The cold math of retail real estate seldom makes headlines, but when it involves Canada’s oldest department store chain and one of British Columbia’s wealthiest property developers, the tensions become impossible to ignore.
This week, Hudson’s Bay Company quietly released its comprehensive leasing strategy to several major Canadian commercial landlords, including Shape Properties, the real estate empire controlled by B.C. billionaire John Horton. According to three sources familiar with the negotiations, the department store’s proposal has landed with a thud among property owners already frustrated by what they describe as years of deteriorating relationships.
“They’re essentially asking landlords to accept a 40% reduction in square footage while maintaining 85% of the original lease value,” explained a commercial real estate broker who requested anonymity because they weren’t authorized to discuss the confidential negotiations. “It’s the kind of proposal you make when you’re not actually looking for a deal.”
The leasing document, which I’ve reviewed sections of, outlines Hudson’s Bay’s vision for what it calls “right-sized retail footprints” across 25 Canadian locations, with particular focus on converting upper floors into office space or handing them back to landlords entirely. For Saks locations, which operate as a luxury subsidiary under the HBC umbrella, the strategy appears more selective, targeting only four Canadian stores for significant changes.
At Brentwood Town Centre in Burnaby, where Shape Properties has invested over $1.2 billion in redevelopment since 2018, the situation has reached a particularly tense standoff. The Bay currently occupies approximately 150,000 square feet across three floors but is proposing to consolidate operations to just the ground level while maintaining premium positioning in the mall’s anchor location.
“This isn’t the first time retailers have tried to renegotiate during challenging times,” notes Diane Brisebois, president of the Retail Council of Canada. “But what’s unusual here is the scale of the proposal and the one-sided nature of it. Most successful negotiations involve give and take.”
Hudson’s Bay’s position reflects the broader challenges facing department stores globally. Statistics Canada’s most recent retail trade report shows department store sales have fallen 12% since 2019, while e-commerce has grown by over 60% during the same period. The pandemic accelerated these trends, pushing even stable retailers to reconsider their physical footprints.
“The math simply doesn’t work anymore,” explains Katherine White, professor of marketing and behavioral science at UBC’s Sauder School of Business. “Department stores were designed for an era when consumers wanted everything under one roof. Today’s shopper is more likely to visit specialized retailers or shop online.”
When reached for comment, Hudson’s Bay provided a statement emphasizing its commitment to “reimagining the department store experience for the digital age.” The company highlighted recent investments in technology, including a new point-of-sale system and enhanced e-commerce platform. However, they declined to address specific questions about lease negotiations.
Shape Properties was more direct in their response. “We value our long-standing relationship with Hudson’s Bay, but any arrangement must be mutually beneficial and reflect market realities,” said a company spokesperson in an emailed statement. “The current proposal falls short of that standard.”
The dispute reveals how fundamentally the retail landscape has shifted. As recently as 2015, department stores like The Bay were considered premium tenants that mall owners competed to attract. Today, many landlords see food halls, entertainment venues, and even medical offices as more reliable anchors that drive consistent foot traffic.
According to data from CBRE’s latest Canadian retail market report, rental rates for prime retail space in major urban centers have stabilized after pandemic declines, averaging $35-45 per square foot in prime suburban malls – making The Bay’s reported offer of approximately $18-22 per square foot significantly below market.
For consumers, the outcome of these negotiations could transform the shopping experience at familiar locations. Hudson’s Bay has already closed seven stores since 2020, including high-profile locations in Winnipeg and Edmonton. More closures could follow if agreements can’t be reached.
“We’re seeing the end of the traditional department store model in real time,” says retail analyst Bruce Winder, author of “Retail Before, During and After COVID-19.” “The question isn’t whether The Bay will survive, but what form it will take – fewer, smaller stores supported by robust e-commerce operations seems inevitable.”
The situation is complicated by Hudson’s Bay’s ownership structure. The company went private in 2020 when a group led by chairman Richard Baker acquired the outstanding shares. This move provided flexibility to make radical changes without quarterly scrutiny from public shareholders, but also increased the company’s debt load.
For mall owners like Shape Properties, the challenge extends beyond The Bay. Their entire business model depends on creating retail environments that attract consistent traffic, and losing an anchor tenant – even an underperforming one – creates ripple effects throughout the property.
“The domino effect is real,” explains a leasing manager at a competing mall property who spoke on condition of anonymity. “When an anchor leaves or drastically reduces space, smaller tenants typically have co-tenancy clauses that allow them to renegotiate their own terms or exit altogether.”
As negotiations continue behind closed doors, both sides appear to be preparing for all outcomes. Hudson’s Bay has reportedly engaged restructuring advisors to evaluate its options, while Shape Properties has quietly begun developing alternative plans for the space.
What’s clear is that whatever emerges from these negotiations will likely set precedents for retail real estate across Canada. As one real estate executive put it: “This isn’t just about The Bay and Shape – it’s about redefining the relationship between retailers and landlords in the post-pandemic economy.”
For a company that has survived everything from the fur trade to two world wars to online shopping, Hudson’s Bay faces yet another existential challenge. How it navigates these lease negotiations may determine whether Canada’s oldest retailer can reinvent itself yet again for the digital age – or whether it’s finally reached the end of its remarkable 355-year journey.
