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Cannabis retailers and producers are looking to expand their presence, and as the consumer demand for cannabis continues to rise, so is the demand for retail and industrial space in Canada.
This is opening up more opportunities for Canadian CRE investors and property owners.
Before the pandemic, Ontario had about 400 cannabis stores. Now as of October 2021, there are over 800 cannabis stores in the province. This is all due to their resilience during the pandemic.
The latest additions are the Tokyo Smoke stores, courtesy of a franchise partnership between Canopy Growth Corporation and Katz Group. The Katz Group franchisee is set to open four new Tokyo Smoke stores in four Cadillac Fairview malls. The stores will be located in both Toronto and Ottawa.
The Toronto locations will include Eaton Centre, Fairview Mall, and Sherway Gardens, while Ottawa will get a new Tokyo Smoke store in the Rideau Centre.
Another prominent cannabis retailer in Canada also has expansion plans underway, Fire & Flower. They are seeking more retail space as well. Their representative stated that they plan to add new retail locations to its 86 stores across the country. Many of their retail locations will be adjacent the Circle K convenience stores in Calgary and Grande Prairie. This is thanks to the company’s deal with Couche-Tard.
Cannabis operators in Canada are facing different regulations. Every municipality and province imposes different zoning rules, and because of this, Alberta has been able to win more business.
As an example, cannabis production is considered agricultural in some jurisdictions, while in others it is deemed to be a part of the industrial sector. That is why some of the big players in the industry, such as Canopy Growth Corporation, are selling their greenhouses to agricultural buyers.
This challenging situation is also making numerous cannabis operators look into Alberta after initially wanting to set up shop in British Columbia, where zoning and other regulations are the most daunting. These different provincial regulations is a win for Alberta.
Industrial cap rates contines to fall, based on CBRE Canada Second Quarter Report. For Industrial class A and B, the rate declined by 13 bps and 11 bps, respectively. Across all asset classes this was the largest margin.
CBRE reports on thirteen markets in Canada, and out of the thirteen, seven of the markets tracked had an industrial cap rate compression in Q2 2021. These markets included Edmonton, Saskatoon, Victoria, Calgary, Toronto, Quebec City and London-Windsor. The same held true for unanchored retail strip centres. The national cap rate compressed by 3 bps in Q2 2021.
Considering the lack of available product and the amount of capital circulating, this trend is expected to continue. The downward pressure on industrial cap rates proves that this commercial real estate investment type continues to be considered low risk.
The Canadian cannabis CRE sector keeps opening up more profitable opportunities for CRE investors and retailers. Although the industry is still relatively new, it continues to grow stronger, and the need for more retail and industrial space is expected to continue increasing.