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Research Brief

Canada Retail Sales

April 2024

mm retail

Softening Retail Sales Continue to
Support Mid-Year Interest Rate Cut

Consumers feeling the impact of elevated borrowing costs. Canada’s population grew by a near-record pace of 3.2 per cent in 2023, propping up household spending and causing retail sales to grow 1.2 per cent year-over-year in February. On a per capita basis, however, retail sales have largely been trending down over the past year and total sales dropped 0.1 per cent monthly in February — the third decline in the past four months. Discretionary spending is a particular weak point, as year-over-year sales in home furnishings, electronics, clothing and sportswear have fallen for three consecutive periods. Consumers are feeling the impact of elevated interest rates and are pulling back on optional and big-ticket purchases accordingly. While this moderation in consumer spending provides downside risk to first quarter GDP growth, it also puts downward pressure on inflation and lends support to a midyear interest rate cut. 

Spending patterns shift as consumers become more selective.
Despite rapidly rising interest rates eating into households’ real disposable incomes, inflation-adjusted retail sales were up 11 per cent in February when compared to the 2020 level. However, retail sales have largely been driven by essential spending over the past year, while discretionary spending has been trending down since the Bank of Canada began its interest rate hiking cycle in early 2022. Combined with the structural shift toward hybrid work, anchor-based, neighbourhood retail has become a preferred investment option. Not only does this property type offer a diverse tenant roster, it also houses necessity-based firms and services, which tend to capture a larger share of spending in times of economic headwinds.  

Investors eye select retail formats for intensification. Enclosed malls have been increasingly targeted by investors for intensification or redevelopment. These property types tend to offer large and underutilized parking lot land, which syncs up well with transit-oriented development efforts and the demand for housing amid growing affordability concerns. While the e-commerce boom has made some smaller and older malls prime for outright redevelopment, many major projects are currently focused on intensification and the creation of mixed-use space. This will drive foot traffic to existing retail properties, as well as capture benefits from strong supply-demand dynamics within Canada’s purpose-built rental market. Planned and ongoing projects that highlight this trend include CF Fairview Mall and Oakridge, while recent purchases like Conestoga Mall in Waterloo, White Oaks Mall in London and Pickering Town Centre indicate future investor interest in intensification. 

E-commerce sales show modest gains.
The rise in e-commerce is another reason why some smaller and more traditional malls have struggled, making them prime for repositioning. These select regional malls have been slow to embrace changing consumer preferences and have lost foot traffic. In contrast, online sales continued to sit above long-term standards in February. E-commerce activity increased 2.0 per cent monthly and sat at a 5.7 per cent share of total retail sales, up 10 basis points when compared to January. Industrial performance is expected to remain healthy over the long-term, despite the current softening in fundamentals amid normalizing demand and historic supply growth.       


* Through February; ^ Trailing-12-month average
Sources: Marcus & Millichap Research Services; Altus Data Solutions; Capital Economics;
CoStar Group, Inc.; Statistics Canada

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