Canadian Lawyer InHouse

? BOX But the retail and commercial real-estate sectors in Canada have already moved on to confront the long-term challenges facing their industries and these issues have little to do with what happened to Target. Instead, the conversation and analysis is about concepts such as urban-retail, smaller footprints, omni-channel retailing, pick-up point stores, and perhaps the most signifi - cant one from a real estate perspective — online shopping. Even in the short term, the inventory that opened up as a result of Target's exit has been mostly fi lled by other large retailers or bought back by the commercial landlords. As well, while they may be proceeding more slowly, well-known foreign retailers are continuing with plans to enter Canada. Saks Off 5 th intends to open three stores in Ontario next year, with as many as 25 by 2019. Nordstrom opened stores in Ottawa and Calgary this spring, building up to six locations over the next two years, as well as outlets for its discount chain. Lisa Borsook, executive partner at Weir Foulds LLP in Toronto, says it is a mistake to generalize about the state of this sector in Canada. "We have had a buoyant market for some time," says Borsook. "But pro- active shopping centre owners have been thinking generally about the challenges for the past three or four years about how to keep customers in their malls," she says. "The retail market is much more nuanced than people give it credit for," says Borsook, who adds that the challenges may impact the need for legal services, similar to other commercial sectors where there are increasing cost pressures. One part of the market that may be per- manently changing is the actual size, or footprint of a retail outlet, suggests Paul Greven, chief counsel for the Canadian operations of Jones Lang LaSalle, a com- mercial real estate services fi rm. "There is starting to be a move away from big box," says Greven. Companies in areas such as electronics "are consolidating in fewer large spaces," he says. An example of this is Best Buy, which closed its Future Shop outlets in March of this year and re-opened nearly half of them under the Best Buy name. One exception to the downsizing rule is for certain types of sporting goods stores, which sell hockey, golf, or skiing-related products. "People still want to try out the equipment," says Greven. As well, there is still commercial real es- tate demand in the larger urban areas. "The institutional investors are coming into the big cities," he says. Jim Fraser, a partner at McLean & Kerr LLP in Toronto, believes the market is still healthy, but agrees that a saturation point may have been reached for big box stores. "Retailers are getting very sophisticated. Space is getting smaller, but that was a trend before Target. Landlords are getting more tenants. The successful malls hardly have any vacancies and there are not vacancies for long," says Fraser, who specializes in a commercial real estate practice. Fraser remains optimistic and says, "I have not seen a deal go sideways or per- ceptions change," since Target announced plans to shut down its Canadian operations. The optics from Target's failure were not good, but specifi c to that company, suggests Michael Turner, senior vice president of real estate management for Oxford Properties Group. "Target was a failure of execution. Not a failure of consumers or the Canadian market," he says. For commercial landlords, the retail mar- ket "is a challenging environment," says Turner, who predicts factors such as online shopping will lead to signifi cant changes in the next few years. "For landlords, the best centres will steal market share from the weaker centres," says Turner. "The best are going to get better. It is not linear for everyone," predicts the real estate executive at Oxford, which has hold- ings including the successful Yorkdale mall in Toronto. In that competition for the consumer dollar there are a number of different for- mats that retailers are using to try to get people into their stores. Even in the big box fi eld, different types of businesses are becoming anchor tenants, says John Andrew, director of the Real Es- tate Roundtable at Queen's University in Kingston. Large-scale fi tness chains are now taking over where there may have been a department store and driving traf- fi c, notes Andrew. "They can move into the space and set up pretty quickly," says An- drew, who is also a real estate management professor at Queen's. There has also been some recent expan- sion in the outlet mall sector, with its lure of premium brands at lower prices. The Saks Off 5 th entry into Canada is "intriguing" says Andrew, because Saks is a luxury brand. However, outlet malls can be a "rather volatile sector, especially when the economy suffers," the professor says. "You have to make it affordable, but still keep the prestige," adds Andrew. While outlet malls have been successful in the United States, "you have to be careful not to undermine your own brand," says Turner. Some luxury good companies do this by making a product in a "peculiar 27 CANADIANLAWYERMAG.COM/INHOUSE JULY 2015 MATTHEW BILLINGTON

• Cover