So, this store called Target is coming to Canada. Maybe you've heard about it, there were a few stories in the news over the last two weeks about the U.S. retailers decision to spend $1.8-billion to buy about 200 Zellers leases and set up shop within two years.
While there's been little doubt that the store will find its people – Canadians already flock to the store in droves, even if it means waiting at a border crossing for six hours – it's been difficult to quantify what effect it will have on the retail real estate sector.
Macquarie Securities analyst Michael Smith spent some time looking at the numbers, and has decided that retail properties with Target as an anchor tenant should increase in value by 10 per cent. That's because the store will draw in more shoppers, and increase sales for all the stores that surround it in the outdoor malls its sure to occupy.
His case is built on three pillars:
- A Target-anchored property will likely sell for a lower cap rate than a Zellers-anchored property. Target is simply a better and financially stronger tenant.
- Target will likely attract more pedestrian traffic, leading to greater visibility and higher sales for adjacent tenants. When all is said and done, higher sales mean a tenant can afford to pay more rent, translating into higher NOIs for the landlord.
- With Target as an anchor, demand for space will increase meaning that there will be less rollover, reduced downtime, lower leasing costs and improved occupancy. Equally important, landlords will have the opportunity to “upgrade” their tenants thereby improving the overall quality of the property.”
RioCan REIT is the largest publicly traded owner of Zellers stores, with 33. Other REIT landlords include Primaris, Retrocomm and Crombie.