Retail real estate has been declared dead more times than I can count. It’s not dead. But it has changed fundamentally.
Let’s talk about where retail stands in 2026, what types of properties are working, and how financing flows to the sector.
The Reality Check
First, let’s acknowledge what happened. E-commerce took share from physical retail. That’s not reversing. Online shopping is now 11% to 13% of total retail sales in Canada, and it’s staying there or growing modestly.
But here’s what people miss: 87% to 89% of retail still happens in physical stores. Billions of dollars of goods and services are sold through physical locations every year. Physical retail isn’t going away.
What’s changing is which retailers succeed, what types of properties work, and how landlords need to think about their assets.
The Winners and Losers
Let’s break down what’s actually performing in retail real estate.
Grocery-anchored centers are doing well. People need to eat, and while grocery delivery exists, most Canadians still shop in person for food. Centers with strong grocery anchors like Loblaws, Metro, Sobeys, they have consistent traffic and stable tenant bases.
Necessity-based retail like pharmacies, dollar stores, medical offices, dental clinics, banks, these are all fine. Services that people need regardless of economic conditions stay occupied and pay rent.
Restaurants and food service have recovered significantly from pandemic lows. Dining out is back to near-normal levels. Good restaurants in good locations are doing well. The challenge is that restaurant operating margins are tight, which makes some lenders cautious about restaurant-heavy properties.
Enclosed shopping malls remain challenged. Foot traffic hasn’t returned to pre-pandemic levels. Anchor tenants continue to struggle. Malls that have successfully repositioned with entertainment, dining, and experiential elements are doing better, but traditional retail malls face headwinds.
Big box retail is mixed. Some categories like home improvement are strong. Others like department stores and electronics are struggling. Location and tenant mix matter enormously.
Downtown retail in major cities is recovering slowly. Office workers aren’t back five days a week, which means less traffic for lunch spots, coffee shops, and service businesses that depended on that crowd.
Neighborhood retail in residential areas is doing well. If people are working from home more, they’re shopping in their own neighborhoods more. Local retail has benefited from this shift.
Tenant Quality Matters More Than Ever
Lenders financing retail properties focus heavily on who the tenants are.
A 20-year lease to a national pharmacy chain is gold. That’s stable, predictable income from a creditworthy tenant. Easy to finance.
A mix of local retailers on three-year leases with personal guarantees is much riskier. Tenant turnover, credit risk, lease rollover, these create uncertainty that lenders don’t like.
The spread in financing terms between a credit-tenant property and a mom-and-pop tenant property is enormous. You might get 70% LTV at 5.5% for the credit tenant property, and struggle to get 60% LTV at 7.0% for the local tenant property.
This is why grocery-anchored centers finance so well. The anchor provides credit quality and draws traffic for the other tenants.
Lease Structures and Rent
Retail lease structures affect both landlord returns and lender comfort.
Net leases where tenants pay base rent plus their share of property taxes, insurance, and maintenance are standard in shopping centers. This structure is preferred by lenders because it makes landlord income more predictable.
Percentage rent provisions where tenants pay additional rent based on sales are common in retail. These can create upside for landlords when tenants perform well, but they also create uncertainty. Lenders typically underwrite to base rent only, not percentage rent.
Free rent and tenant allowances are common in retail. Landlords give months of free rent or contribute to tenant improvements to attract tenants. These concessions reduce effective rent and affect property valuation.
CAM costs (common area maintenance) are how landlords recover the costs of maintaining shopping centers. CAM cost escalation can be an issue if costs rise faster than base rents.
Understanding lease structures is critical to analyzing retail property cash flows and determining appropriate financing.
Retail Property Tiers
From a financing perspective, retail properties fall into tiers.
Tier 1: Grocery-anchored community centers in good locations with strong occupancy. These get the best financing terms: 65% to 75% LTV, rates in the mid-5% to mid-6% range.
Tier 2: Necessity-based strip centers with good tenant mix and solid locations. Financeable at 60% to 70% LTV, rates in the high-5% to high-6% range.
Tier 3: Mixed retail centers with some credit tenants and some local tenants, decent locations but not premier. Financeable at 55% to 65% LTV, rates in the high-6% to low-7% range.
Tier 4: Struggling centers with high vacancy, weak tenant quality, or poor locations. Very difficult to finance conventionally. Private lending at 8% to 12% if available at all.
Where your property sits in this hierarchy dramatically affects your financing options.
Regional Differences
Retail dynamics vary significantly by region.
Toronto and GTA retail is generally strong in well-located properties. Population density supports retail. But rents are high, which makes it challenging for some retailers to maintain profitability.
Vancouver has similar dynamics to Toronto. Good locations perform well, but high occupancy costs stress retailers.
Montreal offers more affordable retail rents, which helps retailer profitability. Retail properties in good locations are performing reasonably well.
Calgary and Edmonton went through difficult periods during energy sector downturns but are seeing recovery. Retail is stabilizing.
Smaller markets often have retail that serves local needs very effectively. These properties don’t get a lot of investor attention but can provide steady returns.
Repositioning Opportunities
Some of the interesting opportunities in retail involve repositioning underperforming assets.
Converting failed retail to medical offices, fitness centers, or other service uses can create value. These uses are often compatible with retail zoning and can pay similar or better rents than traditional retail.
Redeveloping retail sites for mixed-use with residential above and retail below is happening in many urban and suburban locations. The residential component provides value that struggling retail alone couldn’t support.
Downsizing retail space and allocating some of the property to other uses can make economic sense when retail demand is weak.
These strategies require capital, vision, and often creative financing. But they can turn problematic properties into successful ones.
The Experience Economy
One retail trend worth understanding is the shift toward experiential retail.
Consumers will go to physical stores for experiences they can’t get online: trying on clothes, testing products, dining, entertainment, personal services.
Retailers and landlords who lean into this are doing better. Stores become destinations, not just transaction points.
This affects property design, tenant mix, and programming. Successful retail properties in 2026 are thinking about customer experience, not just square footage leased.
Financing Challenges and Solutions
Let’s talk practically about getting retail properties financed.
Challenge: Lenders are more cautious on retail than other property types.
Solution: Focus on properties with strong tenant quality and necessity-based uses. These are easier to finance.
Challenge: Loan-to-value ratios are lower than they were five years ago.
Solution: Bring more equity. Plan on 30% to 40% down payment rather than 20% to 25%.
Challenge: Some lenders have pulled back from retail entirely.
Solution: Work with brokers who know which lenders are still active in retail. The market is more fragmented than it used to be.
Challenge: Appraisals can come in below purchase price if comparable sales are weak.
Solution: Provide good documentation on property cash flows, lease terms, and market conditions to support valuation.
The Timing Question
Is now a good time to invest in retail real estate?
The argument for yes: values have adjusted, cap rates are higher than they were, and good properties can generate solid cash flow. If you can buy right and finance conservatively, there’s opportunity.
The argument for no: retail faces ongoing structural challenges, tenant quality is uncertain in many cases, and financing is more difficult than for other property types.
My view is that selective retail investment makes sense. Don’t buy retail as a category. Buy specific properties with strong fundamentals that you understand deeply.
What Lenders Want to See
If you’re seeking financing for retail property, here’s what improves your chances.
High occupancy, ideally 90% or better. Vacant space is a red flag.
Credit tenants providing a significant portion of income. If 40% to 50% of your rent comes from national or regional credit tenants, that helps enormously.
Long lease terms providing income visibility. Properties with average remaining lease terms of five years or more are viewed favorably.
Reasonable rent levels relative to market and tenant sales. If your tenants are paying rent that represents 15% to 20% of their sales, that’s healthy. If they’re paying 30% to 40% of sales, that’s stressed and they might not renew.
Good property condition with no deferred maintenance. Properties that need capital investment are harder to finance.
Looking Ahead
Where is retail real estate headed over the next few years?
Physical retail will continue, but the mix of what succeeds will keep evolving. Experiential, necessity-based, and food-oriented retail should do well. Commodity goods that can be easily purchased online will continue migrating there.
Values for good retail properties should stabilize and potentially appreciate modestly if interest rates decline. Poor quality retail will continue to struggle.
Financing will remain available for strong properties but selective. Lenders will favor credit tenants, necessity-based retail, and good locations.
The key for investors is being selective and understanding what makes a retail property work in the current environment.
Work With Retail Property Specialists
Retail real estate financing requires understanding both the sector dynamics and lender appetite.
At Creek Road Financial Inc., we work with retail property owners and investors across Canada. 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 debt, or repositioning an underperforming asset, we can help you secure appropriate financing.
Let’s discuss your retail property financing needs and explore your options.