RioCan Real Estate Investment Trust, Canada's largest retail landlord, is starting construction this week on a project that will add 770,000 square feet of shopping and residential space in downtown Calgary, despite an oil crash that's cut jobs and forced other companies to slow development.
The slowdown is why RioCan chief executive officer Ed Sonshine is moving ahead with the project now, he said.
"We know we're being very bold," Mr. Sonshine said in a phone interview from his company's Toronto headquarters before boarding a flight to Calgary.
"But retail vacancy hasn't gone up. It doesn't mean it never will, but, at the end of the day, there hasn't been overbuilding in retail."
The decline in oil prices has spurred some workers to move to the construction from the energy industry, and cutbacks by developers with less cash on hand are allowing RioCan to hire more people to get construction done quickly – and at a lower price, Mr. Sonshine said. RioCan's project, located in Calgary's downtown East Village area, will have about 170,000 square feet of retail, which RioCan has about 60 per cent leased to Loblaw Cos. and other tenants.
On Tuesday, Loblaw said it's investing $1-billion into its retail business this year.
At the end of last year, Calgary's retail vacancy rate was 2.4 per cent, a record low, according to brokerage Avison Young. The amount of retail space under construction has dipped to about 968,000 square feet, less than half what's typically in the pipeline, according to CBRE Canada.
The $300-million residential portion of RioCan's project will have about 500 condominium units spread across two towers, or 600,000 square feet total, built by Vancouver developer Embassy Bosa Inc.
RioCan sold the air rights to the closely held company for about $30-million in 2014, and is using proceeds from its U.S. portfolio sale to Blackstone Group LP to finance construction of the project's retail component.
Mr. Sonshine has faced regional economic challenges before. In the 1990s, one of RioCan's first purchases was a shopping centre in Moncton, N.B. A few months later, the area's primary employer, the Moncton CN rail yards, closed and relocated, taking 800 jobs with it, Mr. Sonshine said. The impact was minimal, with sales at retail stores increasing anyhow because his tenants were providing staples such as groceries, he said.