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Yorkville Village as envisaged for 2017 with a broad two-storey glass entryway that will improve accessibility from the former Hazelton Lanes and create a new presence along Avenue Road.

First Capital Realty Inc.

Toronto's Hazelton Lanes was a phenomenon when it was built 40 years ago. Tucked discreetly behind Victorian houses near the corner of Avenue Road and Yorkville Avenue, its high-end stores attract some of Toronto's best-heeled shoppers.

But like a large number of shopping malls built in Canada in the 1970s, the mall, which opened in 1976, a year prior to the first phase of the Eaton Centre, was showing its age. Bought four years ago by First Capital Realty Inc., it was facing vacancies and competition from newer shopping complexes as a forest of new condo towers rise all around the Yorkville district in mid-Toronto.

"We realized it needs more than a facelift. Our vision is to create a much more modern layout and more connection to Yorkville," said Dori Segal, First Capital's president and CEO, adding that the mall will be rebranded Yorkville Village.

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It's part of a trend that is seeing vintage urban shopping malls transformed across Canada, says Ross Moore, Toronto-based director of research for commercial real estate services company CBRE Ltd. Canada, adding that 17 malls are currently being expanded and updated across the country.

"Most of the urban shopping complexes in Canada were built in the 1960s and 1970s and what was the norm 40 or 50 years ago is no longer cutting it, for either shoppers, or landlords. A great many of them are getting significant upgrades by their owners."

That's despite the note of caution sounded by the loss of Target Canada and closure of other retail chains. Canadian mall activity has been relatively flat, with only a 1.1-per-cent increase in sales per square foot in 2014 in Canada, according to CBRE's Canadian Market outlook for 2015.

But by investing in the upgrading of malls in urban cores, mall owners should see substantial dividends in the future because of demographic and shopping traffic trends, Mr. Moore says.

"The Canadian market is definitely more vital in urban cores than in the U.S. Many U.S. cities became like the holes in doughnuts and suburbs sprawled and urban malls failed. That trend didn't happen in Canada," he says. Densities in Canadian city centres are now increasing everywhere. At the same time, shoppers are looking to avoid gridlocked roads and are taking transit to shop, which benefits urban malls, Mr. Moore adds.

First Capital has renovated a number of urban shopping centres, including Morningside Mall in Scarborough, but the Hazelton project is by far the biggest challenge the company has ever faced, Mr. Segal says.

Planning and designing by Kasian Architecture Interior Design and Planning Ltd. took two years; construction began last year with completion scheduled for 2017. The mechanical systems – electrical, plumbing heating and air conditioning – all have to be ripped out and replaced from scratch.

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Hazelton Lanes' location within a tight residential area has also posed significant problems. Front-end loaders have had to haul material from the demolished Avenue Road facade through the gutted south end of the mall to drop it in dumpsters on a narrow service drive accessed from Yorkville Avenue.

And there have been more than a few surprises. "Anyone who has renovated an old house knows that every time you open up a wall, you can find something you didn't expect," Mr. Segal says.

For instance, previous renovations to the building laid three new layers of floor tiles over the original floors, in some places adding an extra six inches. This has had to be removed by hand.

The complexities mean the renovation will cost more than $100-million, more than twice the cost of rebuilds of similar-sized suburban retail complexes, he says.

But the company believes the investment will pay off handsomely. "A significant improvement will be the visibility and accessibility the renovation creates," says Jodi Shpigel, First Capital's senior vice-president for central Canada.

Older and affluent families in the neighbourhood have been the mainstay customers, but the Yorkville area is attracting a growing community of young professionals, she says. Because of that "you won't find the typical retail assortment you might see at other major shopping centres. We will offer a curated retail mix that includes specialty food, international fashion and lifestyle brands."

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Whole Foods Market is the anchor tenant of Yorkville Village and key tenants include fashion stores Andrews, TNT and Equinox Fitness, which each have only one or two additional outlets in the Greater Toronto Area. There will be 25 boutiques, ranging from 500 to 5,000 square feet, a food hall with quick-service outlets and at least two sit-down restaurants.

The previous entrance on Avenue Road was difficult to find and required walking either up or down flights of stairs to get into the mall, Ms. Shpigel says. To create a presence and improve accessibility, the former brick facade along Avenue Road is being ripped off and a three-storey building on the block is being demolished to create a broad two-storey glass entryway to the mall.

Inside the entrance at street level, new escalators and lifts will take shoppers to the upper and lower floors. The former maze-like corridors of stores will become straight shopping streets that converge at a glass-roofed oval atrium, in an area that was once the mall's ice rink, which was scrapped in the late 1990s, Ms. Shpigel explains.

Because the mall is continuing to operate during construction, the work is being done in phases, requiring many of the mall's tenants to move to temporary quarters while their zone is being renovated. The disruption and noise of construction has required diplomacy both with tenants and residents of nearby buildings. Some of the utilities that must be replaced also service residential complexes that First Capital doesn't own.

But tenants have been enthusiastic about the changes, Mr. Segal says. "We point out that in two years we will have a much better mall and a better way for customers to find you." The company has also adjusted rents for tenants inconvenienced by the construction.

To get the neighbours on board, First Capital has organized several meet-and-greet events to explain the changes. "Of course, everyone in the community has an opinion, and we do what we can to work with them. They are ultimately our future customers," Mr. Segal says. "They realize it's an upgrading of the area that will benefit them in the long run."

And the investment is looking to the long term. The building is being upgraded to LEED Silver standards with materials that will stand the test of time, Mr. Segal says. "We don't want to have to do this all again in 20 years, so we want to do it right the first time."

Measuring mall health

About 80 per cent of the 1,200 malls in the United States are considered healthy, reporting vacancy rates of 10 per cent or less. But that compares with 94 per cent in 2006, according to CoStar Group, a leading provider of data for the U.S. real estate industry.

Nearly 15 per cent of U.S. malls are 10 to 40 per cent vacant, up from 5 per cent in 2006. And 3.4 per cent – representing more than 30 million square feet – are more than 40 per cent empty, a threshold that signals the beginning of what D.J. Busch of Green Street Advisors, which tracks the U.S. mall industry, calls "the death spiral."

The numbers in Canada are not as dire as in the United States, says Ross Moore, director of research for CBRE Ltd. Canada. At the end of 2014, the Canadian average mall vacancy rate was 7.5 per cent, with a low of 2.4 per cent in Calgary and a high of 8.9 per cent in Halifax, according to CBRE statistics.

"Of course, the number of retailers, including Target, that announced closings in recent weeks will tend to pull the statistics lower this year, but the dead mall syndrome isn't really affecting Canada," Mr. Moore says.

"The reason is that we haven't overbuilt in Canada as they did in the United States. There are only a few developers of retail malls and they build to suit retailers. It's a very harmonious arrangement, which means we build what's needed and nothing more."

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