Hole left by Hudson's Bay's demise will be hard to fill
Landlords trying to fill the large spaces left vacant by Hudson’s Bay Inc. ’s exit must walk “a very fine line” as they move beyond the traditional single-tenant model and look for different ways to maximize their returns, says one architect.
Duanne Render, studio director at Toronto-based Gensler, said the landlords are not going to find single tenants to replace the Bay because the department store model “is failing” and the demand for that approach has “dried up.”
Instead, he said they need to better understand factors such as the demographic makeup of a region, the spending preferences of people, the local housing situation and what the future demand is likely going to be.
As an example, he said part of the Bay’s building in downtown Toronto could be leased to smaller urban data centres, filling up the space with computers that process or back up data whenever people or companies use their phones, laptops and other devices.
The Queen Street location is ideal because the closer data centres are to users, the faster the connection. Downtown Toronto’s dense business and residential footprint make it a particularly attractive option.
The building could also be used for housing , which could “bring a lot of value,” he said. In addition, the ground floor or a couple of floors of the building could contain retail shops or a food hall and other floors could be turned into office space, since many downtown offices are already oversubscribed.
Such a method would also be sustainable since the building isn’t being demolished, Render said.
“Demolishing and building brand new all the time is very bad for the environment,” he said. “If we retain our existing buildings and keep on adapting them, obviously to a point, that is how we increase value, retain value, not just monetary, but from a sustainability point of view as well.”
But redesigning buildings and modifying them comes with huge capital costs, Render said. Converting retail spaces into residential areas would mean punching holes to add extra elevators, stairs and even a drainage system, so landlords have to decide whether these steps would bring in the desired returns.
The only way to figure out whether such changes are worth it is to make a thorough analysis of the demand over time and also test it.
“It’s a very fine line that one needs to walk,” he said.
Primaris Real Estate Investment Trust , which owns 11 leases formerly occupied by HBC, has decided to spend between $125 million and $150 million over the next three years to upgrade the spaces it received control of last year.
It is trying to re-lease most of the locations, but it will be redeveloping two of them — Orchard Park Shopping Centre in Kelowna, B.C., and Conestoga Mall in Waterloo, Ont. — and about half of its budget is going to be spent on these two projects, it said in a release in December.
As of December, Primaris has reached agreements to lease 516,000 square feet of the 1.3 million square feet of HBC space it owns to single-tenant users. The company said there’s strong interest for the rest of the space as well.
Primaris said it had been waiting for years to regain control of HBC spaces. In HBC’s last 10 years of operation, it was among the least productive department store anchors, “drawing few consumers, paying very low rent and holding the most restrictive lease terms among its predecessors,” it said.
In 2010, retailers such as HBC and Sears Canada Inc. were Primaris’s largest and third-largest tenants, respectively, occupying about 30 per cent of its mall space. But by the end of 2024, HBC was its 11th-largest tenant, occupying just seven per cent of its space.
The company’s top five tenants last year were Canadian Tire Corp. Ltd., WalMart Canada Corp., Loblaw Cos. Inc., TJX Cos. Inc., which owns brands such as Winners and HomeSense, and Bell Canada.
Alex Hennick, who heads Toronto-based A.D. Hennick & Associates Inc., which provides liquidation services, said he expects it will be “incredibly difficult” to lease the former HBC locations as they are currently configured. Even the leases that don’t consist of multiple floors are too big for most retailers and the rent is going to be too high to justify, he said.
“I do believe they are going to have to break them down,” he said.
Hennick said it will be a challenging time for the department store model going forward.
“Nowadays, people aren’t even going to stores,” he said. “They’re shopping online, or they go to stores and they try something on and then they still shop online.”
That was one of the reasons behind HBC’s decline over the years, which gradually paved the way for Canada’s oldest retailer to file for bankruptcy in March 2025. It sought protection from its creditors, to whom it owes millions of dollars. The company has sold its intellectual rights, some of its leases, the Royal charter and is currently auctioning its artefacts.
Its attempt to sell 25 leases for $69 million to B.C.-based billionaire Ruby Liu was blocked by an Ontario court last year after objections from landlords, who doubted Liu’s business plan and ability to run the stores.
It did, however, manage to sell five leases located in Ontario, Alberta and Manitoba, for $5 million to Toronto-based YM Inc., which owns clothing retail brands such as Bluenotes, Suzy Shier and Urban Planet.
The leases were in demand because as the main tenant, HBC was able to negotiate below-market rents with its landlords. As such, buying those leases would allow other companies to enjoy similar conditions.
• Email: nkarim@postmedia.com