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INSTI-NEWS SUMMER 2021

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THE IMPORTANCE OF CURRENT ASSESSED VALUES Malcom Stadig, M.I.M.A.

CANADA’S HOTEL INDUSTRY SHOWS SIGNS OF RECOVERY Robin McLuskie and Alam Pirani

MARIO VITTIGLIO, M.I.M.A. (LIFE) RETIREMENT ARTICLE

PRESIDENT’S REPORT Caterina Chiarandini, M.I.M.A.

2021 IMA SCHOLARSHIP AWARD WINNERS

WHAT YOU NEED TO KNOW: ONTARIO’S PLAN TO GROW THE SIZE OF THE GREENBELT Katarzyna Sliwa and Katy Vergis-Mayo

MEMBER ELEVATIONS

2021 DISTINGUISHED SERVICE AWARD

WHICH TRENDS SURVIVE? RETAIL’S PANDEMIC PIVOT FACES NEW TEST Steve McLean

IMA ANNOUNCEMENTS

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SUMMER 2021 ISSUE

Insti-News is published by the Institute of Municipal Assessors with assistance from the Communications Services Committee. Chaired by: Gina Stone, A.I.M.A. Any opinions or recommendations expressed in this issue are those of the contributors and do not necessarily reflect the views of the IMA.

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PRESIDENT’S REPORT It has only been a few weeks since the 2021 Annual General Meeting – and our first ever virtual AGM! I am honoured to take the reins from Past President, Terry Peckham, continuing to build upon all the great work of this organization. I also look forward to collaborating with our Executive Director, Tyler Callaghan, the 2021-2022 IMA Executive and Board of Directors in achieving the Institute’s goals for the current year. Looking back at my time on the Executive, I have witnessed one success after another for the IMA. It was not long ago that we transitioned to a fully online educational provider. Since then, a number of new educational and training opportunities have developed. A modern new website was also recently launched with an interactive member experience. In response, feedback from members and stakeholders has been extremely positive. The success of the IMA has not come without our fair share of challenges. Faced with the recent global pandemic and massive changes in the way the world does business, the IMA has demonstrated resiliency, stability and innovation. In order to shift away from in-person events, the Institute launched virtual meetings, from the first ever Fall 2020 Virtual Symposium, to the many recent District Meetings using online meeting platforms. The IMA pivoted seamlessly from in-person exam proctoring to the retaining the online services of ProctorU in support of our members paths to designation and continuing professional development. Over the last year, the IMA has seen exceptional attendance to webinar offerings and significantly high course registrations. Engaging with stakeholders and industry partners remains high priority for the organization. As a result of stakeholder surveys and focus groups, the IMA’s Vision, Mission and Values Statement and 2020-2023 Strategic Plan were realized. In recent months, action items have commenced from the plan. We presently await completion of a research paper from the International Property Tax Institute (IPTI) on organizational growth, strategic partnerships as well as the introduction of a new senior level designation. By all indicators, it is a very exciting time for the IMA! To touch upon some of my personal goals for the year, I aim to promote the IMA’s Vision Mission Values statement through strategic actions and new educational offerings. With the assistance of the IMA office and the various Districts, plans are in motion for a new onboarding experience for both members and volunteers. In the upcoming weeks, I look forward to building a subcommittee with the Alberta Assessors Association (AAA) to meet and action off items related to our recent Memorandum of Understanding (MOU). Through strong strategic partnerships, we hope to further support our members and continue elevating the assessment profession in Canada. It seems we are finally seeing the light at the end of the tunnel now in 2021. As we slowly return to hosting in-person events, I look forward to engaging with members virtually at our upcoming 2021 Fall Symposium scheduled for November 1-2, 2021. Until then, I wish you all the very best for enjoyable summer months ahead.

Caterina Chiarandini, M.I.M.A. IMA President

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THE IMPORTANCE OF CURRENT ASSESSED VALUES Malcom Stadig, M.I.M.A.

About the Author

Malcolm Stadig is the Director of Research and Valuation with Equitable Value Inc. (“EVI”) in Toronto, Ontario. In his role at EVI, he provides assessment services throughout Canada to taxpayers and assessment agencies with a focus on complex owner-occupied properties. Along with more than twenty-five years of experience, Malcolm offers a unique perspective as both an accredited appraiser and a certified assessor, along with having held positions with both public sector property assessment entities and private sector tax consulting firms. Malcolm holds accreditations with the Appraisal Institute of Canada (AACI, P. App), International Association of Assessing Officers (CAE), Royal Institution of Chartered Surveyors (MRICS), American Society of Appraisers (ASA) and the Institute of Municipal Assessors (MIMA).

Introduction

This opinion article will provide a refresher on the basics of the property taxation and assessment system throughout Canada and illustrate the importance of having frequent assessment updates to ensure the system works as intended. The opinions shared are those held by the author and may not represent the views of EVI. Further, any references to the words ‘fair’ and ‘unfair’ represent the author’s perspective of fairness in the context of assessment and taxation. The purpose of the article is to instigate dialogue amongst members of the profession and to illustrate that improvement is both necessary and possible.

Concise Overview of Assessment and Taxation in Canada

Property tax across Canada is collected annually and generally takes into consideration the assessed value of a property and a municipal tax rate. The purpose of the assessed values is to distribute the taxes equitably amongst the property owners within a particular municipality. It is understood that in many cases the property taxes are not simply the result of assessed value and tax rate; however, any commentary regarding tax caps, claw backs, phase-ins, etc. is beyond the scope of this article. Although there are three broad categories of property; real, personal, and intangible, most provinces only collect property tax based upon the value of the real property. Further, there are various interests in real property, leased fee, fee simple and leasehold and almost all provinces mandate the assessor to focus on the fee simple interest. While there are a variety of values that a property may have, such as market value, use value, forced sale value, and investment value, most properties are to be assessed at their market value. Market value estimates can be current, prospective, or retrospective and all the provinces mandate assessors to provide retrospective estimates of value. The identification of municipal tax rates is beyond the scope of this article; however, in most provinces there are different rates for residential and business properties and the business tax rate is normally greater than the residential rate. Let’s regroup quickly, an assessor is tasked with providing a retrospective opinion of the market value of the fee simple interest in the real property and identifying it as either a residential or business property. The assessor is asked to complete this task for all the properties within a jurisdiction because the property tax is an ad valorem tax – meaning that taxation is based upon value.

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In essence, as a nation we have concluded that there is a positive relationship between the responsibility and ability to pay property taxes and the market value of the taxpayer’s property and we have further concluded that the owners of business properties have an even greater responsibility and ability to pay property taxes (per dollar of assessment) than do the owners of residential properties. Recall that the valuations are retrospective, and taxes are collected annually – the result is that a taxpayer will pay taxes based upon what their property was worth (bolded for emphasis). In a stable market, the Canadian property tax system works as intended because values will not change much and the allocation of taxes, on an ad valorem basis, will be distributed fairly. In a volatile market, the system begins to break, and the distribution of taxes is less fair and potentially becomes unfair. In an ideal property tax system, the passage of time between the date of valuation and the date of taxation will be as condensed as possible. This will ensure that the ability to pay (i.e., value of property) is closely aligned with the timing of the payment.

Pandemic Produces Unfair Taxation

The real estate market has been volatile for some real estate sectors over the past 18 months as the pandemic resulting from Covid-19 has been very disruptive to segments of the economy. As a result, it is not unreasonable to conclude that collecting property taxes in 2021 based upon a value that precedes the pandemic is inherently unfair. Let’s explore the very different scenarios in British Columbia and Ontario to illustrate how unfair the situation may be. In British Columbia, assessments are updated annually, and the 2021 taxes are based upon the value of the property as of July 1, 2020, whereas in Ontario the 2021 taxes are based upon the value of the property on January 1, 2016. Let’s assume for 2020 taxation there was a $10,000,000 retail plaza and a $10,000,000 warehouse in Burnaby, BC. The values reflect a valuation date of July 1, 2019, and their property taxes would be generally identical. Fast forward to 2021 taxation and having reference to the updated valuation date (and reflecting Covid-19) and the revised value of the retail plaza will be lower, say $9,500,000 and the value of the warehouse will be greater, say $11,000,000 and the owner of the warehouse will pay about 15 percent more in property tax than the owner of the retail plaza. Now let’s assume for 2020 taxation there was a $10,000,000 retail plaza and a $10,000,000 warehouse in Brampton, ON. Like the preceding example, they would have paid approximately the same amount of property taxes in 2020. Recall that the values reflect January 1, 2016, and the market has not uniformly changed for the retail plaza and the warehouse. For the sake of illustration, let’s suppose that the retail property in 2021 was worth slightly less than it was in 2016 (secular decline and pandemic issues) whereas the warehouse has doubled in value. Although in 2021 the value of the warehouse is around $20,000,000 and the value of the plaza is $9,800,000, because their assessed values are reflective of January 1, 2016 (i.e., 5 years prior) their taxes are still the same and based upon equal assessed values of $10,000,000 regardless of the prospect that the warehouse owner has twice the capacity to pay taxes.

Conclusion

Few would argue the scenario in Ontario is as fair as the scenario in British Columbia. The lag between the date of valuation in British Columbia is 6 months ensuring the system works whereas in Ontario the lag will be up to 6 years for 2022 taxation. Effective property tax systems are designed to be fair and equitable and there are generally appeal provisions to address any circumstances where there is any unfairness or inequity. However, in Ontario there is no agreed upon recourse for the clear inequities that result from the lag between the date of valuation and taxation. As members of the assessment profession, we must collectively acknowledge the inequities that result from long lags between assessment updates and use our influence to impress upon the various provincial governments the need to address the matter through legislative updates. Of the 10 provinces, approximately half update annually already which demonstrates it can be done. The provinces with the most room to improve are Ontario and Saskatchewan where the current legislation allows for a four-year period between assessment updates. The ad valorem system is generally viewed to be the most effective and fair manner of collecting property taxes; therefore, we are building upon a solid foundation. The fairness of taxing business properties at a greater rate than residential properties is beyond the scope of this article. The most obvious room for improvement is to move to more frequent assessment updates with a goal of performing them annually. It is understood that the counterargument to annual updates is that longer assessment cycles result in predictable budgeting for taxpayers and tax collectors; however, it is unlikely the certainty offsets the benefits of current values that are more representative of the taxpayer’s ability to pay. Many industries are evolving from the recent disruption and members of the property assessment and taxation profession must ensure that our industry evolves too.

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CANADA’S HOTEL INDUSTRY SHOWS SIGNS OF RECOVERY, RESILIENCE Robin McLuskie and Alam Pirani Colliers Hotels

Last year, with general uncertainty blanketing the hotel sector and almost two-thirds of hotel rooms sitting empty across Canada, there was a dramatic decline in hotel investment deals. Hotel investors were sitting in a no-bid market with less than 50 per cent of 2019’s trading volume. The large majority of listings that were in the market had a bid/ask gap too wide to foster meaningful transaction volume. More than half of the transactions were related to alternate use or redevelopment. However, there are brighter skies ahead according to Colliers’ 2021 Canadian Hotel Investment Report as well as our recently recorded webinar on the Canadian hotel market. While we need not remind anyone of the barriers 2020 presented, there are reasons for optimism from both an investment and demand recovery perspective for Canadian owners and operators. With vaccination rollouts beginning to take hold, the investment community is beginning to gain market visibility and, slowly, becoming more comfortable with investment decisions.

Slowly and steadily, the numbers increase Hotel investments and occupancy rates were halved in 2020 compared to the year prior. However, both indicators are showing signs of recovery as we move further into 2021. The future offers hope. We’re seeing momentum in recent transaction bids and results. Multiple bids are coming to the table on select deals, and while discounts to pre-COVID values are still being applied in some cases, the expectation of that percentage is nowhere near as deep as it was last year. On some transactions, there is no discount off 2019 values. The hiatus of 2020 has led to a pent-up appetite for investment; those who were sitting on capital to be cautious are feeling more motivated to make large plays. Last year was characterized by an unusual number of small trades; 70 per cent of the 2020 trades were under $10 million. As more liquidity comes into play, we’re going to see the average trade size increase, likely back into some big box trading and portfolio acquisitions. In 2019, the hotel room occupancy rate across Canada was 65 per cent and in 2020, it was down nearly half that, to 33.1 per cent, according to STR. While the 2021 demand boost may not match 2019 occupancy levels just yet, it will be a marked uptick to celebrate.

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“Drive-to” and short-haul “flyto” markets best positioned As we approach a “return to normal”, it’s likely Canadians are going to be eager to enjoy some new scenery, sparking a rebound in domestic travel and vacations. Canadians have been enduring lockdowns and restrictions for over a year. Canadian “drive-to” markets – those near travel destinations that can be reached by car – are most poised for success this year. We can expect high demand for resort, recreation and “getaway”-focused trips across Canada in markets like Tofino, Whistler, Banff and Quebec City, and in communities that service our national parks. Not surprisingly, remote destinations will likely see more interest than urban communities to begin, and small hotels (and communities) are better positioned than larger ones.

Opportunities to upgrade profit These low occupancy months, while challenging, can also be an opportunity for hotel operators to think about changes they can make to best position themselves to serve post-pandemic travellers. Many of our partners are treating this as a once-in-a-lifetime opportunity to revamp their structures and processes, undergoing an evaluation to better focus on efficiencies and guest satisfaction. They are taking a look at each income statement line item and doing away with costs that aren’t serving them. Coming out of this, those operators will be more efficient. It will take time to build up revenue, but they will be more profitable than before. Changes have to be made to cater to a new set of needs. Hotel operators have done a great job of demonstrating their revised cleaning commitments, making guests feel more comfortable. Our collective expectations for general sanitation and cleanliness are going to remain a must, far beyond vaccinations. Look for expanded services like efficient and hygienic grab-and-go meals, along with an augmented room service offering, to name a few. Meanwhile, technology can — and will — replace many human interactions. Housekeeping will have to re-evaluate the extra throw pillows and blankets. From a design perspective, it’s going to be more attractive to guests to reduce opportunities for shared items and to see an increased importance on hygiene and disinfection.

Hold tight; it’s looking up from here on out As long as the borders are closed and stay-at-home orders are in place, the Canadian hotel industry will not be able to return to the numbers enjoyed over the previous decade. The good news is we can weather this. Government subsidies must continue to support until occupancies are up, as they were the crucial piece that allowed some hotels to reopen their doors. Creative financing structures are already cropping up to make sure there is still market movement despite the barriers. Colliers’ 2021 Canadian Hotel Investment Report and recent webinar paint a positive future for the hotel industry and we predict resilience and recovery. Alam Pirani is the Executive Managing Director of Colliers Hotels, leading the team responsible for Canada and the Caribbean. Robin McLuskie is the Managing Director of Hotels at Colliers and has been representing Canada’s largest hotel owners since 2003.

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IMA SCHOLARSHIP 2021 AWARD WINNERS Despite the finical challenges of the COVID-19 pandemic, the IMA was fortunate to be able to continue to grow the Scholarship Trust Fund.

Thank you to all the sponsors and individuals doners for their contributions in supporting the next generation of property assessment professionals. Congratulations to all the 2021 Award recipients, check out what they had to say about receiving these awards and what it means for their careers below!

The IMA Achievement Award is awarded to the student who achieves the highest overall grade in the full-time Real Property

Seneca College Scholarship Awards

Mario Vittiglio Achievement Award, 2021 Recipient: Mary Murrill

Administration diploma program at Seneca College. The winner will receive $1,000 for obtaining the highest mark in the RPA Program, awarded in the second year of study. “The Real Property Administration program has provided me with a strong foundation in property assessment. I’m confident that the hands-on projects from courses in valuation and assessment appeals will set me up for great success as I begin my career in property valuation at MPAC in North Bay. To further my credentials, I will be working towards an A.I.M.A designation, followed by the M.I.M.A. designation. To help pay for the additional courses, this scholarship will be of great benefit, and I want to thank you again for this opportunity.”

Christian G. Schulze Award for Excellence, 2021 Recipient: Benjamin Kwok Po Leung

Available to students in the full time Real Property Administration diploma program at Seneca College. This award is given to the student who achieves the highest mark in IMA321: Fundamentals of Canadian Assessment Law. The winner will receive $500 awarded in the second year of study. “This award will not only assist me financially in my future studies, but it will also provide confidence to my future employers of my knowledge and abilities. I am honored and grateful to receive such a prestigious award, knowing that the hard work I put in for the past two years has been recognized. I would like to take this opportunity to thank you for giving me this award, and I really appreciate your continuous support to this amazing program.”

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IMA Assessor Recognition Award, 2021 Recipients: Cathy Gue & Ece Ertac

This award is given to students demonstrating potential in the field of property assessment and taxation as deemed deserving, by the faculty of the RPA program at Seneca College, based on enthusiasm and interest shown in the subject matter and notable in-class participation and performance. The winner will receive complimentary registration for IMA435: Cost Depreciation Analysis. Cathy Gue: “I would like to say thank you for selecting me for the IMA Assessors Recognition Award. It is a great honor and encouragement to me. I will continue devoting my time and effort in the field of property assessment and taxation.” Ece Ertac: “I am honored to be selected for the IMA Assessors Recognition Award. This Award encourages me about the path I am taking towards the A.I.M.A. and M.I.M.A. Designations.”

Institute Scholarships New This Year, Carl B. Davis Award, 2021 Recipient: Dustin Mate, A.I.M.A.

Available to all members. This award is given to the student who achieves the highest mark in IMA-321: Fundamentals of Canadian Assessment Law. The winner will receive $500, awarded annually in April. “I am honoured and humbled to have been selected for the winner of the Carl B. Davis Award for Excellence. After a more than 20-year career in the Insurance and Financial Services industry I cautiously changed careers to assessment just over 3 years ago. I must say that as a recent graduate of the A.I.M.A. program I have been given the knowledge and skills to help me build confidence as I navigate my way in my new career of assessment. I am very grateful for such a supportive and professional association. Thank you!”

The IMA remains dedicated to education and professional development. The IMA Scholarship Fund supports members, students, and the assessment professionals of tomorrow in their pursuit of higher education. Learn more about how you can contribute to IMA Scholarship Fund here so as an organization we can continue to assist the professional development of our members for years to come.

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2021 DISTINGUISHED SERVICE AWARD In May 2021, the IMA Board of Directors approved the creation of a brand-new major award, the Distinguished Service Award.

Recipients of the Distinguished Service Award have given illustrious and dedicated service to the Institute of Municipal Assessors. It is awarded to a member whose personal activities, leadership and dedication have resulted in a striking illustration of the IMA’s values or a notable advancement of the Institute.

Past-President Terry Peckham, M.I.M.A. was unanimously selected as the inaugural recipient and was bestowed the award by incoming President Caterina Chiarandini, M.I.M.A. at the 2021 Annual General Meeting on June 14, 2021. As Caterina noted in her recognition speech, “Terry, you have shown tremendous leadership in your twoyear term as President. You lead the IMA through unprecedented challenges with profound thought and reflection. You excelled in the extremely difficult task of guiding the Institute through many months of uncertainty amidst a global pandemic.” Thank you for your outstanding service Terry! This award could not go to a more deserving member. Congratulations!

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MARIO VITTIGLIO, M.I.M.A. (LIFE) RETIREMENT RECOGNITION As many will know, Mario Vittiglio, M.I.M.A. (Life) retired from the IMA in 2020 after seventeen years as Executive Director. Mario’s dedication to the Institute stretched over five decades, serving on the IMA Executive from 1991 to 1995 and as President for the 1994/1995 term. To recognize Mario’s tremendous career and outstanding contributions to the IMA, we are pleased to report the following acknowledgments:

Life Membership: In the summer of 2020, Mario was nominated, and unanimously approved, for Life Membership status.

Scholarship Award: Mario was instrumental in forging the Institute’s rewarding partnership with Seneca College. To honour that legacy, the IMA Achievement Award was renamed the Mario Vittiglio Achievement Award, effective April 1, 2021.

Retirement Gift: In the spring of 2021, the legal community, IMA Executive Committee, Board of Directors, and IMA Districts, presented Mario with an Air Canada gift card to enjoy a retirement trip when restrictions permit. As per his request, we look forward to properly celebrating Mario’s retirement at the next in-person conference in 2022. Congratulations Mario - thank you for your many years of service and devotion to the Institute!

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WHAT YOU NEED TO KNOW: ONTARIO’S PLAN TO GROW THE SIZE OF THE GREENBELT

Katarzyna Sliwa and Katy Vergis-Mayo | Dentons In February 2021, the Province of Ontario announced its plan to grow the size of the Greenbelt. The Greenbelt Plan and A Place to Grow: Growth plan for the Greater Golden Horseshoe work together to provide a framework for where and how growth should be accommodated in Southern Ontario. On February 28, 2005, the Greenbelt Act, 2005 was passed by the Ontario government and protects nearly two million acres of farmland and environmentally sensitive areas. Over the past 15 years, the Ontario government has worked to expand the protections of the Greenbelt. In 2017, the Greenbelt protections were extended to 21 major urban river valleys and 7 coastal wetlands.

The proposal The Ministry of Municipal Affairs and Housing (MMAH) is seeking to grow the size, and further enhance the quality of the Greenbelt. MMAH identified two areas of priority, being:

1. A study area of land focused on the Paris Galt Moraine, which is home to critical groundwater resources 2. Ideas for adding, expanding and further protecting Urban River Valleys

Paris Galt Moraine The Paris Galt Moraine is an important feature that runs roughly from Caledon in the northeast to Brantford in the southwest. It is an area of rolling, hilly terrain that is the headwaters for many rivers and streams. Comprised of sand and gravel deposits, it helps to protect and recharge the groundwater aquifers that provide the basis for a broad range of needs, including drinking water supply for many communities, sustaining local ecosystems, and growth and economic management. Moraines allow rain and snowmelt to soak into the ground more rapidly and in much greater amounts than the surrounding, less permeable areas. This provides a reliable, slowly changing supply of water called baseflow to rivers and streams. Urban River Valleys The province is also proposing to apply the Urban River Valley designation to publicly owned lands in river valleys. The designation within the Greenbelt Plan is intended to integrate the Greenbelt into urban areas that were not part of the Greenbelt’s initial boundaries. The policy would only apply to publicly owned lands. These are often lands designated in municipal official plans as parks, open space, recreation, conservation and/ or environmental protection. There are currently 21 Urban River Valleys and associated coastal wetlands included in the Greenbelt.

Principles for growing the Greenbelt expansions The province identified six principles that will be followed for the expansion of the Greenbelt:

1. No consideration of removal requests or land exchanges This proposal is about growing the size and quality of the Greenbelt and the province indicated that it will not consider the removal of any lands from the Greenbelt

2. No consideration of policy changes Any potential expansions will be based on existing policies. The province will not reduce existing protections in the Greenbelt

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3. Supports the Greenbelt Plan objectives, vision, and goals Lands to be considered for addition must support the Greenbelt Plan’s objectives, vision and goals of providing permanent protection to the agricultural land base and the ecological and hydrological features, areas and functions and providing for the inclusion of publicly owned lands in urban river valleys.

4. Follows the existing amendment process for the Greenbelt Plan The Greenbelt Act, 2005 sets out the legislated public process that will apply to any proposed Greenbelt Plan amendments. This includes requiring consultation with affected public bodies such as the Ministry of Natural Resources and Forestry, Niagara Escarpment Commission and the Greenbelt Council, municipalities in the Greenbelt area, with the general public and engagement with Indigenous communities. This would also include ensuring that any proposed amendment does not reduce the total land area within the Greenbelt Plan.

5. Connects physically and/or functionally to the current Greenbelt The Greenbelt is meant to be a continuous broad band of permanently protected land. Any expansions shall build upon the systems approach of the Greenbelt Plan and should be directly connected to or have a strong functional connection through the Greenbelt’s natural heritage, water resource or agricultural systems so not to create unconnected islands of Greenbelt land.

6. Considers impacts on existing provincial priorities Expansions to the Greenbelt must consider their effects on other key provincial priorities outlined in the Provincial Policy Statement and A Place to Grow.

Feedback received from the public and municipalities The Environmental Registry of Ontario’s comment period for this proposal closed on April 19, 2021. Public comment from environmental groups have advocated for a more ambitious approach to protecting valuable land and water resources in the Greater Golden Horseshoe. Municipalities throughout Southern Ontario have also been asked to provide feedback to the Provincial Consultation on Growing the Size of the Greenbelt. A number of municipalities have provided comments, ranging from concerns that further expansion of the Greenbelt into their municipality may result in economic hardship, to comments that more substantive methods of growing the size of the Greenbelt are needed, such as a watershed-based approach to identifying areas for potential inclusion. Municipalities have also expressed concern that the plan aims to protect ‘already protected’ areas, which are protected by the municipality’s Official Plan. Dentons will continue to assess the outcome of Ontario’s Plan to Grow the Size of the Greenbelt and how the Province responds to the feedback that has been received. If you have any questions about how this relates to you or your business, please contact Katarzyna Sliwa, Mary Ellen Bench or any member of our Municipal Planning, Land Use and Development Law group.

IMA | INSTI-NEWS

WHICH TRENDS SURVIVE? RETAIL’S PANDEMIC PIVOT FACES NEW TEST

Steve McLean reporter, editor and communications specialist at RENX.CA Many retailers have had to change the way they traditionally did business due to the COVID-19 pandemic, and a June 9 panel at the Land & Development Conference examined this evolution. Panel moderator and JLL Canada executive vice-president and national lead for retail Tim Sanderson opened the virtual session by congratulating landlords for helping retailers get through the crisis during the past 15 months. Tate Economic Research Inc. president Jamie Tate followed with a presentation looking at some key retail trends. National in-store sales were constant and e-commerce sales were increasing until March 2020, when COVID-19-related measures closed or restricted occupancy in a wide range of stores. Brick-and-mortar sales bottomed out, but had returned to pre-pandemic levels by last July. Additional closures through the first half of 2021 have reduced those sales again. Tate said e-commerce sales have subsided since the peak of last May, but are still well over double what they were before the pandemic. People are becoming more comfortable with shopping in stores again, Tate said. There’s been an accelerated shift in curbside pick-ups from stores and restaurants, and grocery deliveries and meal kit purchases have also grown in popularity. Sanderson said online and click-and-collect shopping may create lost sales opportunities, however, as consumers often pick up impulse purchase items while they are physically in a store. However, more technologically advanced drive-through services, self-checkouts and click-and-collect purchasing look like trends which are here to stay, according to Tate.

Repurposing shopping centres

Increase in omni-channel retail

RioCan REIT chief investment officer Andrew Duncan said the trust isn’t actively pursuing industrial uses in shopping centres, although it’s paying attention to the trend.

“When a company like Amazon is talking about the importance of a retail presence, it’s a good sign for our industry.”

“Industrial rents are just not the same as retail rents. And when you’re curating a retail centre, whether it’s enclosed or unenclosed, which is typically what we’re looking at in a primary market, dropping an industrial use into the middle of it impacts it. It changes the look.”

Tate expects there will be less demand for physical retail space in the future because of omni-channel retailing. Stores won’t need as much inventory in their back rooms since so much shopping will be done online and goods will be shipped directly from a warehouse.

Sanderson said retail and industrial land are both selling for approximately $3 million per acre in the Greater Toronto Area.

“I think, going forward, we’re going to see more retailers doing more with less,” said Tate. “There’s still tremendous growth out there due to population, but the amount of space per person is declining. And that’s what we’re seeing impacting some of the new centres, as well as some of the planned centres.”

Tate expects increased shopping centre redevelopments, where at least some retail space will be removed and residential or space for other uses will be added. He said some mid-box stores are being re-tenanted and sometimes being used as distribution centres.

“A lot of our retailers are becoming pseudo-industrial users anyway,” said Duncan. “We’re paying attention to it in terms of trying to figure what the highest and best uses for some of the edges of our portfolio are.”

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Some formerly digital-only retailers have moved into physical spaces, including eyeglass merchant Warby Parker, men’s custom apparel retailer Indochino, clothing seller Frank and Oak, mattress-maker Casper and Amazon, which Tate said now has 600 physical stores in North America.

Retail rent collections update

Rent collections hit a low in April 2020, but Tate said they’ve returned to a point close to where they were before COVID-19 appeared in Canada. Duncan said RioCan immediately repurposed many employees to deal exclusively with tenants when the pandemic hit. It has deferred some rents, abated others and entered more creative lease deals than it may have in the past. Rent collection and occupancy were both at 96 per cent in the most recent quarter, when RioCan signed a million square feet in lease deals, according to Duncan. “I think we know our tenants even better than we did before and that can’t be a bad thing. I think we’ve got a better working relationship than we had before and we thought we had pretty good ones.” Trinity Development Group senior vice-president of investments Kevin Stark said his company has worked with individual tenants on a case-by-case basis regarding rent collections. While some tenants have been very good to work with, he feels others may be trying to take advantage of the situation.

Reopening Canadian retail

The U.S. is ahead of Canada in reopening retail and Duncan said landlords south of the border have told him “they’re back to pre-pandemic demand and they’re back to prepandemic deal negotiations.” Duncan believes Canada can expect the same thing in the coming months as lockdowns end. “I think you’re going to see landlords being a little choosier about who they do deals with in terms of how stable those tenants are and how, if we end up in a similar situation in the future, are they going to be able to transact?” said Duncan. “Having faith in their covenant is one thing, having faith in their business viability is even better because if they’re going to be successful, they’re going to pay the rent.” Hullmark asset management VP Mitch Gillin said there are also American companies interested in opening in Canada when borders open widely again. Stark believes more shopping centre space will be allocated to dentists, doctors, medical clinics and other similar uses — which aren’t impacted by e-commerce — as malls right-size and transition.

“We are your landlord and not necessarily your banker,” said Stark. “We’re happy to extend some terms and some concessions, but we bore a large brunt of this.”

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Food service retailers

Regent Street is a boutique retail real estate brokerage that performs site selection and lease document negotiations for a range of retail clients and also represents select landlords. The majority of its clients are food service retailers. “It’s been amazing to see so many restaurants pivot as quickly as they have into pick-up and delivery models, and particularly restaurants that you’d never imagine doing that,” said company founder Vanessa Oliver. Some restaurants are also selling groceries and meal kits as well as prepared meals. “I think that those offerings will be here to stay,” said Oliver. “I think that the consumer, as it relates to retail and restaurant offerings, will be winners at the end of this.” Oliver said many of her clients were hit hard by COVID-19 shutdowns, but some used the crisis as an opportunity to negotiate more favourable locations and lease terms. “I’m expecting that business is going to be stronger than ever for retailers and restaurant groups as soon as we’re allowed to go out and enjoy those things,” said Oliver. Landlords are still looking to fill spaces, Oliver said, especially in new mixed-use developments where construction is continuing and the property owners and managers don’t want to reach completion without retail tenants in place. “We’re seeing landlords and tenants needing to work more collaboratively than ever. But the good news is deals are still getting done. I think there is a lot to be positive about if we can just manage these next few months until we get to the other side.”

Streetfront retail

Hullmark’s retail holdings are largely urban streetfront locations. Gillin has been impressed by the resilience and adaptability of operators, many of which have been pushed by the pandemic to become omni-channel retailers and service providers. Sanderson said if retailers don’t have an e-commerce platform now, they won’t be paying rent in five years. Gillin said some retailers are now engaging customers in different ways through social media and other online platforms. Savvy restaurant operators are now doing presales and using scarcity to drive demand, help manage their inventories better and improve margins. Gillin also highlighted a fitness centre which is renting its exercise bicycles to customers in addition to conducting online classes.

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