Canadian Enclosed Malls—Better Than Resilient

DBRS Morningstar believes that the enclosed shopping mall remains an integral retail format for Canadian mall operators from a long-term strategic and growth perspective. While headlines and media coverage have mostly focused on the decline of malls, top-tier malls are actually thriving. Despite the Coronavirus Disease (COVID-19) pandemic having a profound negative effect on the Canadian enclosed shopping centre industry, with mandated closures in several jurisdictions and capacity constraints in others, the industry is largely out of the woods now.

Key Highlights:
• Super-regional malls largely continued their strong post-pandemic growth into 2023 relative to a very strong 2022.
• Occupancy levels and rents at top-tier malls have bounced back following the impact of the pandemic and stand at, or in some cases have surpassed, pre-pandemic levels. Despite lower foot traffic levels, sales conversion ratios (foot traffic translating to sales) have largely improved for most of the malls indicating that consumers are shopping with greater purpose, spending more per visit.
• Despite near-term challenges such as weakening purchasing power amid a high inflationary environment and growing fears of a potential recession, DBRS Morningstar believes that the Canadian regional mall space remains largely healthy, with significant opportunity for growth. We expect well-capitalized, top-tier mall owner/operators to significantly reinvest in their assets, which will further boost revenues and consumers' overall shopping experience.

“In the longer term, we expect high-quality enclosed shopping centres will continue to contribute support to the credit risk profiles of our rated owner/operators due to strengthening fundamentals as a result of continued population growth and tempered new supply, in the near and long term,” says Aniruddha Jadhav, Senior Analyst, Corporate Real Estate.