William Wright Report Q4 2023: The Return of Retail

William Wright Report Q4 2023: The Return of Retail

February 5, 2024

What is the best investment for the upcoming year? This is the most commonly asked question year-after-year. Appraisals and comparables look to the past to draw patterns, while smart investors look to the future to establish trends. Looking forward into 2024, we predict that the best investment will be well-positioned retail in BC’s secondary markets.

The retail market is coming off the COVID lows, where many landlords saw increased vacancies, lower than expected rate increases, and a shift in the retail tenant mix. COVID showed us the importance of a lifestyle tenant mix and rapid adoption of food and delivery apps. This has changed the face of retail and proved who were the winners and losers coming out of COVID. As we enter 2024, we will see high demand for well-positioned or grocery-anchored plazas as the retail market continues to rise.

Interest rates have pushed most asset classes into a pause, slowing down the transaction cycle dramatically in 2022 and 2023 as sellers still look for yesterday’s prices and buyers look for today’s discounts. As we have seen, the Bank of Canada has held the overnight posted rate at 5.0% for five consecutive months now, and buyers are becoming more bullish for 2024. Asset classes such as industrial and multifamily remained consistent throughout the rising interest rates, but the same can’t be said for retail. This could all change in 2024, as most retailers find their footing again and vacancy within this asset class tightens. Investors will be looking to re-enter the retail market and capitalize as lease rates look to climb in the coming years.

Our pick for the best investment market for 2024 would be a well-positioned retail asset located in any of BC’s thriving secondary markets, such as Kelowna, Kamloops, Nanaimo, or Victoria. All four cities post populations of over 100,000 and growing, continue to set records for building permits issued over the last several years, and have various industries driving jobs and community growth, which will eventually push up retail demand and thus lease rates for landlords and investors alike.

With all this said, the retail landscape is poised for a rebound in 2024 and well-positioned retail in BC’s secondary markets will present some of the best investment opportunities. Acquiring a retail asset on a fair market cap rate based on current income—and not future or projected income—is key to making this investment work in your favour.

Written by Cory Wright for William Wright Commercial

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This communication is not intended to cause or induce breach of an existing agency agreement. E&OE: All information contained herein is from sources deemed reliable, and have no reason to doubt its accuracy; however, no guarantee or responsibility is assumed thereof, and it shall not form any part of future contracts. Properties are submitted subject to errors and omissions and all information should be carefully verified. All measurements quoted herein are approximate.