Finding a neighbourhood strip mall where you can grab milk, a DVD and your pressed suits on your way home from work is set to get harder in the future.
With mixed-use residential-commercial condo developers having eaten much of the available surface parking lots as they build skywards, strip malls are emerging as their next targets.
"The low-hanging fruit, as I call it, is quickly disappearing," says Toronto condo expert Brad Lamb, referring to surface parking lots. He has been involved in $5-billion worth of condo sales since 1988 and has led sales programs for dozens of projects in Toronto, Ottawa and Montreal. "Ten years ago, there were hundreds of lots around downtown Toronto that were easy to develop," he says.
Though the rate strip malls are disappearing is not officially tracked, it's clear that it is becoming more common as developers seek land, says Mr. Lamb.
One reason that strip malls are being targeted is they've simply gone out of style.
"There was a time about 25 years ago when there was a huge amount of strip malls built," says Ian Gillespie, chief executive officer of Vancouver's Westbank, which has developed luxury projects including Living Shangri-la in Toronto and the Fairmont Pacific Rim in Vancouver.
"Every corner it seemed in Toronto, Calgary, Vancouver, had a strip mall on it. There was a whole rush of interest, but it quickly went out of favour," he says. "Now we're seeing those properties go through a natural evolution to higher and better use."
The practice of knocking down strip malls to build more modern, high-rise properties isn't new, says Mr. Gillespie. "The first project I ever did I tore down an old Safeway centre and built an office-residential tower," he says. "Today, I'm doing it again a couple of kilometres from that deal."
But what is new is that shopping habits have evolved. Typical strip-mall tenants, such as video and convenience stores, are disappearing. "The nature of retail construction has changed," says Chris Sherriff-Scott, senior vice-president at Minto Developments in Toronto. "There's been an emergence in the last 10 to 20 years of a different type of retail complex," he says, referring to structures that support the big-box concept.
A part of the equation, of course, is financial. If a strip mall is sitting on land that could be worth more serving a different use, it's likely only a matter of time before a developer swoops in.
Because strip malls are often accompanied by parking lots, "a typical plaza in urban parts of Toronto would have somewhere less than 50 per cent lot coverage. You could increase coverage by 10 times by developing it," Mr. Lamb says, referring to increasing the square footage exponentially by building up. That means a higher capitalization rate - the ratio between the net operating income produced by a property and its capital cost - for building owners and investors.
It also doesn't hurt that demolition costs are low, Mr. Gillespie says. "If you're buying a lot with a 10-storey office building on it, it'll cost a lot more to take down than a one-level strip mall."
Then there's the fact that it's less complicated politically to redevelop a strip mall than, say, an occupied apartment building, Mr. Gillespie says. "Chances are nobody is holding that strip centre dear to their heart," he says.
But strip malls will never be the new parking lots - easy to redevelop, in other words - because they come with their own complications. Tenants with long-term leases must be bought out or waited out, Mr. Sherriff-Scott says. "And that can be expensive."
Mr. Lamb, for example, recently tried to purchase a strip mall in downtown Toronto only to find that a food retailer had a 30-year lease. "You either have to pay them through the nose to break the lease or you have to agree the new development will continue the lease," he says.
Developers also need to consider communities and the attachment they've formed to existing retailers in plazas.
Minto recently completed construction on Minto Skyy, a high-rise near Toronto's thriving east-side Danforth neighbourhood, on land that used to be occupied by a strip mall.
"There's a Dairy Queen right next to this development," he says. "When signage went up to start the sales program, a lot of people said, 'We hope you're not taking the Dairy Queen down.' This was a place people would walk to in July to have an ice cream cone with their kids. It became a focal point for the community."
In the end, the restaurant was unaffected.
Still, Mr. Sherriff-Scott says developers will not overlook the potential that plazas offer. "Strip malls are now becoming tired and in some cases largely vacant," he says. "So they do present an opportunity for alternative uses."
Mr. Lamb sees demand for condos holding steady in Toronto. In fact, 70 per cent of new homes sold in the Greater Toronto Area this October were high-rise condo units, according to the Building Industry & Land Development Association.
"But there's no more land to build on," he says. "We have to look to areas that have finished property. Already if you drive around the city you don't see as many small plazas. One day, you won't see any."