National Retail Report Canada SPRING 2015 EDITION

Accelerating success.

Report prepared by Colliers International Consulting

James SmerdonVice President and Director, Retail ConsultingDIRECT +1 604 685 4808james.smerdon@colliers.comJames is a retail consultant and market analyst with Colliers International Consulting, based in Vancouver. James has been a consultant since 1997, and has advised on hundreds of retail development projects across the country. http://www.collierscanada.com/Services/Consulting

David BellSenior Associate, Planning and Retail ConsultingDIRECT +1 604 694 7243david.bell@colliers.comDavid is a retail planning consultant and market analyst with Colliers International Consulting, having joined the Vancouver office in 2010. Over the past 16 years, David has consulted on hundreds of public and private sector retail and mixed-use projects throughout Canada. http://www.collierscanada.com/Services/Consulting

Colliers International Consulting (CIC)Colliers International Consulting (CIC) is an independent consulting group based in Vancouver, British Columbia. CIC specializes in strategic real estate analysis for Private and Public Sector clients both domestically and abroad. Our project experience spans a range of specializations in:

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A seemingly simple question then becomes more complex as we tried to answer it.Is the largest retailer the one with the greatest global revenue? Highest sales volume in Canada alone? The largest single banner or collective of many store banners? Or is size simply a measure of floor area? We have all the answers to the one question of Canada’s largest retailer:

Global revenue: according to the Globe and Mail, the Canadian retailer boasting the greatest revenue is Alimentation Couche-Tard, with global revenue from this diverse convenience store and gas station conglomerate topping $35.5 billion in 2013. George Weston Ltd. is close behind at $33.7 billion, however, Loblaw Cos. is also listed by the Globe and Mail at $32.4 billion, and Shoppers Drug Mart (acquired by Loblaw) at $11.1 billion. If those revenues are added to the George Weston Ltd. total, it would be the largest Canadian-based retailer by a clear margin.

Canadian Sales: the Centre For the Study of Commercial Activity (CSCA) compiles a list of Canada’s leading

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What is Canada's Largest Retailer?

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retailers, which includes only domestic retail sales. The CSCA list (using 2013 data) has the Weston Group number one ($32.4 billion), and Shoppers Drug Mart ranking 6th with an additional $10.9 billion. Clearly, the Weston Group is the leading conglomerate at selling to Canadians. Walmart Canada ranks second at $27.1 billion (2013), but 2015 sales will undoubtedly reflect the Target Canada closures on Walmart’s bottom line. In 2013, according to CSCA, Target Canada’s sales were $1.3 billion spread over 13,600,000 ft.². This means that Target Canada’s chain wide productivity was an anemic $97 per square foot, compared to Walmart’s $492!

Single Banner: if we just look at sales through a single store brand, there is none larger than Walmart. With Canadian sales of $27.1 billion, Walmart’s national chain of almost 400 stores is truly remarkable.

Floor Area: according to CSCA’s most recent data, Walmart’s 2013 store network covered over 55,000,000 ft.² this number has certainly jumped in recent years both through the development of new stores as well as assuming some of the vacated Zellers and Target stores. However, Weston Group’s 52,600,000 ft.² plus 13,800,000 ft.² acquired with Shoppers Drug Mart means that the Westons trump the Waltons in this category too.

Economic Impact: with almost 1400 stores (rank 4), 22 different chains (1), and 250,000 employees (1, including SDM), The Weston Group is without a doubt Canada’s first family of retail. Their chains cover Canada from coast to coast and represent over 14% of all retail sales in this country.

Sales productivity: On most of the above categories, depending on the fiscal year or whether you consider multiple banners to be multiple retailers, for example, there can be some debate about the rankings. On sales productivity, however, there is no debate. Apple operates 29 stores in this country, and occupies only 203,000 ft.². Its 2013 gross sales of $1.47 billion give it an average sales productivity rate of over $7200 per square foot. Some of the more productive Apple stores in the country are estimated to have double that average productivity. Expect these numbers to rise even higher once the Apple Watch is sold through stores and not just online. As a point of reference, the top 10 retailers in CSCA’S ranking of largest retailers average sales of just $585 per square foot.

Largest Online: Current estimates of online sales revenue has Amazon leading for Canadians’ online spending with over $2 billion in sales in 2014. Walmart has made a strong push into online retailing. In only the last 4 years, Walmart has grown its online sales to over $1 billion in Canada. While the total sales volumes still pale in comparison to traditional retailing, the growth rates continue to amaze: Walmart’s online sales are growing at an average of 165% per year, and online as a whole grew by 15% last year.

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Colliers’ 2014 Forecast versus RealityActual 2014 retail sales by province ended up being very close to Colliers’ forecast numbers, as provided in the Fall edition of Colliers’ National Retail Report. Actual national retail sales volume of $505.56 billion just barely eclipsed expected volume of $505.38 billion.

Projections for the “Big 4” provinces, which account for 85% of Canada’s national retail sales volume, were again very close to actual performance:

> Ontario — Actual 2014 sales for Canada’s largest provincial retail market (roughly 35% of Canada’s sales) came in at just under $176.2 billion – exceeding CIC’s projection ($175.4 billion) by less than 0.5%. Ontario placed third overall in terms of growth relative to 2013.

> Quebec — Canada’s second largest market, accounting for 22% of national sales, recorded 2014 retail sales of $109.03 billion – less than 0.3% short of CIC’s projected figure of $109.35 billion.

> Alberta — Canada’s third largest provincial retail market topped the year-over-year growth ranking once again in 2014, recording roughly $78.7 billion in sales – nearly 7.7% above 2013 volume. This fell short of Colliers’ projected volume of roughly $79 billion by about 0.4%.

> British Columbia — Rounding out the “Big 4”, B.C. had a strong year, ringing up over $66.4 billion in retail sales and exceeding Colliers’ anticipated volume of $66.2 billion by just over 0.3%.

Other standout performances worthy of mention are those of:> Manitoba — Manitoba continues to

place well on the national retail sales growth list, reaching fifth spot behind Saskatchewan and Ontario on sales approaching $18 billion (up 3.9% over 2013).

> Saskatchewan — Saskatchewan recorded another strong retail year on total retail sales of $19.1 billion - a 4.5% increase over 2013, though slightly below Colliers’ expectation of over 5.1%.

Colliers' 2014 Projection vs. Actual PerformanceAll Retail Categories

Projected

(Actual)

Rank

Province

CIC Projected SalesActual 2014

Performance

Accuracy of

Colliers'

Prediction

(+/-%)2014 ($B)

2013-14

YOY%2014 ($B)

2013-14

YOY%

1 (1) Alberta $79.03 8.10% $78.71 7.65% 0.41%

2 (2) British Columbia $66.19 5.51% $66.41 5.87% -0.33%

3 (4) Saskatchewan $19.24 5.15% $19.13 4.53% 0.58%

4 (3) Ontario $175.37 4.23% $176.19 4.72% -0.47%

5 (5) Manitoba $17.62 3.60% $17.97 3.87% -1.95%

6 (6) New Brunswick $11.51 3.60% $11.51 3.63% 0.00%

7 (7) Newfoundland & $8.89 3.56% $8.88 3.42% 0.11%

8 (8) Prince Edward Island $2.00 2.89% $2.00 2.97% 0.00%

9 (9) Quebec $109.35 2.86% $109.03 2.56% 0.29%

10 (10) Nova Scotia $13.96 2.60% $13.90 2.16% 0.43%

Canada $505.38 4.63% $505.56 4.67% -0.04%

Source: Statistics Canada CANSIM database - Cat. 080-0020. Colliers International Consulting

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2015 Canadian Retail Performance to DateWhat a difference a year makes. With the WTI Oil price index taking a plunge in late 2014, the negative impact on consumer confidence and ultimately retail sales over the immediate term has been clear. The WTI topped $107 in June of 2014, but plunged to about $45 in mid March, 2015. Since then, prices have climbed and now stand at just over $60/barrel, but the impact on consumer confidence in part due to this dramatic drop in oil prices and related employment rationalizations over the immediate term is clear in the retail sales performance figures through March of this year.

As noted in the chart below, while Alberta and Saskatchewan started the year off especially well through the 1st quarter of the 2012-14 period, the first quarter of 2015 reflects a dramatic shift in consumer behavior relative to last year, with Alberta, Saskatchewan, and the east coast provinces all recording significant, sales declines relative to the first quarter of 2014. With oil prices now in the low $60 range, it will be interesting to see how Q2 retail sales volumes adjust.

British Columbia, Meanwhile, has leapt out of the gate in 2015, with first quarter year-over-year sales growth approaching 8%. This upswing in retail sales activity matches Conference Board of Canada expectations of BC GDP growth of 2.6% for 2015, in part due to growth in exports spurred on by a strengthened U.S. economy.

Ontario's first quarter year-over-year retail growth relative to 2014 is also strong, approaching 4%. A combination of higher U.S. growth, a lower Canadian dollar, and cost savings by consumers and businesses driven by lower oil prices, is expected to generate GDP growth of 2.6% in 2015.

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1Q Year over Year Retai l Sales Growth by Province (2012-2015)

2012 2013 2014 2015

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Major Market Data by CityThe information in the following table is from a survey of expert opinions of Colliers brokers and research specialists in each market and is not represented as actual data. The information was collected to cater to the specific needs and interests of national chain retailers looking for a single source of information on lease rates, vacancy rates and recent trends for major markets across the country.

The following are top-line takeaways derived from the chart below:> Victoria is becoming more of a tenant’s

market with all of these retail classes showing decreasing rental rates and increasing vacancy rates.

> Calgary and Edmonton rental rates and vacancy rates have stabilized, possibly indicating a reversal of the landlord- market prevalent in the last decade.

> Ottawa and Montreal are also both indicating stability across the board after a reversal of recent trends.

Neighbourhood Regional Power CentreNET

RENT6 MO. TREND

VACANCY RATE

6 MO. TREND

NET RENT

6 MO. TREND

VACANCY RATE

6 MO. TREND

NET RENT

6 MO. TREND

VACANCY RATE

6 MO. TREND

Victoria High $24 ↓ 4.5% ↑ $38 ↓ 6.3% ↑ $27 ↓ 1.6% ↑Low $16 0% $30 0% $20 0%

VancouverHigh $30

↓ 10%

↑$200

↔7%

↔$20

↑3%

↔Low $14 5% $28 3% $10 2%

Kelowna*High $28

↔ 15%

↑$110

↔10%

↑$30

↓5%

↑Low $22 5% $50 5% $20 0%

CalgaryHigh $32

↔ 1.5%

↔$200

↔2%

↔$80

↑2%

↔Low $24 1.5% $60 1.8% $35 1%

EdmontonHigh $35

↔ 3%

↔$35

↔3%

↔$40

↔3%

↔Low $22 1% $25 1% $25 1%

SaskatoonHigh $36

↑ 5%

↔$60

↑25%

↑$34

↔3%

↔Low $26 0% $38 5% $22 0%

ReginaHigh $32

↔3.5%

↔$50

↔4%

↔$48

↔2%

↔Low $24 1% $30 0% $26 0%

Winnipeg High $32

↔6%

↔$100

↑5.0%

↔$35

↔4%

↑Low $20 2% $40 1% $22 0%

TorontoHigh $25

↓8%

↔$130

↓3%

↔$33

↔4%

↑Low $12 5% $25 1% $18 2%

Ottawa*High $25

↔10%

↔$100

↔10%

↔$35

↔10%

↔Low $15 5% $50 0% $15 5%

MontrealHigh $15

↔7%

↔$18

↔5%

↔$20

↔5%

↔Low $10 5% $15 3% $17 3%

HalifaxHigh $25

↑8%

↔$75

↔1.3%*

↓$25

↑3.7%*

↑Low $20 7.0% $70 1%* $18 3.4%*

Notes: Neighbourhood shopping centre lease rates are for 2,000-square-foot, in-line unit with 10 to 12 foot ceilings and ground level entrance. Enclosed regional shopping centre lease rates are for a 4,000 square foot unit. Power centre lease rates are for a 5,000 to 10,000 square foot unit, which could be on a pad site, in a cluster of CRUs or in-line in a strip*Only 2014 data is available

Retail Survey Market Data

Victoria + 1 250 388 6454Nanaimo + 1 250 740 1060Vancouver + 1 604 681 4 1 1 1Kamloops + 1 250 372 7000Kelowna + 1 250 763 2300Calgary + 1 403 266 5544Edmonton + 1 780 420 1585Saskatoon + 1 306 664 4433Regina + 1 306 789 8300Winnipeg + 1 204 943 1600Toronto + 1 416 777 2200Burlington + 1 905 333 8849Waterloo + 1 519 570 1330London + 1 5 19 438 4300Ottawa + 1 6 13 567 8050Montreal + 1 5 14 866–1900Quebec City + 1 418 263–4800Moncton + 1 506 870 2700Halifax + 1 902 422 1422

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