High cost of land makes new mall developments scarce
High prices for Metro property hurt case for such projects
Tsawwassen Mills, Metro Vancouver’s huge new outlet shopping centre set to open in October, has been slowly rising from the ground just north of the ferry terminal for the last two years.
The reality, said the mall’s director of development Jeff Brown, is that those two years were just the construction phase.
“We were looking for land for 10 years,” Brown said of the Ivanhoe Cambridge project set on the territory of the Tsawwassen First Nation, about 30 kilometres south of downtown Vancouver. “That’s because it’s not just about finding a big parcel of land, but finding the right piece of land.”
Industry observers agree: The 1.2-million-square-foot Tsawwassen Mills could be the last major shopping mall development in the Lower Mainland for the next decade, if not longer. Sky-high land prices throughout the region mean that low-density commercial developments such as malls are a difficult business case to make.
“We foresee one, maybe two, large commercial retail developments in the next 20 years,” says James Smerdon, vice-president and director of retail consulting at Colliers International’s Vancouver office. “And likely not in Burnaby, Richmond, Vancouver, the North Shore, and the like. If anything, they will be further inland, like Surrey, Langley, Abbotsford or Chilliwack.”
Smerdon said experiences like Ivanhoe’s search for the Tsawwassen Mills site aren’t unusual, with some retailers looking for years to find a store location in Metro Vancouver, only to defer or eventually abandon their search.
And yet Vancouver’s retail-mall market has been doing spectacularly. A recent Avison Young report on the most profitable malls in Canada placed two Vancouver destinations, Pacific Centre and Oakridge, among the top three, and Metropolis at Metrotown in Burnaby ranked ninth. Smerdon said industry numbers show Metro Vancouver stores are often the topselling outlets in the country for many chain retailers.
Rick Amantea, vice-president of communication and partnerships at Park Royal Shopping Centre in West Vancouver, said sales-persquare-foot have risen 30 per cent since 2013.
“In a word, it’s been terrific,” he said.
“We’ve had two major expansions during that time, and we are firing on all cylinders. Some of the ... upscale retailers are seeing the biggest growth.”
Another new development, McArthur Glen’s Designer Outlet at Vancouver International Airport, saw revenue for fiscal 2015 surpass initial projections (also by 30 per cent) in its first year of operation, attracting four million visitors during that time, said general manager Robert Thurlow.
“We knew this would be a successful centre, but the numbers we got were really staggering,” Thurlow said, noting the 240,000-sq.ft Phase One will be completely leased by this fall, while the 150,000-sq.-ft Phase Two is already being readied.
“I wouldn’t be surprised if we hear about Phase Three by 2022.”
Smerdon said that is the industry trend for Metro Vancouver’s malls: As new players are kept out by limited space, consumer demand continues to boom.
“While there are few new malls, the population here keeps growing,” Smerdon said. “(The region is) adding 40,000 to 50,000 people every year. And the low Canadian dollar is also a huge factor — it’s keeping billions of dollars a year in the Lower Mainland instead of driving people to go to the United States. We are even seeing more American shoppers here, although they are usually not day-trippers and are concentrated in tourist areas like downtown Vancouver or Whistler.”
The increased demand, Smerdon said, is creating what he calls “doughnuts” — where developers are building high-density residential and service centres surrounding low-density malls.
The logical next step, with land for new malls at a premium, will be the densification of the malls themselves, often with “residential components.”
Shape Properties, for example, is densifying and diversifying Brentwood Mall into a “city core,” with 1.1 million square feet of retail and 500,000 square feet of office and residential space. Construction began in 2014 and is scheduled for completion in 2018.
Right next door to Park Royal, Onni is building the Evelyn community of 350 homes. Amantea agreed that “residential components” now make up a key aspect of Park Royal’s transformation.
“Like many other shopping centres, we are looking at ways to include a stronger residential component to go with our alreadystrong, mixed-use space,” he said, noting Park Royal’s existing office tower and rental housing.
“We see — in the next five, 10, 20 years — a real opportunity … to increase the residential component here. If we see more people living on the property, they will become an important part of our shopping market, and more importantly, they will do so without ever having to get into a car.”
Which does not mean that malls without residential space, such as the Mc Arthur Glen Designer Outlet and Tsawwassen Mills, are at a disadvantage. It’s just that their strategies have to be different.
“It can definitely work,” Smerdon said. “But you have to focus on the tenant mix and draw people from a greater distance. Tsawwassen Mills has low-density around its location, so it has 15 first-to-market retailers (shops that are the first of their kind in Metro Vancouver), and that’s obviously intentional. Mc Arthur Glen is the same. You have to draw from a very wide region. It is absolutely possible, but you have to make it a destination.”
Tsawwassen Mills is sparing no expense in doing just that. It has assembled first-to-market brands (notables include Bass Pro Shops, Saks off 5th, Pro Hockey Life, Outlet by Harry Rosen), as well as a collection of 16 anchor stores for the Oct. 5 opening. The food court alone will have 1,100 seats.
General manager Mark Fenwick said Ivanhoe Cambridge’s experience with two previous “Mills” concepts ( Vaughan Mills in the Toronto area and Cross Iron Mills near Calgary) showed shoppers are willing to drive 1.5 hours to a unique, outlet-based destination mall, and consumers often stay for up to three hours (versus an hour at a typical mall).
“In today’s economy, shoppers are really looking for value as part of the equation. So the fact that we have some of these brands ... is a real draw for the consumers,” Fenwick said. “We are trying to draw from the Interior, Vancouver Island, the whole Lower Mainland, and even parts of northern Washington state.”
Brown said the company’s previous experiences in Toronto and Calgary showed it may take some shoppers a while to adjust to “destination shopping,” since they have to commit more time to come to Tsawwassen versus staying local. But business will be swift once consumers make that switch. Cross-Iron Mills is already undergoing a $70-million expansion to meet rising demand, just six years after the mall opened.
“It definitely helps to have a track record in this type of product,” Brown said.
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