RioCan sale points to sluggish retail asset class
Colliers International report suggests trust aims to dig into ‘live/work/play lifestyle centres’
The recently announced sale of100 properties by RioCan, Canada’s largest retail real estate investment trust, suggests that retail as an asset class is losing steam, according to a confidential report from Colliers International.
“If guidance for the future for retail in Canada is to be taken from this change in direction for RioCan, it may be that retail as an asset class is a questionable focus, given RioCan’s move towards a more diversified portfolio that will include resi- dential,” wrote Craig Hennigar, director of market intelligence, Canada, at Colliers International.
RioCan announced this week that it is planning to sell 100 properties located primarily in secondary markets across Canada over the next two to three years to focus on growth in the country’s six largest cities.
The company wants to increase its focus on mixed-used properties in prime, highdensity areas with robust transit.
“In essence, RioCan is moving away from retail as a focus and is now looking to become entrenched in the type of live/ work/play lifestyle centres that have been topical over the past number of years; not least of which because of the potential headwinds that retail may face,” Hennigar wrote in the report.
The expectation is that millennials, who can’t afford to buy houses, are more likely to rent in such areas, Hennigar wrote.
“It’s not a matter of not having confidence in the retail market,” said Rags Davloor, RioCan president and chief operating officer.
The properties being sold are solid assets with good tenancies that RioCan feels will be attractive to buyers looking for a different type of return.
“You have different types of product that just suits a different investment strategy,” Davloor said. “For us, we are looking to allocate capital into our urban portfolio.”
He said that the residential component of the company’s holdings could eventually reach 10 per cent.
Hennigar said that while a real estate investment trust needs properties to provide income through rent and also appreciation, a different type of buyer may be more interested in simply acquiring a local retail property that doesn’t necessarily offer the same kind of appreciation.
The sale of the 100 RioCan properties is expected to generate total net proceeds of approximately $1.5 billion, according to the company.
“Our strategy to accelerate our portfolio’s focus on Canada’s six major markets will streamline our business model, advance the growth profile of RioCan to one of the strongest organic growth models in Canada and improve the resilience of our portfolio in the ever-changing retail environment,” RioCan CEO Edward Sonshine said.