CoStar: Canada’s retail market still recovering from Hudson’s Bay stores closing
The closure of the Bay stores dealt a significant blow to Canada's retail sector in 2025.
Canada's retail vacancy rate is expected to hold relatively steady near 2.5% over the next year as the sector continues to absorb the fallout from the closure of Hudson's Bay stores, according to a new report from CoStar Group. With the closure of the Bay stores, vacancy in the country's shopping malls jumped from 3% to 8% in the second quarter of 2025.
Across the retail sector as a whole, the Bay closures pushed the overall vacancy rate from 1.8% to 2.5%. That rate has held steady over the past year, as soft absorption has been matched by similarly soft construction activity.
Construction
Canada’s retail construction is at its weakest point in a decade, according to the report. Construction starts have remained below 1 million square feet per quarter since the third quarter of 2025, and only about 5 million square feet of retail space was under construction in the second quarter of 2026 – the lowest level since the pandemic.
“Notwithstanding a relatively tight market overall, we expect rent growth to continue decelerating over the next four quarters,” said Mario Lefebvre, chief economist for Canada at CoStar Group. “Rent growth stood at about 4% in the first quarter of 2025, before the Bay closures, and has already decelerated to just above 2% in the second quarter of 2026. We expect it to bottom out around 0% by the second quarter of 2027, before climbing back to about 3% by the end of 2028 as absorption strengthens.”
Trade and tariff uncertainty, higher fuel costs, and a declining population could further weigh on the economy and delay the recovery in retail space absorption, added Lefebvre.
“Over the longer term, however, we expect demand for retail space in Canada to increase as consumer spending grows and the development pipeline remains modest,” he said.
