Q&A: How will COVID affect local malls? Retail real estate expert weighs in
CBC's Craig Norris speaks to JLL's Tim Sanderson about the position malls are in
Kitchener's CF Fairview Park is in the midst of a $70 million construction project, but it remains unclear when the mall will be able to reopen.
While Ontario is slowly allowing some stores to open for curbside pickups, they must have store fronts.
That means malls, for now, aren't able to open to customers.
A Cadillac Fairview spokesperson said they are committed to continuing the construction project, but "given the current COVID-19 environment and the potential long term impacts to cities, we will use this time to ensure that any plans we have for the site moving forward align to the community's needs over the long-term."
In the meantime, Cadillac Fairview said it is continuing with the redevelopment of the mall's former Sears location, subject to Ontario's rules around construction sites right now.
Tim Sanderson is the head of retail real estate for JLL, a commercial real estate firm in Toronto.
He spoke with CBC's Craig Norris on The Morning Edition about the difficulties malls are facing, and what the pandemic might mean for the future of CF Fairview Park.
This interview has been edited for length and clarity.
Craig Norris: What are you hearing about retailers right now and their ability to pay their rent?
Tim Sanderson: In an enclosed mall sector it's certainly challenging. Retailers are unable to generate any revenue due to the fact the malls are closed. So many of them have elected to, because they are closed, to not pay their rent. Rent is a huge factor in the bottom line expenses of a retailer. Most that are open are paying rent. Some that are closed are actually paying rent. But most who are closed and impacted by the closures cannot and will not and have not paid rent for the month of April and May.
CN: Do we have any idea how many?
TS: The stats that we saw, coast to coast, amongst the major enclosed malls for the month of April were that about 20 to 25 per cent of rent was collected. That number decreased to about 15 percent for the month of May. It is a significant impact to landlords.
CN: I realize that costs are lower for malls because the price of electricity and utilities is not high. But how sustainable is this?
TS: We've got to get these malls open! We've got to get the retailers to generate revenue so they can pay rent to their landlords. In this country, the major malls are owned by some very large organizations such as Cadillac Fairview, Oxford Properties, Ivanhoe Cambridge, Moreguard Property. And these companies are owned by some of the biggest pension funds in the world.
So it's important to note that the exposure that those pension funds have to the real estate sector is a very small proportion of the overall amount of money they manage on behalf of their pensioners. So I don't think there's any fear that these companies are going away. These are gigantically valued assets, and I do not believe we're going to see them boarded up because of a pandemic.
But you're right it's a very good question. How sustainable is it when one's income has been reduced so significantly? How long can they keep that up? That's a question that they have to answer.
CN: There are some major renovations underway at Fairview Park mall in Kitchener. Last year, the landlord Cadillac Fairview committed $70 million to a construction project. It is, of course, stalled now, but it had already started. So when it's done, Cadillac Fairview says that it won't just be a shopping mall, but there's going to be restaurants, office space, eventually apartments or condos and a parking structure. How likely is it, do you think, that those renovations will proceed the way we thought they were going?
TS: As I mentioned, Cadillac Fairview is one of the best of the best when it comes to developing properties whether it be office buildings or retail centres. And they absolutely know what they're doing. They've been at it for a very long time.
The opportunity that presents itself right now, given that construction has stopped for a period time, is the opportunity quite frankly to pivot what they're doing there and maybe take a re-look at their plan.
Perhaps they don't do as much retail. Perhaps they add another tower and another office building and other residential tower. These are all possibilities that are being looked at right across the country when it comes to redevelopment and densification of shopping centre sites.
CN: You know there are anchor stores in a lot of these malls that exit out onto a sidewalk, so they're kind of open. But when malls actually are allowed to open, how do we manage this and get it right?
TS: One of the most important things is driving traffic back into the shopping centres. But it's doing so in an environment that is safe and where a consumer feels welcomed and safe.
What we don't want is to have is a situation where a consumer visits the mall, and the experience is so overwhelming in terms of, you know, PPE and everything else to make that person safe that they feel, you know, somewhat overwhelmed.
But at the same time you don't want the underwhelmed experience of not having retailers open. So it's a fine line, and the landlords have to work very closely with the retailer tenants.
We have to make sure that the consumer is welcomed into an environment that she's going to want to return to over and over as she has demonstrated that she had done in the past.
With files from the CBC's Jackie Sharkey