CALGARY RETAIL REAL ESTATE MARKET OVERVIEW Calgary Real Estate Forum Grant Kosowan Orange National Retail Group Inc.

Transcription

1 CALGARY RETAIL REAL ESTATE MARKET OVERVIEW Calgary Real Estate Forum 2008 Grant Kosowan Orange National Retail Group Inc.

2 Calgary Retail Inventory & Vacancy QUICK STATISTICS Retail Inventory as of today: Approximately 25,000,000 square feet 2008 Inventory Increase: Approximately 1,380,000 square feet (6 projects) Current Calgary Retail Vacancy Rate: Approximately 1.2% Functional Retail Vacancy Rate in Calgary to Date: 0% 2

3 Vacancy Breakdown Surrounding small markets (Okotoks, Airdrie & Cochrane) are included in the total vacancy rate of Calgary (CMA) estimated at 1.2% Central & Downtown 1% Northwest 1.2% Northeast - 1.5% Southwest 1.5%* Southeast 1.5% *artificially high due to marginal space in beltline and Macleod that accounts for majority of vacancy Source: Calgary Herald June 04,

4 Planned Retail Development There are currently 41+ retail projects in various stages of planning and development (Calgary proper) 2009: Planned Inventory Increase: 2,350,000 square feet (11 projects) 2010: Planned Inventory Increase: 6,400,000 square feet (17 projects) Planned Inventory Increase: 5,720,000 square feet (13 projects) 4

5 The Future What s Next? 9 million square feet is planned or coming on stream over the next 2 years (35% increase) Rental rates (largely due to construction costs) are at their breaking point for retailers Retailers cannot afford more rent and still stay profitable at current levels THE ONE-TWO PUNCH Financing for retailers (used for store growth and sustaining operations) is dramatically tightening Consumer spending (retail sales) is expected to decline 5

6 The Sales / Rental Rate Relationship P&L Report 2008 % Total Income $1,000, % Cost of Goods $500, % Gross Profit $500, % EXPENSES Salary / Wages $140, % Operating (G&A, Advertising, etc.) $170, % Occupancy Expense $100, % Taxes and Amort. / Depreciation 30, % NET PROFIT AFTER TAXES AND AMORTIZATION: $60, % 6

7 The Sales / Rental Rate Relationship 4% DROP IN CONSUMER SPENDING P&L Report 2009 % Total Income $960, % Cost of Goods $480, % Gross Profit $480, % EXPENSES Salary / Wages $140, % Operating (G&A, Advertising, etc.) $170, % Occupancy Expense $100, % Taxes and Amort. / Depreciation 30, % NET PROFIT AFTER TAXES AND AMORTIZATION: $40, % 7

8 The Sales / Rental Rate Relationship 8% DROP IN CONSUMER SPENDING P&L Report 2009 % Total Income $920, % Cost of Goods $460, % Gross Profit $460, % EXPENSES Salary / Wages $140, % Operating (G&A, Advertising, etc.) $170, % Occupancy Expense $100, % Taxes and Amort. / Depreciation 30, % NET PROFIT AFTER TAXES AND AMORTIZATION: $20, % 8

9 The Sales / Rental Rate Relationship 12% DROP IN CONSUMER SPENDING P&L Report 2009 % Total Income $880, % Cost of Goods $440, % Gross Profit $440, % EXPENSES Salary / Wages $140, % Operating (G&A, Advertising, etc.) $170, % Occupancy Expense $100, % Taxes and Amort. / Depreciation 30, % NET PROFIT AFTER TAXES AND AMORTIZATION: 0, % 9

10 What you need to know: Retailers don t care what it costs to build Rental rates are directly tied to retail sales Rental rates are paid based on quality and quantity of retail traffic flows both of which are expected to DECLINE The lower the margin, the lower the acceptable GROC (Gross Revenue to Operating Cost) ratio Retail tenants that sell non essential (discretionary) goods pose higher risks in poor economic environments Retail Industry could lose between 10% - 15% of stores next year according to industry experts. Retail shakeout: Worst is yet to come CNN MONEY.COM October 13,

11 RETAIL SALES IN ALBERTA* 2006: RECORD YEAR: 16.2% retail sales increase. Allowed for most retailers to accommodate large rental increases 2007: GOOD YEAR: 9.3% increase: Strong retail environment 2008: MODEST DECLINE EXPECTED 2009: FULL DECLINE (4%) *Statistics Canada 11

12 Projected Vacancy / Construction 12

13 Vacancy Rates / Consumer Spending 13

14 Projected Rental Rates 14

15 Orange Forecast: World financial crisis will result in decreased consumer spending Major spike in retail bankruptcies is expected in early 2009 with further impact on the financial markets creating a negative cyclical effect GOOD NEWS IS: Retail Sales are likely to drop in Alberta by less than the Canadian average (Disposable income is the highest in the country with an average monthly spending of $1, per capita.) BAD NEWS IS: Several retail projects will be delayed or cancelled, vacancy will rise and rental rates will drop 15

16 Orange Forecast: Vacancy will likely rise above 4% by end of 2009 but functional vacancy is likely to remain near 3% Stabilization followed by a minor decline in retail rental rates Reduction of construction costs and land prices are the primary ways developers / landlords will be able to maintain return margins in 2009 Vacancy will rise above 7% in 2010 with functional vacancy likely to remain near 5%. 16

17 THANK YOU!