Best Canadian Retail REITs
Traduction en cours — le texte ci-dessous est temporairement en anglais.
Retail REITs own the shopping centres, plazas and malls where Canadians buy groceries, fill prescriptions and run errands. The category was written off during the rise of online shopping, but the reality is more nuanced: the best-located, grocery-anchored and necessity-based retail has proved remarkably resilient. This guide explains how to tell durable retail real estate from the vulnerable kind, using categories and drivers rather than stale prices or yields.
Not all retail is the same
The single most important distinction in retail real estate is what the property sells. Necessity-based retail such as grocery stores, pharmacies and discount chains draws steady foot traffic no matter the economy. Discretionary retail such as apparel and department stores is far more exposed to online competition and economic downturns.
That is why grocery-anchored plazas are considered among the most defensive retail assets: a supermarket brings shoppers who also visit the smaller neighbouring stores. Enclosed malls dependent on discretionary spending sit at the riskier end.
- Defensive: grocery-anchored centres, pharmacies, essential services, discount retailers.
- Cyclical: fashion, department stores, enclosed regional malls.
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How e-commerce reshaped the sector
Online shopping genuinely hurt weaker retail formats and forced landlords to adapt. Strong operators responded by focusing on necessity tenants, redeveloping surplus land, and even turning excess parking or store space into residential or mixed-use projects.
At the same time, physical stores never disappeared. Many retailers now use their locations as pickup and return points for online orders, which keeps well-located space relevant. The lesson is that quality and location matter more than ever in retail real estate.
A REIT's tenant mix tells you a lot: a portfolio dominated by grocers and essential services is on firmer ground than one reliant on discretionary chains.
Metrics and signals to check
Evaluate retail REITs on the durability of their rent and the strength of their tenants.
- Tenant mix: the share of rent from necessity versus discretionary retailers.
- Occupancy and renewal rates: high occupancy and tenants that renew signal desirable locations.
- AFFO and payout ratio: distributions comfortably covered by adjusted funds from operations.
- Anchor tenant health: the financial strength of the grocery or major tenant that draws traffic.
- Redevelopment upside: surplus land or density that can be converted to higher-value uses.
- Debt profile: leverage and near-term refinancing exposure.
The risks worth respecting
Retail carries specific risks. A single large anchor tenant going bankrupt can hit occupancy and drag down the smaller stores that depend on its traffic. Discretionary-heavy portfolios are exposed to consumer spending slowdowns and continued online competition.
Like all real estate, retail REITs are rate-sensitive, so their prices fluctuate with interest rates regardless of how the underlying centres are leased. And redevelopment, while a source of long-term value, takes years and capital, so it is not a quick fix for a weak portfolio.
These risks are why tenant quality and location should sit at the centre of your analysis.
Fitting retail into your portfolio
A grocery-anchored retail REIT can provide steady, defensive income within a real estate allocation. As with other REITs, distributions are typically taxed as ordinary income or return of capital, so a TFSA, RRSP or FHSA is the natural home for them.
Many investors blend retail with residential and industrial exposure so no single tenant type dominates. If you would rather not analyse individual trusts, a broad Canadian REIT ETF spreads your money across retail and every other property sector. Whichever route you choose, treat retail real estate as a long-term, income-oriented holding and reinvest the distributions to compound.
Questions fréquentes
Did e-commerce kill retail REITs?
No, but it separated winners from losers. Necessity-based, grocery-anchored centres have stayed resilient, while discretionary-heavy malls struggled. Location and tenant mix now determine which retail real estate thrives.
Why are grocery-anchored plazas considered defensive?
A supermarket generates steady foot traffic regardless of the economy, and that traffic supports the neighbouring pharmacies and service tenants, producing dependable rent and high occupancy.
What is the biggest risk in a retail REIT?
The loss of a major anchor tenant. If a grocery or department store closes, it can reduce foot traffic and hurt the smaller stores that depend on it, weakening occupancy across the centre.
Sources
Information générale destinée aux lecteurs canadiens; ne constitue pas un conseil financier, fiscal ou de placement personnalisé. Les chiffres reflètent la date de révision; confirmez les limites et règles en vigueur auprès de l'ARC ou d'un professionnel qualifié avant d'agir.