Despite Canada's slowing economic growth, demand is propping up the retail leasing market as rents continue to trend upwards, said the chief executive of RioCan Real Estate Investment Trust. 

"It's a very strong retail market right now, there's so much demand," said CEO Jonathan Gitlin in an interview Wednesday.

That demand helped lead RioCan to profits of $128.6 million for its first quarter ended March 31, up from $118.0 million in the same quarter last year.

The market is holding up thanks to strong demand from necessity-based retailers like grocers and discount stores, and because there's been fairly little construction of new retail space over the past decade, Gitlin said.

"It's been sort of net zero new retail space, or somewhere close to that. And I think that there's really not going to be any new retail built in the next fairly long period of time because it's very expensive to build."

The constrained supply helped see RioCan already sign new lease agreements on six of 10 properties where its tenants, Bad Boy Furniture and rooms + spaces, shut down. However, the unexpected closures did lead to a slip in retail occupancy from 98.4 per cent in the fourth quarter to 97.7 per cent last quarter.

Bad Boy Furniture was officially declared bankrupt in January, while rooms + spaces, which was launched by retail sector investor Doug Putman with 24 locations last August, looks to have closed all but two of those locations, according to its website. 

Gitlin said while there will always be some businesses that suffer in times of economic strain, overall demand was demonstrated by a 14 per cent increase in leasing prices for new and renewed leases.

RioCan has signed on several new grocery tenancies, a segment that's likely to see continued growth, including from businesses like discount grocers and ethnic grocers.

"Absolutely, I think growth is their mantra right now," said Gitlin. 

The growth is also happening as grocers diversify their building models, with more flexibility in space and layouts as they move into densified communities, said Gitlin. Some of the new grocery stores are in spaces much smaller than usual, he said. 

"You're seeing them move into 10,000 square-foot spaces, 20,000 square-foot spaces, these are our boxes that they never would have taken on five years ago."

Revenue for the last quarter totalled $303.4 million, up from $279.5 million in the first quarter of 2023.

RioCan says its funds from operations for the quarter amounted to 45 cents per diluted unit, up from 44 cents per diluted unit in the same quarter last year.

In its outlook, RioCan says it expects funds from operations per unit for the full year to be within a range of $1.79 to $1.82.

Development spending on mixed-use projects is expected to be between $250 million and $300 million and spending for the construction of retail projects is expected to be between $50 million and $60 million.

This report by The Canadian Press was first published May 8, 2024.