Mall owners order facelifts to attract more foreign merchants

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Shopping centre owners are pouring billions of dollars into their properties to prepare for the next wave of foreign retailers, betting the investments will woo shoppers and win new business.

On Tuesday, Cadillac Fairview Corp. will announce a $350-million facelift of its Sherway Gardens mall over 45 months, starting in January, ushering in U.S. retailer Nordstrom Inc. and other new merchants while making room for the expansion of a few incumbents.

Cadillac and other developers are spending the money in a bid to attract even more coveted merchants to Canada, potentially drawing more shoppers and further increasing sales.

The landlords' gamble comes as shoppers are increasingly turning to the Internet for their purchases, forcing retailers to shift more of their resources to e-commerce. Online spending in Canada, which totalled about $18-billion in 2010, is expected to nearly double by 2015, according to market researchers.

"Our objective here is to solidify Sherway as the premier west-end Toronto mall," Wayne Barwise, an executive vice-president of development at Cadillac Fairview, said in an interview. "With the arrival of Nordstrom, we want to ensure that there is room for many other best-in-class retailers who want to come into the market."

In all, Cadillac Fairview is investing about $1.6-billion in its malls over the next few years, including upgrades and expansions of the properties that will house Nordstrom and, in at least one case, discounter Target Corp., which will be at the forefront of the next U.S. invasion, starting in March.

Other developers, ranging from Triple Five Group, which owns the West Edmonton Mall, and RioCan Real Estate Investment Trust, which is among the largest Target landlords, are racing to improve their properties or build new luxury outlet malls to lure new players here, counting on bigger rents – and returns – in years to come.

"There's an acceleration of American retailers wanting to come to West Edmonton Mall," said David Ghermezian, a member of the family that owns the country's largest shopping centre. "We're talking to the best ones."

The property owners are buoyed by U.S. retailers that are attracted to Canada because of its relatively strong economy. But they are struggling to find attractive space: Canada has 15 square feet of mall space per person, compared with 24 square feet in the United States, according to real estate specialist Cushman & Wakefield.

And while Canadian mall retailers (excluding department store anchor tenants) generate an average of just under $600 in sales per square foot, according to the latest data from the International Council of Shopping Centres – beating the almost $450 (U.S.) in sales per square foot among U.S. malls – they are banking on doing even better with the arrival of new foreign tenants.

West Edmonton Mall merchants, for example, generate an average of about $700 per square foot, but the centre aims for as much as $1,000 in sales per square foot in three or four years, Mr. Ghermezian said.

The mall is investing $100-million in its transformation in advance of Target setting up shop next spring, he said. Would-be new tenants are angling to be close to the upcoming Target store. Already West Edmonton Mall has lured upscale retailers such as home furnishing specialist Williams-Sonoma and fashion chain Michael Kors. Now Mr. Ghermezian is trying to sign up Nordstrom, which is one of Triple Five's tenants in its Mall of America property in the United States.

RioCan and Calloway Real Estate Investment Trust have partnered with major U.S. mall owners to develop luxury outlet malls after they squabbled over competing sites in Halton Hills, Ont., which resulted in Calloway winning the day and starting to build in that community. RioCan already is moving on other properties, with an eye to drawing the likes of Nordstrom Rack, that chain's discount arm.

Investments by other malls, such as Yorkdale Shopping Centre in Toronto, are part of a push by their pension-fund owners to keep upgrading their best assets, said Neil Downey, real estate analyst at RBC Dominion Securities. Yorkdale is pouring $220-million into its latest round of renovations. Cadillac Fairview also is owned by a pension fund – Ontario Teachers' Pension Plan.

The process is one of "retailer Darwinism – survival of the fittest," Mr. Downey said. The investments accelerate the process of the weakest retailers being pushed out, as was the case with Zellers. It is shutting down after most of its leases were sold to Target. As a result, landlords such as RioCan and Cadillac can charge new tenants higher rents.

Cadillac's $1.6-billion investments over three years includes upgrading and expanding four malls that will house this country's first Nordstrom stores: Sherway, Vancouver Pacific Centre, Chinook in Calgary and Ottawa Rideau Centre. Other work is being done to properties in Montreal and Winnipeg.

At Sherway Gardens, Cadillac will rev up the space by 36 per cent, to more than 1.3 million square feet, Mr. Barwise said. New U.S. players include high-end jewellery specialist Tiffany & Co., fast-fashion purveyor Forever 21 and restaurateur P.F. Chang, while domestic retailers Harry Rosen and Sporting Life will expand their space.