Landlords trying to fill the large spaces vacated by Hudson’s Bay Inc.’s exit will have to “walk a fine line” by going beyond the traditional single-tenant model and looking for other ways to maximize their returns, an architect says.
Duanne Render, studio director at Toronto-based Gensler, said landlords won’t find individual tenants to replace the Bay because the department store model is “failing” and demand for that approach has “dried up.”
Instead, he said they need to better understand factors such as a region’s demographic makeup, people’s spending preferences, local housing conditions and projected future demand.
As an example, he said part of the Bay Building in downtown Toronto could be leased to smaller urban data centers to fill the space with computers that process or back up data whenever people or businesses use their phones, laptops and other devices.
The Queen Street location is ideal because the closer the data centers are to the users, the faster the connection. Downtown Toronto’s dense commercial and residential space makes it a particularly attractive option.
The building could also be used as housing, which could “add a lot of value,” he said. Additionally, the ground floor or some floors of the building could house retail stores or a food hall, and other floors could be converted into office space, as many downtown offices are already oversubscribed.
Such a method would also be sustainable because the building would not be demolished, Render said.
“Constantly demolishing and rebuilding from scratch is very damaging to the environment,” he said. “If we keep our existing buildings and of course further adapt them to a certain extent, we increase the value and retain the value, not only financially but also from a sustainability point of view.”
But redesigning and modifying buildings involves huge capital costs, Render said. Converting retail space to residential would mean punching holes to fit additional elevators, stairs and even a drainage system. Landlords must therefore decide whether these steps would produce the desired return.
Whether such changes are worthwhile can only be determined by thoroughly analyzing demand over time and testing them.
“It’s a very fine line you have to walk,” he said.
Primaris Real Estate Investment Trust, which owns 11 leases previously occupied by HBC, has decided to spend between $125 million and $150 million over the next three years to upgrade the space it took control of last year.
The company is attempting to re-lease most of the locations, but will redevelop two of them – Orchard Park Shopping Center in Kelowna, B.C., and Conestoga Mall in Waterloo, Ontario. — and about half of its budget will be spent on those two projects, it said in a press release in December.
In December, Primaris entered into agreements to lease 516,000 square feet of the 1.3 million square feet of HBC space it owns to individual tenants. The company said there was also strong interest in the rest of the space.
Primaris said it had waited years to regain control of the HBC space. During HBC’s last 10 years of operation, it was among the least productive department store anchors, “attracting few consumers, paying very low rents and having the most restrictive lease terms among its predecessors,” it said.
In 2010, retailers such as HBC and Sears Canada Inc. were Primaris’ largest and third-largest tenants, respectively, occupying about 30 percent of the mall space. But at the end of 2024, HBC was the eleventh largest tenant and occupied only seven percent of its space.
The company’s five largest 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, principal of Toronto-based AD Hennick & Associates Inc., which provides liquidation services, said he expects it will be “incredibly difficult” to lease the former HBC locations in their current configuration. Even the non-multistory leases are too large for most retailers and the rent will be too high to justify, he said.
“I really think they need to break it up,” he said.
Hennick said it will be a challenging time for the department store model going forward.
“Nowadays people don’t even go to stores,” he said. “They shop online, or they go into stores, try something on and then still shop online.”
That was one of the reasons for HBC’s decline over the years, which gradually paved the way for Canada’s oldest retailer to declare bankruptcy in March 2025. The company sought protection from its creditors, to whom it owes millions of dollars. The company has sold its intellectual rights, some of its leases and royal charter and is currently auctioning its artifacts.
His attempt to sell 25 leases to British Columbia-based billionaire Ruby Liu for $69 million was blocked by an Ontario court last year after objections from landlords who questioned Liu’s business plan and his ability to run the operations.
However, we managed to sell five leases 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 rental agreements were in demand because HBC, as the main tenant, was able to negotiate below-market rents with its landlords. Therefore, purchasing these leases would allow other companies to benefit from similar conditions.
• Email: nkarim@postmedia.com