that we haven’t seen before,” he added. “It just tells you that regardless of experience, people do see real estate as a strong part of their portfolio,” Webster explained. “The bottom line is people understand this type of real estate. Private capital understands the dynamics that drive retail. They’re consumers of goods, so they get it. They see that as a great way to build wealth and a relatively safe haven for inflation in the future.” While transactions involving higher-profile assets such as the recent sale of the Carlingwood Shopping Centre tend to capture most of the headlines, smaller deals for properties such as the Robertson Road site constitute the bulk of retail investment activity these days, Webster noted. “Not everybody can buy a 20-, 30-, 40-million-dollar plaza. In the past, historically, those have been institutional owners that buy them. But institutional buyers aren't as active as they once were.”

Suburban office rebound

Webster’s remarks mirror recent commentary from companies such as Re/Max Canada, which released a report last month saying Ottawa’s retail sector is performing “stronger than expected” as overall availability rates continue to drop. Investors particularly covet suburban strip malls, the firm said in its 2024 Commercial Real Estate Report, while new inventory remains scarce as “most developers are not interested unless the land size and zoning are appealing.” Meanwhile, Webster said he’s also sensing a rebound in the office market, particularly for properties with a good mix of amenities located near suburban transit nodes. Webster said private investors are looking for buildings “that they can put some energy and capital into” as more tenants are returning to the office on a regular basis. “People in the past have said (the office market) is dead. It’s not,” Webster argued. “I think you have to go a little more micro than that. Is big office downtown dead? It’s been quiet.” At the same time, he said, the firm is seeing “a lot of activity” in the suburbs. “There’s just a lot more confidence in the market than 12 months ago,” Webster added. “And I think the more trades we see, it will just continue to support the narrative. When one building sells, I think it helps everyone.”