E-commerce didn’t kill retail. But it fundamentally changed which retail properties have value.
Let’s talk about where we are in 2026, five years after the pandemic accelerated online shopping, and what it means for retail property owners and investors.
The Current E-Commerce Reality
Online shopping represents about 11% to 13% of total retail sales in Canada. That’s up from maybe 6% to 7% pre-pandemic.
That shift represents tens of billions of dollars that moved from physical stores to online transactions. And it’s not reversing.
E-commerce growth has plateaued somewhat from the pandemic surge, but it’s settling at this new higher baseline. We’re not seeing the 40% annual growth of 2020, but we’re also not seeing meaningful decline.
What this means: 87% to 89% of retail still happens in physical locations. Physical retail isn’t dead. But the nature of physical retail has changed.
Which Retail Categories Went Online
Not all retail moved online equally.
Electronics, books, and media were early e-commerce categories and continue to transact heavily online. Physical stores in these categories have contracted significantly.
Apparel and accessories have moved substantially online, though physical stores remain important for fitting, browsing, and returns. The mix is probably 25% to 35% online now.
Home goods and furniture have shifted online more than expected. Wayfair, Amazon, and others convinced consumers to buy furniture without seeing it in person. But returns are higher, and many consumers still prefer showrooms.
Groceries went from almost zero online to maybe 5% to 8% of sales. Not revolutionary, but meaningful. Most people still shop in person for food, but online grocery is now normal.
Pharmacy and personal care have shifted modestly online but remain primarily in-store businesses.
Services like restaurants, personal care, fitness, medical, these are inherently in-person and haven’t moved online.
Understanding category dynamics helps predict which retail properties will succeed.
The Experiential Shift
Successful physical retail has shifted toward experiences that can’t be replicated online.
Try-before-you-buy: Clothing stores where you can try things on. Shoe stores where you can walk around. Mattress stores where you can lie down. These provide value beyond online shopping.
Immediate gratification: Need something today? Physical retail provides instant access without waiting for delivery.
Social experience: Shopping as activity, not just transaction. Restaurants, entertainment, social gathering spaces.
Service and expertise: Stores where staff provide knowledge, advice, fitting, customization. Hard to replicate online.
Showrooming that drives online: Some retailers use physical stores as showrooms where customers see products, then buy online. This flips the traditional model but can work.
Retail properties that support experiential retail are valued differently than those that compete directly with online shopping.
Retail Property Type Performance
Let’s break down how different retail property types are performing.
Grocery-anchored centers remain the strongest retail category. Groceries drive traffic, and complementary services (pharmacy, dollar store, restaurants) benefit from that traffic. Values have held up well, and financing is readily available.
Power centers with big-box retailers are mixed. Home improvement stores, warehouse clubs, and off-price retailers are doing well. Department stores and electronics retailers struggle. The sector is bifurcated.
Strip malls vary enormously based on tenant mix and location. Service-oriented strip malls in residential neighborhoods are fine. Those dependent on discretionary retail are challenged.
Regional malls face the most pressure. Anchor stores have closed, inline tenants struggle, and foot traffic hasn’t recovered to pre-pandemic levels. Successful malls have pivoted to dining, entertainment, and experiential retail. Traditional retail malls continue declining.
Street retail in urban neighborhoods can be very successful. High foot traffic, wealthy demographics, local shopping behavior. But downtown retail dependent on office workers has struggled.
Outlet centers have done relatively well. The treasure-hunt shopping experience and brand appeal bring people out.
Valuation Impacts
E-commerce has affected retail property valuations significantly.
Cap rates for retail properties have widened (values declined) compared to multi-family and industrial. A retail property that traded at a 5.5% cap rate in 2019 might trade at 6.5% to 7.5% today, all else equal.
The spread between good retail and poor retail has widened. Grocery-anchored properties in strong locations might trade at 5.5% to 6.5% cap rates. Struggling malls might be 9% to 11% or higher (if they trade at all).
Retail property values are more dependent than ever on lease term and tenant credit. A 15-year lease to a strong tenant is worth significantly more than a 5-year lease to a marginal tenant, even for the same building.
For property owners, this has created balance sheet challenges in some cases. Properties bought at peak values have declined, which affects loan-to-value ratios and refinancing ability.
Lease Structure Evolution
Retail leases are evolving in response to e-commerce and tenant challenges.
Shorter lease terms are becoming common. Retailers don’t want 10 or 15-year commitments when future retail landscape is uncertain. Five-year terms with options are more typical.
Percentage rent provisions where landlords get a percentage of tenant sales are being restructured. The definition of sales is complicated when tenants do both online and in-store business.
Click-and-collect arrangements where online orders are picked up in stores affect space use and lease terms. Some retailers want specific provisions about using space for online order fulfillment.
Flexible space where tenants can expand or contract depending on performance is being negotiated.
Free rent and tenant improvement allowances have increased as landlords compete for tenants. Effective rents are lower than face rents in many cases.
These evolving lease structures affect property cash flows and financing.
The Omnichannel Integration
Successful retailers are integrating online and physical operations.
Stores become fulfillment centers for online orders. Inventory is shared between online and in-store. Customers can buy online and return in-store, or vice versa.
This requires different store layouts and operations. Space that was sales floor becomes fulfillment area. Parking lots need designated pickup spots.
Some retailers are opening smaller-format stores focused on service, experience, and online order support rather than carrying full inventory.
For retail property owners, understanding tenant omnichannel strategies affects space requirements and lease negotiations.
Retail-to-Other-Use Conversions
Some retail properties are being converted to other uses.
Retail to residential: Converting failed retail, particularly dead malls, to housing. Complex and expensive, but happening in some markets.
Retail to industrial: Converting retail buildings near urban centers to last-mile logistics. Works for some big-box locations.
Retail to office or medical: Converting retail to professional uses. Particularly common for smaller strip mall spaces.
Redevelopment: Tearing down struggling retail and building mixed-use, residential, or other properties.
These conversions require creative thinking, patient capital, and often complex financing. But they can create value from distressed retail assets.
Retail in Residential Neighborhoods
One bright spot is neighborhood retail serving residential areas.
With more people working from home at least part-time, neighborhood retail benefits. Local coffee shops, restaurants, dry cleaners, fitness, services, these are used by people who are home more.
Strip centers and street retail in established residential neighborhoods have maintained or improved occupancy and rent growth.
This is somewhat offsetting downtown retail weakness where office workers aren’t present as much.
For retail investors, focusing on residential neighborhood retail rather than downtown or mall retail is a strategy that’s working.
Financing Strategies
Getting retail property financed in the e-commerce era requires specific approaches.
Emphasize tenant quality. Lenders want to see credit tenants with long lease terms. If your property has them, highlight it.
Document traffic and sales trends. Show that your property generates foot traffic and tenant sales. Lenders want evidence that the location works.
Show occupancy stability. High occupancy for multiple years demonstrates sustainable demand. Recent lease renewals are positive indicators.
Be realistic on leverage. Retail properties aren’t financing at 75% LTV anymore. Expect 60% to 65% LTV for good properties, lower for challenged ones.
Consider category-specific lenders. Some lenders specialize in grocery-anchored retail, outlet centers, or specific retail niches. They understand those property types better than generalists.
Use private lending strategically. If you can’t get conventional financing, private lending might bridge you to a future sale or improved performance. Just understand the higher costs.
The Amazon Effect Specifically
Amazon deserves specific mention because of its market impact.
Amazon is both competitor to physical retail and driver of warehouse demand. The company’s growth hurt retail but created industrial real estate demand.
Amazon is also becoming a physical retailer with Whole Foods, Amazon Fresh stores, and fulfillment center-adjacent retail concepts. The company’s evolving strategy affects retail real estate.
Retailers competing with Amazon need strategies that play to physical retail strengths. Properties housing these tenants need to be evaluated based on tenant viability.
Regional and Demographic Factors
Retail performance varies by market and demographics.
Wealthy urban neighborhoods: Strong retail demand, consumers value convenience and experience, support for local businesses. Good retail fundamentals.
Suburban family areas: Solid retail demand serving household needs, less vulnerable to e-commerce for necessities. Steady fundamentals.
Downtown cores: Challenged by reduced office occupancy and business activity. Requires adaptation to residential and tourist traffic.
Rural and small town: Local retail serves community needs with less e-commerce penetration due to delivery limitations. Different dynamics than urban markets.
Understanding local conditions is critical to retail investment and financing decisions.
The Investment Case for Retail
Is retail real estate investable in 2026?
The blanket answer is no. Retail as a category is challenged.
The selective answer is yes. Specific retail properties with strong fundamentals can generate good returns.
The key is being choosy: grocery-anchored in good locations, service-oriented tenants, residential neighborhood positioning, demonstrable traffic.
Avoid: malls without clear adaptation strategy, retail dependent on traffic from struggling office buildings, purely transactional retail that competes directly with online.
Financing follows the same logic. Strong retail gets financed. Weak retail doesn’t.
Looking Forward
E-commerce will continue to grow modestly, but physical retail isn’t disappearing.
The retail landscape will keep evolving. More experiential, more service-oriented, more integrated with online.
Retail property values will continue to reflect these dynamics. Good properties will maintain value. Poor properties will struggle or convert to other uses.
For investors and lenders, understanding retail dynamics in the e-commerce era is essential to making good decisions.
Work With Retail Property Specialists
Financing retail real estate requires understanding both the sector challenges and the opportunities that remain.
At Creek Road Financial Inc., we work with retail property owners and investors who are navigating the e-commerce era. We know which lenders are active in retail, how to position properties for optimal financing, and how to structure deals that work.
Whether you’re acquiring retail property, refinancing existing assets, or considering repositioning strategies, we can help you secure appropriate financing.
Let’s discuss your retail property financing needs and explore what’s possible in today’s market.