Get an in-depth analysis of the current and future state of the Canadian retail marketplace from the expert perspective of Cushman & Wakefield’s Executive Managing Director of Retail Services, John Crombie. In this interview, my co-host for the evening, Karl Littler (RCC’s Senior Vice President of Public Affairs), and I call on John’s professional experience and research to unlock new information about the retail marketplace. From malls to warehouses, we discuss the need for technological innovation, changing real estate prices and new opportunities to keep up with evolving consumer behaviour.
Welcome to the The Voice of Retail , I’m your host Michael LeBlanc, and this podcast is brought to you in conjunction with Retail Council of Canada.
Retail real estate has been fundamentally shaken up by the pandemic. Between lockdowns for non-essential services and accelerated eCommerce growth, investigating the health of retail through the lens of the real estate market offers a wealth of information.
This special episode of The Voice of Retail features an interview picked up from my weekly livestream that I co-host with Retail Council of Canada on the last week of June.
Get an in-depth analysis of the current and future state of the Canadian retail marketplace from the expert perspective of Cushman & Wakefield’s Executive Managing Director of Retail Services, John Crombie.
In this interview, my co-host for the evening, Karl Littler (RCC’s Senior Vice President of Public Affairs), and I call on John’s professional experience and research to unlock new information about the retail marketplace. From malls to warehouses, we discuss the need for technological innovation, changing real estate prices and new opportunities to keep up with evolving consumer behaviour.
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Thanks for tuning into today’s episode of The Voice of Retail. Be sure to subscribe to the podcast so you don’t miss out on the latest episodes, industry news, and insights. If you enjoyed this episode please consider leaving a rating and review, as it really helps us grow so that we can continue getting amazing guests on the show.
I’m your host Michael LeBlanc, President of M.E. LeBlanc & Company, and if you’re looking for more content, or want to chat follow me on LinkedIn, or visit my website meleblanc.co!
Until next time, stay safe and have a great week!
About John Crombie:
An innovative leader with a proven track record in business, brokerage and commercial real estate across Canada and internationally for over 25 years.
Acknowledged as one of the top 20 influencers in the World of Real Estate in Canada in 2018, and one of the six recipients worldwide to win the Global Medallion ICSC Award for contribution to Retail Research in Canada, in 2016
An industry expert and thought leader on the Canadian real estate market. A strategic thinker with a strong technical background and a passion for innovation.
Recognized for insightful knowledge and forward thinking of the retail real estate market, a noted keynote speaker at industry events, conventions and seminars and frequent contributor to articles and news reports in various publications including the Globe and Mail, the Toronto Star, Canadian Business, BNN and CTV television.
Actively participates in the Diversity, Equity & Inclusion (DEI) Council for the Commercial Real Estate & Development (CRED) industry as an Advisory Partner.
• Deep experience in leasing, acquisitions, operations, property management and asset management
• A leader and mentor committed to people and team development through sales coaching
• Expert negotiator and a strategic thinker with an innovative approach to portfolio strategies
• Knowledgeable on research insights and in-depth analysis of commercial real estate and retail
• Proficient in business development with a client focused – win/win - approach to business
• Strong governance relations expertise with a commitment to community contribution
Michael LeBlanc
Welcome to The Voice of Retail, I’m your host Michael LeBlanc, and this podcast is brought to you in conjunction with Retail Council of Canada.Retail real estate has been fundamentally shaken up by the pandemic. Between lockdowns for non-essential services and accelerated eCommerce growth, investigating the health of retail through the lens of the real estate market offers a wealth of information.
This special episode of The Voice of Retail features an interview picked up from my weekly livestream that I co-host with Retail Council of Canada on the last week of June. Get an in-depth analysis of the current and future state of the Canadian retail marketplace from the expert perspective of Cushman & Wakefield’s Executive Managing Director of Retail Services, John Crombie.
In this interview, my co-host for the evening, Karl Littler, RCC’s Senior Vice President of Public Affairs, and I call on John’s professional experience and research to unlock new information about the retail marketplace. From malls to warehouses, we discuss the need for technological innovation, changing real estate prices and new opportunities to keep up with evolving consumer behaviour.
John Crombie
Retailers, when they've been calling out underperforming stores have fortunately probably been in some of those particular secondary malls. You mentioned a flight to quality Yes, people are saying I'd rather have less locations, but I want to be in the best malls.
Michael LeBlanc
Let's listen in now.
John, welcome. Thank you for joining us.
John Crombie
Thank you very much, Michael, for having me, the this today.
Michael LeBlanc
Yeah, it's, it's great to see we, we've been talking about, and the members have been asking about, you know, can we get some experts on, around real estate and we thought, what better expert than yourself.
So, last time you and I were together. We were at your offices, in the before time. And we were talking about, you know, the retail apocalypse as a media narrative that wasn't real, but the transformation was certainly real. And we were talking about, you know, what the trends and the implications were for landlords and for real estate both on the, on the front facing and also, of course, on the, on the commercial side. But man, you know, after the past 18, 24 months, I'm really interested to hear your perspectives and your organization's perspective.
John Crombie
So first of all, I'm John Crombie, as mentioned. I'm executive Managing Director of Retail Services for Canada, been in the business for almost 30 years, half of that in the retail side of things. I manage the retail brokerage arm across Canada.
I also thought I just quickly talked about Cushman & Wakefield, many of you may not know about Cushman & Wakefield, then I'm going to get into some stats we're currently seeing in the marketplace and just give you a sort of sets the stage of our conversation, and then some observations and predictions and some things you've probably heard about.
But I agree, I think we talked about pre COVID. But key COVID, has really been the great accelerator for a lot of these changes, and many of them, actually quite good for the industry overall. Yes, we've had some bumps along the way. But COVID is really just enhanced. What was happening in the industry.
First off about Cushman & Wakefield, 50,000 people around the world we did $7.8 billion last year, a little bit less than 2019, for obvious reasons. And we're in 60 countries. We have a lot of services. But to simplify it, we're in two major areas. We're occupier services and investor services. So occupier services, we do tenant representation work for office leasing, industrial sales, and leasing, retail sales and leasing. We do FM work for clients across the country and internationally. We have a group called the Global Occupier Services Group. We work with a lot of the Fortune 500 companies as being, being their real estate arm.
On the investor sides, we have agency leasing, which is again representing the landlord on property listings, again, in all categories.
Capital Markets is our investment arm selling properties, including shopping centers, and we do project management and development work as well for a lot of the owners. We have valuation advisory and consulting services. So, there's many facets of it.
John Crombie
As it relates to retail, we are in America, we're across, we're global, but in Americas, we're servicing about 95 markets a hundred and ten profeti- , a hundred and, 1100 professionals, we did about 10,700 transactions last year, and those you may or may not know but four years ago, we bought a company called 20 VIC and Cushman now owns it re, rebranded to Cushman & Wakefield Asset Services, which is our property management arm.
And for retail we manage about 16 million square feet across the country on some, Pickering Town Center would be a great example of, of one of our properties we manage on behalf of third parties, I mean the pension funds, but we also do office and industrial. Enough about that.
So, let's talk about the Canadian retail market and what's happening. This slide just got actually a few hours ago, the Canadian household spend, and we're definitely seeing it heating up as restrictions are easing. And when you look at '21 compared to '20 and 2019, we're actually 14% above a year ago and 11% ahead of 2019. So, it's all good. We've actually seen huge uptick spending in the clothing category, as well as food and accomodations, so looks like Canadians are reaching back in their wallets and making some, some spends, which is great, obviously, for the retail industry.
When you look at retail sales by province, and by city, it's kind of a different story. And in fact, retail and I talked to my broker group out there, I mean, it's very active market right now. And you can see, as of March, year-over-year sales are up over 12%. And Montreal, which is now bounced back, we're actually seeing an uptick of over almost 7%.
But unfortunately, Toronto, which I think all of us can know this, but I think it's been probably the most restricted and locked down market, probably in all of North America. And it's, unfortunately, seeing the negative sales, total Canadian retail sales, have downed 4.77%. The good news is that the prediction for retail sales per year in 2021, would be upwards to 6% overall. So, we are expecting a good bounce back last year, at year end 2020 was -1.7% in retail sales. And that was the first time we had negative year-over-year retail sale declines since 2009. So, it's been a pretty good run regardless.
Another thing to bring up is store counts. And we saw for Canada for 2020. Last year was a record, we, we recorded 2026 store closures, which was up about 3.2 times more than 2019. Some of the categories or some of the retailers that saw, in fact, Starbucks was the largest giver up of locations, 300. And most of those urban, versus suburban. I'll get to that in a minute. Followed by David's Tea. But you can see the traditional especially clothing, retailers Le Chateau, Comark, Addition Elle, have given up a lot, not a lot of locations, upwards to five and a half million square feet has come back to the marketplace. When BDO did a recent study in, in, for 2021. And they expected that 44% of retailers will be seeing declines this year. So, we're not out of the woods yet. There's still some retailers that have obviously done very well because of the pandemic. But there's many that still need to work through some of the challenges they faced.
And we looked at rent issues, I pulled this out this is actually RioCan from your investment call in May of 2021. And I like RioCan, I think they're a good bellwether for all of Canada, their, their largest shopping center owner, you know, multiple categories of retail clothes, shopping centers, open air, and so on. And they looked at their, what they call their strong and stable tenants, collected 98% of rent during that period. But they still deemed about one out of five retailers that are vulnerable. And some of them prior to the pandemic were still there. So, it's kind of playing into sort of what we expect for retailers that we're still not out of the woods going forward for 2021. We look at Canadian retail rate growth for retail. This is asking rates, put out by CoStar just came out about a week or two ago. And they looked at where we are to date. So, you can see in 2021, we're seeing a decline in asking rates for that. So, it's an opportune time if you're, if you are able to look for new locations, is that, we're certainly seeing a decline for this year, which was falling out, obviously, from last year's pandemic. But in ‘22 and ’23 they're expecting actually quite a big bounce back as it relates to asking rents.
When you look at declines in rental, rent, rental, commercial rents for retail by city, this is year-over-year. So, looking at December '19 to December '20. You can see each city how we've seen some declines from Montreal and -4% decline year-over-year as of December. Toronto, hitting a decline of net effect of rental rates of 11.7%. Calgary, which it's not a pandemic story, it's a resource story down about, almost 22% in Vancouver staying really strong, I mean down only 2.3%. But I suspect in the next quarter, which I'm just waiting for those numbers, that's probably gone up. And we're seeing, actually positive rates increases in rental.
Now look at some of the predictions and observations. One of the most interesting one that we see in both the United States and Canada is the tenant mix is shifting to more temporary retailers. And in fact, this is from enclosed malls, but you can see that it's now although the, the occupancy level has gone down in this particular study, down to 90%. Over, almost 8% of the retailers are now accounted for as being temp-retailers. Usually that's under three years, most of the time it's under one year. So, landlords have responded by putting temporary tenants in there filling up some of those vacancies. And of course, we've seen that in Canada. As mentioned, we had 2000 vacancies and so you need to put somebody in there, so we're looking at temporary tenants. Which is an opportunity If you get into malls that you traditionally haven't gone into in the past, we're also seeing a lot of those temporary tenants are more local focused rather than nationals. And you can see that it's changed from 2018, of only about four and a half percent. So, certainly a big shift as it relates to the temporary tenants.
Retailer strategies, again, a BDO report suggesting that there's certainly a lot of restructuring happening. But we're definitely going to see an uptick in M&A activity, we're seeing it already. A lot of the fact that retailers are looking at opportunities, low interest rates, bringing different technologies, and so expect to see a lot of that activity in the retail market going forward for '21 and '22.
Geographic expansions, it's going to be more about the quality of locations, not the quantity of locations, as retailers, you're not a retailer jokingly if you're not expanding. And so, we've seen some huge growth, both, United States and Canada in the last couple of years. But people be focused more about where, you know, about the quality of locations. So, we expect to see, you know, quality locations being well sought after, rather than people going out rather retailers going out and just trying to blanket as many sites as they can get their hands on, a lot of it has to do with the fact that capital reserves have been drained to get through the pandemic. So, we don't have quite the resources that we've had in the past.
Third is a prediction, as retailers have sharpened their last mile strategy. And we're seeing this time and time, the whole idea of BOPIS, buy online, pick up in-store and curbside pickup has increased by almost 100%. Across the board, consumers are getting used to it, retailers are getting used to it. We're actually seeing buying online picking up in centers where landlords are accommodating for all retailers, not just the major retailers who, who certainly are able to do the BOPIS.
And new fulfillment, definitely smart-centers and micro-fulfillment centers are becoming more and more common into how to deal with that last ma-, last mile delivery, which is a very expensive component of that. But eCommerce isn't going away and retailers, they need to do these things to make sure that they can touch the customers in multiple ways. And I think you'll even see these autonomous vehicles probably marching around the downtown or other areas more frequently than ever before.
And the pandemic has really heightened our focus on local retail. And as I mentioned in the temporary spaces, local is filling up a lot of those voids. And I think as, as, as consumers, we're spending obviously more time at home, the importance of our local retail has never been heightened more so. And the good news is that when you spend $100 in your local retailer, is according to a study here is that, $63 of that is recirculated into the local economy. And that's good. And this is from the Super Bowl, where Uber Eats has really been promoting shop local. And I think you'll see that as a sort of opportunity going forward. And something that's coming fall out of the pandemic.
And when we look at dining, and we all get back to our favorite restaurants, the predictions is that we will actually be doing what we, what they're saying, is more adventure dining and taking it to new heights. I call it the, you know, Instagram-able moments, you know, we're still going to be social distance in some of our dining experiences. But we were going to spend money, we want to have something really neat, something we can Instagram to our friends and show these beautiful meals that we've been taking, we're taking advantage of. And so, restaurant tours around the world have been, have been, have been capitalizing on this trend. How for example, in Budapest is this four-star Michelin restaurant that's taking dining heights to new, to new levels by putting it in a ferris wheel and you have a full course meal and hopefully with your group of people that you're in the same bubble with and you go around and see that. So, expect to see more of this adventure dining going forward.
And also, I'm feeling very bullish about the massive, pent up demand of disposable household savings that we've had. We haven't gone to work, we haven't spent money on clothing, we haven't spent money on gas going to, to work or we haven't been traveling as much. And in fact, the studies showing that in Canada, we're ranking third in terms of disposable income, in fact, 16 and a half, 16.6% of now average disposable income is this excess cash. And they're calling it dry powder, which will just ignite retail spending. It's not all going into retail. Of course, some of its going to travel into other areas, but expect this to be a huge boost to our industry.
And I, the fourth, third prediction here is that brands will beginning the second-hand business and we're watching this very closely. We're seeing a huge upsurge in second hand. A lot of it has to do with the trending that we want to be closer to them from an environmental point of view. And this trend is really, we're seeing it in the luxury goods. It's not the Army Surpluses that we've been used to in the past. So, luxury brands such as Gucci, has actually announced a partnership, a consignment partnership with a company called RealReal in October and why did they do it? Well, it helps police knock-offs and it helps to support the value of their brand, and the resale market grew 25 times faster than the overall market. And so, I think this is a real growth area to watch the next while.
And last but not least, one of the predictions is "Long live the drive thru in a post pandemic world". Of course, this whole idea of safety is becoming more paramount to us than ever before. And we've been dealing with Starbucks and I mentioned Starbucks that they gave up 300 locations, most of them urban, they actually have a very high growth strategy in the suburban markets and specifically drive through. Their drive thru business increased by 70%, during the pandemic. And so, they're just not really trying to blanket that market.
Burger King, we're doing some, some stuff, work with them in Alberta right now. And the same thing, they say, "Show me a drive thru, if its double drive thru, I'll like twice as much". I just chatted with McDonald's the other day and same strategy. So, you're seeing, listen, if you're a retailer looking for those, those drive thru opportunities, expect to be paying a premium for it, as a landlord expect to expect a premium from that. Because I don't think this is going to go away too quickly. And Michael, that’s my very brief, quick summary of what's happening in the marketplace. And hopefully that set the stage turns our discussion.
Michael LeBlanc
No listen. That was fantastic.And, and I have to say, particularly for those who've been with us, for many of our sessions, for many months, you picked up on many of the same themes we've been talking about, I've been talking about, all of us have been talking about the stock pile, as I call it, this stored dry powder of cash, this disposable income, I got a lot of questions for you. So, many great themes.
I wanted to start with this kind of idea. And let's start on the retail side. So, the front facing side, and then we'll get to the industrial side, I got a couple of questions for you in there. You know, listen to COVID era has created winners, as you said. And it also created consolidations, some when I look at that Starbucks number, that decision was made very early on. And it wasn't made out of financial, financial peril, it was made out of strategy. Others had to make different moves.
When we sit back and we look at, we look at the overall landscape. Is there a format, probably more than a location, but is there a format that will, will do really well in the coming days? You know, the, the big outdoor malls were doing well, during COVID is downtown going to do well, Main Street, the bigger malls. Any, any thoughts on now there's all this newfound leasable space. And you know, where, where will the landlords be successful in filling that you talked about a flight to quality basically, and where will they perhaps struggle?
John Crombie
First off, I don't think grocery anchored retail and the owners of those felt that they had much impact from the, from the pandemic. I mean from the fact that it's groceries, it's drugs and it's booze, right. And so, from a service perspective, we're going in there and a lot of the retailers that we work with. And if they own, if they're doing renewals, and that sometimes they're actually seeing, actually many times where it's actually seeing an increase in price. And the grocery anchor makes sense, because the average consumer goes through their groceries store 2.1 times a week. So, there's a lot of turnovers, a lot of footpath traffic. And so, I think they will continue to do, they've done well, and they will continue to do well.
Yes, there's a big urban suburban issue there, the downtown core of Toronto, I mean, half a million people aren't there when the office buildings, unfortunately, are 5 to 20% occupied. I mean, it's, it's just like a dead zone down there. And I feel I've a lot of sympathy for retailers that have, have their livelihood in those particular markets. I do believe and I know confidently that I know a lot of discussions we're having from an office market perspective, there's going to be a real push to pull back by September, sort of a first tranche and the second tranche, probably after Christmas time. And of course, everybody being doubled vaxxed. So, I see a huge bounce back in that particular sector, as well, happening.
I think the markets that have probably been most affected in those enclosed shopping market, as much malls in the secondary markets, the smaller communities, you know, they've, they've had a tougher go. eCommerce has really filled a lot of the void that, you know, people can get stuff now online. Retailers, when they've been calling out underperforming stores, have unfortunately probably been in some of those particular secondary malls. You mentioned a flight to quality. Yes, people are saying I'd rather have less locations, but I want to be in the best malls, the Yorkdales and Chinooks, and all that stuff, the Pacific Centers, and they're giving up, unfortunately, on some of these secondary malls. And so, I think they, they will come back, but they'll be slower, some of them will go through mixed use developments. I think you'll see an intensification and densification of these sites. And so, opportunities for pads for retailers to go in there or, again mixed use into residential conversions. That's a big thing happening now, for, especially on the rental side, especially if they're transit oriented sites, huge push on there. Not as much in office side, but senior residence seems to be a big component happening there.
Right sizing in retail and adding storage, we're seeing a lot of storage, we seem to be, have bought a lot in the past. We're, when we're downsizing, we're not getting rid of stuff. So, we need some place to work. And so, we're seeing a lot of storage in that areas.
So, I think those will be the areas look at the outdoor power centers, we've, we've tracked, you know, mobile data, and we've looked at from a close to open their centers, you know, they're tracking 10 to 20%, more pedestrian counts on the open centers. And so, that's been a real savior for those and that's a safety thing, people just have that, “I don't want,’
Michael LeBlanc
Yeah, yeah
John Crombie
‘To an enclosed mall”. And, and so it's really had a dampening effect, unfortunately, for those enclosed centers for now,
Michael LeBlanc
You know, one of the things I picked up on in your presentation is malls, trying to innovate to be part of this broader e-commerce infrastructure, right with BOPIS and, you know, at Yorkdale, for example, here locally, you can go in the parking lot and get your curbside delivery.
Michael LeBlanc
Are you seeing much innovation? Do you I guess, let me ask you the question. Is that in your mind, as you look at the landlords and what they're doing an accommodation or a reaction to the current circumstances? Or do you think there's some intent there to make that an ongoing point of innovation, so they can really get involved with, with the transactions that are happening online and be part of this, you know, returns even, right? Returns are huge, and equally more important than and they've got great real estate and are very convenient. Do you see any innovation either here or around the world in that space?
John Crombie
Yeah, well, first of all returns, I mean, we're getting a lot of inquiries from like a company called Happy Returns, you know, wanting to open up there was those, those returns.
Michael LeBlanc
Yeah.
John Crombie
Back to the curbside pickup. I mean, I think it was just eventually happening as consumers. Now we've had to do it, as I say it's increased by 100%. And so, you are I think it's here to stay, it'll probably decline a bit. But we're also seeing is people adding ideas of impulse buying, okay, you've ordered online, you pick up in store pickup in mall, but what happens if you've forgotten certain items? And so, I've seen some technology dropped in there to say, how can you when you're having stuff loaded into your, into your car? How do you get those impulse buying? You know, how do you get those extra purchases there?
Michael LeBlanc
Yeah.
John Crombie
Because I think that you'll see that going forward. I think there's going to be a huge shift in technology in both from retailers and from a shopping mall. And I think technology to have, you know, when I drive to the mall, how can you, how can I pre-designated parking spot? And when I go in there, how can I make sure that when I go to the retailer, they'll just meet me on a one-to-one basis? And so, you queue up times they are right, and can I pre order food before I go to the restaurant, so I minimize my time there. And then when I leave, I get a free coupon about coming back. So, the whole idea of that technology to, and retail, consumers are totally into it, right. And so, I think the malls, and both the retailers and the malls need to uptick, the amount of technology to using. And it also comes down to cost saving cost savings, right? Using mobile data to see how often a res-, how often a washroom is being used. So, you may have to clean it less frequently. Or if it's being used more than you think, more frequently, right? Changing escalator directions to encourage different flows. And we're really seeing that in terms of how you use mobile data and technology to help in those particular areas. So, I think that'll be the real push going forward. And in that in those particular areas.
Karl Littler
Jumping in top of Michael here just for a second.
John Crombie
Sure
Karl Littler
I'm just going back to your point about impending return to work in sort of, you know, office buildings, urban cores, those sorts of locations, I guess one of the questions I have is whether you're factoring in a partial return to work in the sense of, you know, a hybridized version of you work a couple of days at home, you work a couple of days in the office, because obviously, as far as traffic that's going to be you know, relevant, even if there is some partial return to work. And I just wonder whether that is something that's sort of factoring into your thinking.
John Crombie
Yeah, well, Cushman has done a lot of studies on this and terms of back to work. And actually, one example we use is Australia. Because Australia didn't get as affected by the pandemic. And as you know, they had a very quick lockdown. And so, some of our ideas of what numbers will be coming back are sort of based on that and their summers are winters. So, they had a lot of people come back, and they're traditional, you know, right after Christmas time, which is like our Labour Day. And then they saw the next wave happening around Easter.
And so, and, and there's no question that, you know, we're gonna have some sort of hybrid, but we believe that first of all, probably 5% of workers over time will always be at home. But there's that 10% that will probably be that hybrid model. And you're right, I think we'll first come back and we'll probably be two or three days a week. But I think if you want a career in, in any business, you need to be there. And if you're if half the people are on Zoom calls, and half the people are physically there, you'll lose the people on Zoom calls. Because we lose, lose a lot, doing what we're doing now, being physically together has a different connection. And I think people realize the importance of that going forward. So again, utilizing some of this information, and what's been happening in other markets and moving it forward.
Another interesting thing we saw on the Australian market is that public transportation didn't increase very much where people got into their cars. And it scares me when I go back to work because I have a big enough commute anyway. But I think it's going to be even worse, because we're going to have it, for a time, we're going to be fearful in terms of getting into the Go.
Michael LeBlanc
Yeah.
John Crombie
On the Go, or public transportation. And it certainly was clearly marked in Australia that that has happened. And we're seeing it. The sort of telltale signs of that in the United States that public transportation is still way below pre-pandemic levels. And so that's going to have an impact as well.
Michael LeBlanc
You know, it'll be it'll be interesting as people get back to work, and they're maybe jonesing to get back to the office that they'll remember pretty quickly what an ugly commute can look like, exasperated by the fact that less people on public transit, right.
Last couple of questions to the retail side that I want to get to wholesale. When you think about as you survey the landscape, we've talked about work from home as a big thing we've talked about eCommerce, both affect where you're going to be in and how you're going to be as a retailer, what's your advice is it, you know, one of the key constraints for retailers has always been trying to find great real estate, there's been a bit of a shakeout. Is now a good time to kind of lock in longer term deals or longer-term relationships, because there's real estate that's now on the market that hadn't been before? Is this, is this a really important inflection point in your mind?
John Crombie
[inaudible] is percentage rent only for first two years. And then going back to face rates, we're seeing a lot more free rent than we've ever seen before. We're seeing the landlords are putting up more TIs because again, retailers, you spent a lot of money or capital reserves on surviving. And so, landlords that we're talking to, we're, ‘A’, recommending that they realize they need to put more TIs out there. So, it's an opportunity to look at getting a little more cash into your, your stores, I'd be looking at that.
I think opportunities now, foreign retailers that, for Canada, has always been pretty popular. And we used to see 35 to 50 new retailers coming into the Canadian market. And there's definitely a pause. I think last year, there was only like six foreign retailers coming in. And I think if you're a Canadian retailer, even foreign owned, but a Canadian retailer, already in the market and looking for opportunities, I would say, and I, and as I mentioned, it's all going to be about quality of locations, not quantity to locations.
Michael LeBlanc
Right, right.
John Crombie
That's when good sites, when they do come up, especially on street levels, you're going to have a little less competition, especially in the high street, a little less competition because when these foreign owners come in, landlords tend to like the shiny penny, rightly or wrongly. But they like the new shiny penny that comes in there. And they tend to go after those retailers. We are talking to a number of them, certainly trying to encourage them to come. But most of them are seeing the bounce back strong in their own markets, whether that's Europe or the United States. And they're, they're worrying about their expansion there before coming to Canada. But I suspect that we'll see an uptick, probably in the latter part of next year on June 2020. So again, if there's an opportunity to jump on, you know that that situation before these foreign retailers come in there, especially in the choice locations, I would definitely be looking at.
I was also going to say if you're looking at those secondary markets and the shopping malls, and first of all, COVID has changed a lot of customers, and customer, and consumers. And some consumers have really benefited from, financially, have really benefited from the pandemic, and some of them very negatively impacted. And on the social level, some have been with isolation, there's a lot more problems. And so, you're seeing this change in consumer, we've actually done, for a lot of shopping centers, we've seen these changing consumer behaviors of certain groups. And that may have changed with you, if you didn't look at them all before with this change in consumers, you may want to consider it. And if it happens, the fall in the secondary shopping malls, why not set up a location there on a maybe a percentage rent only deal, take your shorter term. So, you have less, you know, lease risk on there and go in there and see if that's an opportunity to, to look at building up a new customer base, getting into more effective number and see if you can kind of grow your portfolio that way.
Other things I'd be looking at is driving percentage rent as much as you can, looking at break options. If the land is a little more flexible, depending on the location, you know, you can do a five or 10 year deal but the right to terminate after a certain period, and Starbucks is classic for that, as you may know. And so, I think landlords have been a little more receptive to may do that. And I think it's an opportune time to say okay, If I'm going to go into this location, maybe you could do a fixed rent, a fixed rent, rent for renewal returns, landlords never do that. But again, if they're a little more anxious to get you into that you're the right brand for them, you may have an opportunity to sort of control your costs over a long period. These are things that I would definitely be looking at exploring new markets. But you know, a lot of the retail is like, especially restaurants, and we're trying to look at them for new locations. They're saying, let's just get ready to get our existing locations up and running. And then they go for it and new locations.
Michael LeBlanc
Right, right.
John Crombie
I think, you know, when you're, when your kitchens burning, you're not mowing your lawn, right? You got it-, you got to deal with that immediate situation. So, we're sensing more of that, but it will be back to more normality, but
Karl Littler
You're holding a pretty marked labor challenge in that part of the business as well.
John Crombie
Yeah, we're hearing a lot of that. And I think technology will help in that. I mean, I just McDonald's for example, is testing out a, is a staff-less autonomous drive thru in Chicago. And you know, again to reduce their costs or staffing costs and working late, it can be dangerous as well. And I think that'll help in terms of it. But it's, it's a challenge. You know, I'm on the ICSC Foundation Board and we're [inaudible] arm to help young people get into the retail industry, whether that's from the landlords or retail side, we're providing scholarships and internships, because we believe there's a great future, it just has to be sold to people coming into this industry, that it's not a dead-end job. That's the perception. That there's a great opportunity, whether you're on from a retailer side, or from a landlord side. So, we're raising two and a half million dollars to, to help that side of the business.
Michael LeBlanc
Last question for you. You've been very generous with your time. Thank you. I just wanted to for the last question, wanted to just touch briefly on the industrial side.
John Crombie
Yeah.
Michael LeBlanc
With so much acceleration in eCommerce, I'm sure that it's good days to own a warehouse as a landlord, particularly one that's well centered. I'm seeing all kinds of warehouse proposals in places that are optimal and kind of suboptimal, I imagine it's going to be a very active part of the, of the landscape, the real estate landscape for, you know, perhaps the next decade. And you know, even when they start doing double decker, I've seen them in the States, they're starting to build two or three level warehouses where you can have your own level, but what are you seeing in that side of the business just as a kind of final thoughts?
John Crombie
Well, the darling has been industrial and land sales, whether it's residential or ICI land, I mean, they are on fire, as it relates to sales and for leasing. And I agree, one out of five deals is eCommerce related. And so, we're seeing that's just had a huge push on the industry. First quarter of 2021, the stats across the country for industrial vacancy was 2.2%. Toronto, it's only 1.5%. Toronto is an 800 million square foot market. It's the fourth largest in North America, and with only a 1.5% vacancy. I think people have woken up to find that, you know, it's a great business, a lot of businesses are operating from a lot of industrial, because, again, from the eCommerce perspective, we have seen rates skyrocket, in fact, nationally, for the first time we've seen double digits, I think the average was $10.22.
Michael LeBlanc
Wow.
John Crombie
For, for industrial space. And so, you've just seen this huge ramp up in, in rates, and you've seen a hu-, a decline in vacancies. And so yes, I think it's here to come. There's a lot of speculation being a spec building in industrial, many without a tenant in place, which is very unusual.
Michael LeBlanc
[inaudible], Sure.
John Crombie
But most, by the time they're being finished, are finding, are finding the industrial users. I mean, Amazon's been a great occupier of some of these locations.
Michael LeBlanc
Catalist, Yeah,
John Crombie
So yeah, I think I think you'll see a lot of that now you're talking about these multi-level warehouses. There's some discussion, there's actually one in Vancouver, and there's been discussion on it, but there's a lot of logistic issues, you have to deal with it. Floor loading, you know, when you've got a 53-footer, and you got to get it up a ramp and coming around and,
Michael LeBlanc
Yeah.
John Crombie
And so, you, there's a lot of turning radius required when especially just on the ground floor, let alone a second level. So that's really impeded a lot of these second level developments, what we're seeing more is heights are going up. And you know, look at the Canadian Tire distribution and the 407 right, past the 427. I mean, that's a 60 foot
Michael LeBlanc
Yeah.
John Crombie
Clear robotic, you know, type of stuff. And so instead of going double decker, you might as well just go higher, I mean, the traditional you wouldn't be less than 32 today,
Michael LeBlanc
Right.
John Crombie
but some are gonna, are, look at going higher and higher. Not to say if rates go stupidly high, you know, above 10, or $12 to 20 or $25. You know, and, you know, land is really expensive now, I mean to find a corner property, if those retail looking for beautiful corner sites, I mean, 3 to $5 million is not unusual. So, they're getting really expensive in some industrial spaces, industrial land is no different.
And so, but to see that, I mean, our biggest fall out this year, and this is not true just for Cushman, but for all our industry is office leasing, is down quite a lot. And the reason is, is no one knows what to do, you know, Karl going back here, does he know, you know, I don't know, if I'm going back, or I'm going back and so all the banks and the financial institutions, and they just, they're just sitting on their hands right now, in term, in terms of determining to deal with,
Karl Littler
From what I hear, what I'm hearing from my classmates, the law firms are leading the charge here to get everybody back in harness, but I don't know whether that'll spill out to financial services and tech and so forth, we'll see.
John Crombie
Yeah, well, you know, Spotify, we do the work for Spotify, and they, they, they, you know, they've announced that they're going to have a phone program, but they've taken on more square footage. So, you know, what they say, one thing we did see in the pandemic, that office space, it was a huge uptick in sublets. And that's actually curbed down where people have pulled that space off the market. That's been the latest story is that you know what, they do need it back. And I think it's dangerous. If you're a major bank, and you gave up 200,000 square feet. And two years from now, we're back to a normal, whatever that is, but everybody's back in the office and you gave up that's square footage. And they were all.
Karl Littler
People haven't been in offices for the longest time. So, so the interest and I think they might shrink back on their core properties.
John Crombie
I was just gonna say the last thing on industrial, and what's, would be the other phenomena that's happening is that I used to manage industrial and for years, you know, what's the rate of industrials, 5.75? What will be in five years 5.75? What was it 10 years ago? 5,75. Right. And so, what was happening is that the retail users were doing very short-term deals. In fact, our average industrial deal was only three and a half years. And because of this increase in rental rates, the shortage of low vacancies is where people are locking in for, for 10 years. That's a huge change in the industrial side that we have not seen, literally for 20 years, 20 plus years. And so, I think that'll change the dynamics of how space is managed, and how industrial tenants are going to have to look at their business differently going forward.
Michael LeBlanc
Well, John, this has been such a great overview. I mean, it's, it's exactly what the members have been asking for. So, I wanted to, there's not any, I'm just checking just to give the members a chance to ask any question, I see a couple of questions, but not related directly to real estate. I think your, your presentation is so comprehensive, it answered a lot of questions.
I guess, last question is how can people get in touch with you? If they need to learn more? Or maybe want to reach out? What's the best way to get in touch with you, LinkedIn? Is LinkedIn a great option?
John Crombie
LinkedIn is a great option. So please go onto that site. And I'm happy to answer any questions you have. Happy to give a copy of the presentation if that's of use. So let me know on that.
Michael LeBlanc
That'd be great.
John Crombie
But yeah, the Wakefield site and my, my contact information is there too.
Michael LeBlanc
Thank you so much for joining us. And we'll hopefully see each other in person soon. And we'll continue the conversation so much more to chat about such an interesting day.
So once again, thanks for joining us here on the live stream and have a wonderful, I hope you take some time off and have a wonderful evening and days and days ahead.
Thanks for tuning in to today's episode of The Voice of Retail. Be sure and follow the podcast on Apple, Spotify or wherever you enjoy podcasts, so you don't miss out on the latest episodes, industry news and insights. If you enjoyed this episode, please consider leaving a rating and review as it really helps us grow so that we continue to get amazing guests onto the show.
I’m your host Michael LeBlanc, President of M.E. LeBlanc & Company Inc, and if you’re looking for more content, or want to chat follow me on LinkedIn, or visit my website meleblanc.co!
Until next time, stay safe. Have a great week.