The Ottawa retail leasing market has strengthened so far in 2022 and is not showing many signs of slowing down as there is more demand to move in than to move out.
A report by real estate firm JLL said asking rents have strengthened once more and the market remains tight due to the chronic lack of completions. This trend is expected to continue until deliveries approach pre-pandemic levels.
“Availability rates in Ottawa have decreased once more, following a trend that started over two years ago, having been interrupted once in Q1 2022 during Omicron. The availability rate is currently at a record low,” said JLL.
“The scarcity of current and future spaces in the market has in turn contributed to the steady rise in rental rates. Availability rates will likely continue to decrease throughout the remainder of the year, but at a slower pace than previously observed.”
The report said the current construction pipeline will not bring many notable deliveries to market anytime soon. In Ontario specifically, there has been a strong push for multi-family projects which has in turn overshadowed the retail sector’s own needs for new projects.
“The construction pace has slowed. According to Statistics Canada, the cost of construction for shopping centres in the Ottawa-Gatineau area has increased once more, up three per cent QoQ and 13 per cent YoY. Other cities have faced similar increases and contractors believe that most costs won’t decrease in the short term given the rampant cost and lack of skilled labour. Aggressive interest rate increases have also created an environment where builders cannot secure cheap and reliable debt to finance their developments,” it said.
Paul Ferreira, Senior Vice President of Retail with JLL, said Ottawa has one very large employer in the federal government and that has impacted the downtown retail sector.
A growing presence of government employees at work leads to many other spinoffs.
The one new development area in Ottawa is the LeBreton Flats mixed-use project just outside the downtown core.
“Everybody has their eyes on that,” said Ferreira. “The National Capital Commission has been going through their process over the last year of making parcels available for development. We have the announcement of the arena coming to LeBreton Flats. That’s a big opportunity for the city in terms of creating place and what that means for retail, entertainment, food and beverage in the market.”
Bringing an arena downtown for the NHL’s Ottawa Senators on what will be the LRT line with other amenities will create an urban destination, he said.
“Much like in previous quarters, general retail and neighbourhood centres continue to pull most of the weight absorption-wise. Their vacancy rates have been steadily decreasing since the beginning of 2021 and should stabilize in the second half of 2022 given the lack of space there is left to absorb. As shopper hesitancy reduces and interest in enclosed spaces increase, more retailers should move into malls for the remainder of the year,” said JLL.
“Ottawa has continued to increase its volume of retail sales activity. Despite having faced a pandemic-influenced economy, Freedom Convoy demonstrations, and reduced foot traffic, retail sales in the city are 20 per cent higher than 2019’s YTD sales thanks to the pent-up demand accrued during the pandemic. This surpasses the 19 per cent growth seen overall in the country but lags Montreal’s 21 per cent and Toronto’s 24 per cent gains over the same time. While sales have increased since 2019, it is not a reflection of every single operator’s situation.
“The city has seen encouraging growth in numerous retail categories. Compared to 2021, sales for clothing and shoe stores have soared by 161 per cent and 133 per cent so far. Many more categories have encountered double-digit sales growth, such as furniture (38 per cent), building materials (37 per cent), general merchandise (25 per cent), and electronics (18 per cent).”
Another factor in the retail sector in Ottawa is the growth in the tourist sector.
“Business owners in the central business district continue to expect federal office workers to return to the office. According to a study conducted by the Professional Institute of the Public Service of Canada, 60 per cent of their members are against a return to the office, and another 25 per cent would be comfortable with a hybrid approach. Only 10 per cent of members would prefer a full-time return to work. The sentiment is also echoed by other unions in the city,” explained the JLL report.
“Unions in the area are now fighting to include remote working in future collective agreements with the government. Even if an agreement is reached, retailers will still have to engage with other demographic groups, such as students and tourists, to pull people back into downtown Ottawa.”