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A TAIL FOR TWO MALLS

Developers add lifestyle extensions to revamp older shopping centers

BY SUSAN THORNE

Canada has neither the warm weather nor the upscale demographics to support a lifestyle center boom like the one the U.S. has seen in recent years. But it does have many older malls in need of a fresh format, and adding lifestyle components to those is an option many Canadian developers are considering now.

The Park Royal mall, Vancouver, British Columbia’s oldest shopping center, was the first Canadian mall to grow a tail. In September the 990,000-square-foot Park Royal opened an attached, open-air component called The Village at Park Royal. The developer says this 238,000-square-foot, C$30 million ($25 million) development is Canada’s first lifestyle center.

In Ontario another of Canada’s oldest shopping centers looks set to take the hybrid route, with construction scheduled to begin this fall. The Cadillac Fairview Corp. is applying for municipal permission to reconfigure the 49-year-old Don Mills Town Centre, a 400,000-square-foot mall in eastern Toronto whose catchment area takes in some of the city’s wealthiest neighborhoods.

The Park Royal expansion was undertaken to “broaden our draw and deepen our reach” in affluent northwest Vancouver, says Rick Amantea, CSM, vice president of the locally based Park Royal Shopping Center Holdings, which manages the center. The objective is to bring in tenants that are new to the area and can draw new shoppers, he adds.

Inspired by the increasing popularity of lifestyle centers in the United States, the landlord settled on a variation of this format. But leasing proved to be a test. “Our existing shopping center already had lifestyle retailers like Banana Republic, Gap and Talbot,” Amantea said. “Yet we didn’t have access to tenants like Pottery Barn or Williams-Sonoma because they weren’t in Canada yet.”

Indigo and Chapters, Canada’s only national large-format bookstore chains, were not in an expansion mode at the time, and neither were the national cinema chains. “So a lot of the components of the U.S. lifestyle center were already in our project or not available,” Amantea said. Several big-box retailers, including Coast Mountain, Sport Check and Winners, had been brought in earlier to fill a 200,000-square-foot former Eatons department store, so that meant those players were out of the running too.

But the landlord persevered, and the Village succeeded in attracting a mix of five anchors — Home Depot Urban Concept, Home Sense, Michaels, Old Navy and Whole Foods Market —and 34 specialty retailers.

It is these large-format tenant selections that make this expansion different from the U.S. models, of course; south of the border, lifestyle centers generally don’t house big-box retailers.

Some upscale regional fashion operators, among them Danier Leather, Kiss & Make-Up and Lululemon Athletica, complement the large-format stores, and such food service venues as Cactus Club, Starbucks and Steamworks Brewing Company offer 1,000 restaurant and café seats and 500 patio seats. “So the whole project has a life outside retail,” Amantea said.

Shopper response has been immediate, according to Larco Investments, developer of the Village at Park Royal. Foot traffic to the enclosed mall was up 5 percent in September, with new visitors arriving from a wider catchment area.

Gross rental rates (including common-area maintenance charges) for Village stores smaller than 5,000 square feet are very close to the minimum rents in the enclosed mall, where sales have held steady at about C$600 per square foot, he says. Amantea would not disclose sales figures for the Village portion, however.

Cadillac Fairview plans to reconfigure The Don Mills Town Centre (which is saddled by an empty, 160,000-square-foot Eatons store) as an open-air square surrounded by stores and adjoined by an enclosed mall, says Anne Morash, vice president of development. The project will tap into Toronto’s hot residential market by incorporating 1,500 apartment units built in partnership with Fram Building Group, Mississauga. The redeveloped facility will provide a community district for its largely local trade area, Morash says. There will be a bakery and a fishmonger, gourmet eateries and recreational attractions that may include an ice rink. The merchandise mix will focus on services and stores for everyday needs, food and dining, and lifestyle. Management says it hopes to include retailers like Williams-Sonoma and Caban.

The center’s lifestyle repositioning will stress store and merchandise quality rather than premium price, Morash says. “We’re not looking to turn this into a high-priced fashion center,” she said. “Rather, we want to add good-quality, best-in-class tenants who are being asked to give us their best store formats and layouts.”

Though the Park Royal and Don Mills precedents could influence future mall renovations in Canada, observers say they doubt that stand-alone lifestyle centers will spring up there the way they have in the United States. Canadian developers will be examining the hybrid option for underperforming older properties, says Maureen Atkinson, a senior partner at the J.C. Williams Group, Toronto. But even that won’t work for all of them, she says, noting that an affluent-shopper demographic is important for the kinds of lifestyle retail stores being included in these projects.

“Both Park Royal and Don Mills have that upscale component that makes them really valuable properties worth developing for retail, as opposed to leveling the center and putting in housing,” she said.

Park Royal’s Amantea agrees. “This kind of center is certainly not the cure-all for every piece of land,” he said. “You need to be in a market with very strong spending potential.” The cost to the developer is a consideration, too, he cautioned. “These centers tend to be 30 to 40 percent more expensive to build [than an enclosed mall].”

Hybrid centers with larger-format retail really only work where they offer big-box retailers entrance to an otherwise inaccessible market area, points out Jim Szabo, vice president of investment sales at the Vancouver office of commercial real estate consulting firm CB Richard Ellis. Such retailers prefer to avoid CAM expenses, Szabo says, so if there’s a nonmall alternative nearby, they’ll take it.

This generally rules out suburban malls, where a Home Depot or a Michaels could locate nearby. Instead, “you’re more likely to see them [malls with tails] in more restrictive land-use areas,” said Szabo.

Szabo opines that other retailers eager to grow their businesses could follow Home Depot’s example and tailor their store size and offerings to suit a hybrid center’s tail section. Yet he speculates that demographics severely limit the lifestyle center’s potential in Canada. “You need a high-end market, and that means Vancouver, Toronto or Montréal,” he said. “You’re not going to see them on the Prairies.” Nationwide, he predicts that the eventual number of lifestyle centers will not exceed half a dozen.