TORONTO – RioCan Real Estate Investment Trust has reported that a limited supply of retail space has enabled the company to implement annual rent hikes across nearly all of its new lease agreements. The retail-focused real estate trust announced an impressive retail occupancy rate of nearly 99 percent for the last quarter, maintaining consistency with figures from the previous year and aligning with longer-term trends.
The firm attributed the limited supply to the high costs associated with constructing new shopping centers, as well as a scarcity of suitable land for development. This ongoing reduced availability is contributing to rising rental rates. In the quarter ending March 31, existing tenants experienced a remarkable increase of 20.1 percent in rental rates upon renewal. This is notable growth compared to the 17.3 percent increase seen for renewal rents in the same quarter of the previous year.
Moreover, new tenants were found to be paying significantly higher rents, with rates jumping 58.5 percent compared to the previous tenants in the last quarter. This increase stands in stark contrast to the 18.3 percent hike recorded in the same quarter the previous year. A considerable part of this substantial increase can be attributed to new leases associated with previously vacant Hudson's Bay Company (HBC) buildings.
Oliver Harrison, RioCan’s senior vice-president of leasing and tenant experience, highlighted during an analyst call on Tuesday that the firm is now seeing rent increases not only at the time of lease renewal but throughout the leasing process. Over the past 12 to 18 months, RioCan has taken advantage of the tight market conditions to phase out leases that lacked embedded rent increases.
“New leases do not have any fixed-rent options,” Harrison noted. “Annual growth is a concept that, two years ago, was challenging to get tenants to agree to. Now, 98 percent of our deals include some form of annual growth integrated into the negotiation.”
This proactive approach has allowed RioCan to bolster its financial performance, reporting a profit of $93.16 million or 32 cents per diluted unit in its latest quarter. This marks a significant recovery from a loss of $84.16 million or 28 cents per diluted unit reported a year prior. However, the company's revenue saw a decline, reaching $322.31 million for the three months ending March 31, compared to $355.83 million in the previous year.
Harrison emphasized that the escalating rents are not only advantageous in the short term but are setting the company up for long-term stability and growth. “We are leveraging all aspects of this market to produce not only the best economic outcome of these deals but also to create long-term value and flexibility. I believe we’re doing exceptionally well,” he asserted.
As the retail landscape continues to evolve, RioCan's strategic decisions regarding lease agreements and occupancy management positions the company favorably amidst a context of rising demand and limited supply.
Companies in this story: (TSX:REI.UN)
