Strip malls around the country, especially those anchored by grocery stores and pharmacies, are proving to be a hot asset with investor demand increasing and prices rising, commercial brokers tell RENX.
“Grocery-anchored strip malls with necessity-oriented tenant mixes, I think will continue to be highly sought after,” said Vanessa Cohen, associate vice-president with CBRE in Montreal.
Institutional and private investors were already showing interest in quality strip mall assets last year, Cohen said. Now that’s intensifying as buyers see the assets as persistently stable even amid economic uncertainty.
Aik Aliferis, senior managing director, investment, with Marcus & Millichap’s Institutional Property Advisors division in Toronto, agrees that strip malls with tenants selling necessities stood the test of the pandemic. Landlords and investors both believe they will always be sought-after properties,he said, while potentially also providing some upside on rents and future redevelopment plays.
We’re seeing a normalization of the market, added Nick Pantieras in Ottawa, also a senior managing director, investments with Marcus & Millichap and IPA. “Now things are looking pretty good.”
Big demand for Ottawa’s Avalon centre
The M&M team recently sold the grocery-anchored Avalon Centre open-air shopping centre in Orleans, in the east end of Ottawa for $31 million. That property, with 85,000 square feet of shopping space, faced an unprecedented amount of interest.
“We saw over 60 non-disclosure agreements signed on the transaction. So a lot of eyeballs on the deal,” Pantieras said. (Interested parties sign an NDA to review confidential information before they decide to submit an offer.)
The deal exceeded the expected price and suggests that pricing and demand for strip malls has returned to pre-pandemic levels, even though borrowing costs remain relatively elevated.
In many cases the buyers see attractive cash flow in these centres and even the possibility to increase rents, but some are also developers who see opportunity in redevelopments down the road, Aliferis said. “The older centres are definitely ones that are showing great attraction, because usually they’re on larger pieces of land.”
He said they provide good visibility and plenty of flexibility for developers that want to build mixed-use projects on a spacious site. “There’s a lot of activity in that direction, and we expect that type of thing to continue.”
Asking rents for the owners are also climbing. “We’re seeing… rent bumps of 10-20 per cent; sometimes higher than that, because there’s just no supply,” Aliferis said.
‘Everyone wants these products’
Demand for strip malls will continue to pace well in 2025, Cohen said.
“Everyone wants these (malls), but there is limited product availability. So that, coupled with the growing demand from specifically institutional allocations in the Quebec market and further (interest) rate cuts this year, I think that’s going to naturally drive competition and encourage some cap rate compression within this asset class.”
For example, in November, CBRE’s National Investment Team in Montreal sold the Carrefour-Monseigneur-Langlois strip mall in Valleyfield-de-Salaberry.
“This shopping centre was anchored by a grocery store and pharmacy, with additional prominent tenants including a gym, bank, pet store, eye clinic, orthopedic provider and discount retailer,” Cohen said. “This diverse tenant roster effectively meets a wide range of consumer needs, creating a destination that allows shoppers to conveniently fulfill all their shopping needs in one location.”
Deal volume outlook is strong in B.C.
In B.C.’s Lower Mainland, Bob Levine, a principal with Avison Young, has a new listing for Riverside Heights Shopping Centre in Surrey, within Metro Vancouver. The strip mall is located on 6.9 acres with 18 tenants in 101,833 square feet of shopping space.
Riverside Heights is 100 per cent leased.
Levine called it a potential hybrid investment.
“That property is really a combination of existing retail, but it has a development aspect to it that doesn’t involve (replacing) the whole shopping centre,” he said. “You can actually do part of it as a residential development — basically low rise — and then upgrade the balance of the retail and carry on with it as a shopping centre.”
Early interest has been high, Levine said.
Levine said he was recently in Toronto holding meetings with property buyers and of his 20 meetings, roughly 15 were focused on retail.
He said in 2024 there were 73 retail deals in B.C. of over $5 million, with a total dollar value of $1.2 billion. That’s way up from 2023, during which the totals were 41 deals valued at $800 million.
He expects the 2025 totals to carry on from the strength of 2024. Asking prices are higher than they were 12 to 18 months ago, he said.
Levine agreed that grocery stores and drug stores are the most attractive tenants. But barber shops, nail salons, and other services you can’t receive over the internet are also performing well.