A Safeway redevelopment at the Commercial-Broadway SkyTrain transit station in Vancouver features three towers and an expanded Safeway supermarket that anchors a new retail plaza.Supplied/Perkins&Will, Westbank and Crombie REIT
Like many large, mixed-use developments, plans have changed numerous times for a site adjacent to a future SkyTrain transit station in Vancouver. A recent amendment includes consolidating the property’s ground-level retail units into a large-format space for a grocery store – a transformative anchor in today’s multipurpose complexes.
When it came to making room for a supermarket, the developer, Onni Group, came to a decision based on past successes leasing its other Metro Vancouver developments with grocer-anchored plazas. Some of these include the fully leased Suter Brook Village shopping centre in Port Moody, where grocer Thrifty Foods is the largest tenant, as well as two master-planned communities – Ora in Richmond and Gilmore Place in Burnaby – that feature a T&T Supermarket, with the Burnaby one set to open this summer.
Grocery stores drive regular visitation to an entire development and attract other retail tenants, says Onni Group’s vice-president of development, Robert Vrooman. Supermarkets sell essential goods such as food, toiletries and other household items, which means they can sustain steady traffic during times of economic turbulence.
Other revisions to the four towers near the future SkyTrain station in Vancouver’s False Creek Flats neighbourhood have contained market-strategic decreases in office space and residential density additions, with several storeys added to each structure.
A boost to occupancy rates
According to a recent investment trends survey from data and analytics provider Altus Group, grocery-anchored retail centres remain the most-preferred Canadian commercial real estate asset for investors by a wide margin. A jewel of the retail sector during the pandemic, grocery-anchored plazas outperform any other type of retail property, showing higher occupancy rates and lower tenant turnover.
U.S. research shows grocery-anchored retail centres experienced 98-per-cent occupancy throughout 2024, while unanchored strip malls contended with rates below 85 per cent. This indicates grocers are not just prime tenants – they’re traffic-generators.
Limited inventory of grocery-anchored retail is an obstacle to investment in Canada, but owners are choosing to hold on to assets because they are performing well, with market rarity keeping sale prices on an upward trajectory, says Robert Santilli, Altus Group’s director of valuation advisory.
“Grocery retail is seen as a safe play in the market,” adds Mr. Vrooman, who oversees Omni Group’s 19 million square feet of commercial space and 28 million square feet in development across North America. Owing to a lack of supermarket-sized spaces in tight urban centres, Mr. Vrooman says grocery retail is “always high value and in demand.”
“One of the benefits of doing these large master-plan, mixed-use sites is that they can accommodate grocery store-anchored retail.”
Redeveloping an old Safeway
Around the time Onni Group decided to add a grocery store to its False Creek Flats property, another major Canadian investor finalized plans to redevelop five Metro Vancouver Safeway supermarkets.
Crombie REIT – its 303-property portfolio focuses on grocery-anchored retail and includes 19 Safeway stores in Vancouver – plans to “unlock value” through five of its properties by transforming them into mixed-use communities with multistorey buildings and new retail space anchored by expanded Safeways.
It’s early stages for four of the locations, though the fifth site, which is being jointly redeveloped with partner Westbank, received rezoning approval in June. For the fifth location in East Vancouver, an old Safeway and its sprawling parking lot are set to become a new retail centre, topped with three towers up to 43 storeys high and containing more than 1,000 residential units.
According to Crombie REIT’s president and CEO, the company’s properties provide stable cash flow, which helps support redevelopments such as the Safeway supermarket on Vancouver’s Davie Street.Supplied/Michael Elkan
“Our approach is focused on acquiring grocery real estate and optimizing our existing spaces,” says Mark Holly, Crombie REIT’s president and CEO. “Through our Safeway acquisitions, we’ve secured some of the most sought-after real estate in the city.”
According to Mr. Holly, the occupancy rate across Crombie REIT’s entire Canadian portfolio is 97 per cent. Its properties also offer stable cash flow, which supports redevelopment opportunities, he says.
Mr. Holly points to a previous intensification of a Safeway in Vancouver’s high-density West End neighbourhood. Redeveloped in accordance with LEED Gold standards in 2021, the mixed-use property features a Safeway anchoring a retail strip that includes a BC Liquor Store, Scotiabank and other shops, all supporting 330 luxury rental units in two towers.
“It’s an incredible asset with views of both Stanley Park and English Bay.”
Hold the extras
While the redevelopment potential of existing grocer-anchored plazas can be irresistible, successful investments are not always about creating additional structures. Strong retail sales performance contributed to the recent sale of the Cottonwood Centre shopping mall in Chilliwack, B.C. – about 100 kilometres east of Vancouver, real estate firm CBRE reports.
Vancouver-based developer PCI Developments added a Save-On-Foods grocery store to its retail plaza dubbed Cottonwood Centre in Chilliwack, B.C., before selling it in April for a reported $120-million.Supplied/Abbarch Architecture Inc.
Back in 2019, a consortium led by Vancouver developer PCI Developments spent $73-million on the centre. A $30-million upgrade included filling vacancies left by Sears Canada and Target with a new Save-On-Foods grocer, which attracted strong tenants such as cosmetics retailer Sephora.
In April, PCI Developments sold the property to Vancouver-based investor Finix Holdings for an estimated $120-million, according to Western Investor.
Top choice
“Speaking with investors, everybody’s looking for grocery-anchored retail, which obviously bids up the price,” Altus Group’s Mr. Santilli says.
The firm’s data show asset sales across all commercial real estate types were muted in this year’s first quarter. Retail sales reached $1.9-billion, which was well ahead of office but trailed sales volumes of both industrial and multiunit residential, both at $2.8-billion.
Retail value outperformed the four main commercial property types, with valuations up 4 per cent compared with a year ago, followed by residential at 1 per cent, industrial at 0.4 per cent and office at minus-4 per cent.
Onni’s Mr. Vrooman says economic conditions pose a challenge for development. Capital and construction costs have skyrocketed, and “rents seem not to have approached levels supportive of new construction,” according to a report on grocery stores from real estate company JLL.
“If you talk to a lot of my developer colleagues, you won’t find a lot of optimism right now,” Mr. Vrooman says. “But we’re strong believers in the long term and in the underlying fundamentals of the Metro Vancouver market, which is land-constrained. And there’s still a lot of demand from people to come here.”