Could Target’s Exodus Significantly Effect Commercial Real Estate Lease Rates?

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It was all over the news in January.   Big chain American retailer, Target, announced its plan to exit out of Canada. That means the close of 133 stores, the loss of 17,600 jobs and the anticipation of approximately 20 million sq ft of commercial real estate across Canada becoming vacant. The question remains:  Will Target’s mass exodus affect commercial real estate lease rates in the Canada?

Well, let’s look at the possibilities.

Other commercial or retail companies may jump at the chance to expand their businesses into some or all of those vacant spaces, paying the same lease rate Target currently pays. News has it that some large stores like Walmart, Sobeys, Loblaw’s and Metro are considering taking over approximately 55 spots accumulatively of the 133 soon-to-be vacant locations. Fitness companies like Good Life Fitness and possibly some other large fitness clubs may consider expanding into some spots as well. If all those Target locations are filled with other commercial players, then lease rates would be minimally effected if at all.

However, Target locations are, in general, large and currently only attractive to larger commercial or retail companies that may be interested in expanding into locations that best fit their “target” markets and budgets. Since not all locations may fit their criteria, there is the possibility of many of the 133 Target locations being left vacant.

Commercial Real Estate Investments companies have taken the above into consideration and have posed a possible solution.   Those that own the Target locations may consider reconstructing the sites into several smaller retail units in order to make the commercial site more attractive for smaller retail companies. This would give an opportunity for commercial real estate companies to lease the smaller units at higher leasing rates.

The commercial real estate companies that have not considered the above as an option may find themselves with a fight on their hands. Co-tenants of some Target locations, particularly in malls and plazas, could take this opportunity to re-negotiate their leases knowing that the current lease rate for the Target spaces are at least 50% cheaper than those of other spaces. This could drive commercial space lease rates downwards.

So, what will happen with commercial lease rates after Target leaves Canada? Only time, tenant and commercial real estate activity will tell.

 

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