RioCan retail occupancy hits record 98.9% as new construction stalls
RioCan Real Estate Investment Trust filled a record 98.9 per cent of its retail space in the third quarter, up from 98.4 per cent a year earlier, as a decade of thin new construction left retailers chasing too few units.
Chief executive Jonathan Gitlin said little new retail space has come online for roughly ten years because building it has not made economic sense. Construction runs about $600 per square foot, he said, and rents would need to average $45 per square foot for a new build to pay off. RioCan's average net rent on a new lease was $31.45 per square foot in the quarter, up 32 per cent year on year.
"There is a market difference between the rents that we're currently getting, or market rents, and what you'd need to justify significant new supply," Gitlin said in a phone interview. Finding enough land for meaningful new retail is also hard, especially in major cities, he added.
Demand is broad. Gitlin said large chains including Loblaw, Walmart, Costco and Dollarama are competing for space in big cities, while smaller operators such as dry cleaners, local restaurants and gyms remain vital to neighbourhood centres. Higher borrowing costs and a slowing economy have weighed on some businesses, he said, but leasing demand from small service-sector tenants persists.
RioCan reported third-quarter profit of $122.6 million, or 42 cents per diluted unit, against a loss of $120.3 million, or 41 cents, a year earlier. Revenue fell to $304.8 million from $371.2 million in the period ended September 30. Gitlin said the collapse of the trust's joint venture with HBC, which drove hundreds of millions in fair value losses last year, no longer drags on the balance sheet, and that RioCan is at the "tail end" of exiting residential development. National Bank analyst Matt Kornack said operating performance matched expectations and called the fourth-quarter outlook strong.
