RioCan Real Estate Investment Trust is benefiting from a prolonged period of limited new retail construction across Canada, a dynamic that is contributing to rising rents and bolstering its position as one of the country’s largest commercial landlords. According to Jonathan Gitlin, RioCan’s president and CEO, the scarce supply of retail space amid steady demand is enabling the company to increase rents significantly. In its first quarter report, RioCan disclosed that existing tenants renewing leases faced an average rent increase of about 20 percent, while new tenants are paying nearly 58.5 percent more than previous occupants.

This environment reflects a broader trend in Canada, where new retail spaces have reached historic lows, representing less than 1 percent of the total inventory last year, excluding certain categories like streetfront properties and smaller spaces. Gitlin attributed this scarcity primarily to economic factors, including the high cost of building new shopping centers and the difficulty of acquiring sufficiently large development sites in densely populated urban markets. Moreover, the availability of capital for new retail developments remains limited. While RioCan benefits from strong relationships with financial institutions, smaller developers often struggle to secure the necessary funding.

The recent reduction in capital requirements imposed on major Canadian banks by the Office of the Superintendent of Financial Institutions was intended to stimulate lending and economic growth. However, Gitlin expressed skepticism about whether this regulatory change will significantly improve access to capital for entrepreneurial developers lacking RioCan’s financial backing.

Despite the lack of new construction, retail space turnover still occurs, notably following the bankruptcy of Canada’s historic retailer Hudson’s Bay Co., which left millions of square feet vacant. RioCan, which had a joint venture with Hudson’s Bay owning 12 properties, placed that portfolio into receivership. The company has since been actively redeveloping or re-leasing the former department store locations. For example, new tenants such as Nations Fresh Foods, Urban Planet, Longo’s grocery, GoodLife’s GYMVMT Fitness Club, and Mark’s have been secured for spaces in Oakville, Ottawa, and Barrie, Ont., often at higher rents than previously charged.

Gitlin acknowledged the sentimental loss of Hudson’s Bay stores but emphasized the need to evolve to meet current market demands. He highlighted strong tenant interest in categories like grocery, fitness, medical services, and discount stores, which align with changing consumer preferences. This focus is reflected in RioCan’s strategic decision to divest its residential portfolio of apartments and condominiums, a business it launched nearly ten years ago, raising over $1 billion for reinvestment into retail properties.

Despite concerns about e-commerce’s impact on brick-and-mortar retail, Gitlin remains confident in the resilience of Canada’s physical retail sector. He noted that many Canadian retailers have adapted their store models effectively, supporting continued demand for quality retail space. Overall, RioCan’s strategy centers on leveraging constrained retail supply and focusing on tenant categories that show growth potential to sustain its market position.