The departure of department store chain Nordstrom from the Rideau Centre this month could open the door to new types of tenants as malls shift from traditional mainstays such as clothing stores to more “experiential” businesses like spas and entertainment venues, real estate experts say.
The Seattle-based retail giant is expected to vacate its six Nordstrom and seven Nordstrom Rack locations in Canada by the end of June, including its two-level, 157,000-square-foot space at the south end of the Rideau Centre.
Mall owner Cadillac Fairview has not disclosed its plans for the soon-to-be-empty piece of prime retail real estate, but commercial brokers predicted this week the next occupants could include users that typically haven’t been part of the shopping centre’s tenant mix in the past.
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“There’s no question that the move is to experiential retail,” said Stan Krawitz, a principal at Avison Young’s Toronto office who closely follows the sector.
The rise in e-commerce over the past decade has forced landlords to rethink the fundamental purpose of shopping centres, Krawitz explained. Now that the Nordstrom space is opening up, it’s a chance for the mall to reimagine itself as a place for visitors seeking experiences that don’t necessarily include purchasing consumer goods.
“If you can buy socks from the comfort of your living room, you’re not going to get in your car to go and do it,” he said. “You have to have a good reason to go to the mall. And that’s a social reason.
“There are certain things that you can’t do from the comfort of your own home. Retail landlords are laser-focused on finding the experiential retailer to provide a solid reason for people to come to their destination to shop.”
Krawitz predicts the Rideau Centre of the future could include services like spas, wellness centres, entertainment complexes and even sporting amenities such as a 3D golf simulator.
“That kind of experience works well,” he explained. “The landlords love it, and the economics work. The problem is that those are 15,000-square-foot users, not 200,000-square-foot users. So you really do need to be able to find an experiential mix.”
CBRE senior vice-president Jamie Boyce said Cadillac Fairview is “continuing to evolve and improve” the Rideau Centre, which attracted more than 20 million visitors a year before the pandemic.
Over the past several months, the mall has signed a number of new tenants that will be making their debuts in the Ottawa market. They include Japanese fashion retailer Uniqlo, which is opening a 15,000-square-foot store on the third floor next week; Quebec-based collectibles and hobby store Imaginaire, which is moving into a 20,000-square-foot space this fall; and B.C.-based outdoor apparel chain Arc’teryx, whose 3,000-square-foot location will start welcoming customers on Friday.
Boyce said the highly coveted Nordstrom space is “well-positioned to attract a variety of different types of tenants,” but he expects Cadillac Fairview to take its time filling the vacancy.
“They have deep pockets with respect to being able to be patient,” he explained. “So I think they’re going to be selective on who they choose to deal with on that space. I don’t think they’re going to simply look for an occupant – they’re going to look for some type of tenant, some type of use that’s going to complement the mall and complement the other tenants and drive foot traffic to the mall.”
Redesigning the space for new tenants won’t come cheap, however.
Krawitz estimates the cost to a landlord to fit up a new retail location at $80 to $120 a square foot, which comes out to more than $12 million for the Nordstrom space. Construction costs for new pedestrian corridors, which require high-quality marble and granite fixtures, could run as high as $300 a square foot.
But the long-term payback of subdividing the space could be significant, he added, since anchor tenants like Nordstrom typically pay less rent per square foot than tenants in smaller footprints.
Splitting up the empty real estate into chunks could have other benefits for the landlord as well.
Nordstrom’s departure opens up opportunities for existing “Triple-A” tenants in other parts of the mall to backfill the vacated space because there is always a “waiting list for the best real estate,” Krawitz explained.
That could trigger a ripple effect, he said, creating vacancies in less sought-after areas of the mall for a new class of users such as medical offices or private career colleges that covet the visibility a busy downtown shopping complex affords.
“Even if that particular piece of space isn’t highly profitable, it’s driving traffic and benefiting the higher-paying retailers,” Krawitz said.
While the pandemic wasn’t kind to malls, the Rideau Centre is recovering, Boyce said.
One of the busiest shopping centres in Canada, it benefits from being located on a mass-transit line and boasts a number of unique brands that can’t be found anywhere else in the region, he said.
“I think the Rideau Centre is still going to perform very well,” Boyce added. “There are a lot of good tenants in that property.
“In my opinion, I think it’s still very much an appealing retail opportunity for any national or international tenant looking to enter the Ottawa market.”