Montréal retail insight
Landlords and tenants in Montréal’s retail sector remain active amidst economic uncertainty
- William Schneider
- Heli Brecailo
The Montréal leasing market improved as 2022 progressed. Despite an aggressive interest rate hike campaign by the Bank of Canada, asking rates are still increasing, surpassing pandemic-era levels and nearing 2019 rates. Vacancies in the GMA has declined throughout 2022, thanks to the resurgence of brick-and-mortar retail caused by years’ worth of pent-up consumer demand and an innate desire to interact with items before making a purchase decision.
Economic uncertainty caused by price inflation is encouraging consumers to stretch their dollars and save up until economic conditions improve, thus pushing shoppers toward more affordable alternatives in order to better meet their basic needs. In turn, retailers in the discount and discount grocery categories have a great opportunity to benefit from shifting conditions and gain market share.
Malls have also seen their conditions improve throughout 2022, with foot traffic, sales per square foot increasing and vacancy rates declining, and inching their way closer to pre-pandemic levels. Mall landlords have been pleased with the results they’ve seen with specialty leasing and are increasingly creating rotational spaces that can convert pop-ups into permanent tenants. This tendency is likely to remain even if vacancy rates return to normal levels, as pop-up stores add excitement and a sense of urgency to visit, and the surge in foot traffic they cause is a tide that lifts all stores nearby.
The retail landscape in downtown Montréal has also improved as last year progressed, however, potential sales growth was stunted given the underwhelming return-to-office wave that many retailers were expecting. Despite this, downtown foot traffic in 2022 surpassed levels seen in 2021 in each quarter aside from Q3 according to Montréal Centre Ville. Overall, downtown foot traffic increased by 8% YoY, and Montréal experienced the strongest recovery in downtown foot traffic in December 2022 among the three largest Canadian cities. In the absence of pandemic-related restrictions, 2023’s urban foot traffic levels have the potential to exceed those seen last year, provided that inflationary forces subside, and office workers return to work in larger numbers.
Overall, data for air travel passenger traffic in Montréal was overwhelmingly positive. Thanks to the relaxation of pandemic-related restrictions, airline passenger traffic in Montréal experienced significant growth in 2022, especially in the second half of the year. According to Admtl, air passenger traffic at YUL airport in 2022’s second half grew by 125% YoY and was only 9% below 2019 levels. In contrast, the traffic in 2021’s second half was 60% below 2019’s. Air traffic in 2023 is expected to hover somewhere between 2019 and early 2022 levels, as many Canadians are saving and spending more on essential goods and therefore planning fewer trips.
Positive retail sales growth in the 2nd half of 2022
Despite economic uncertainty becoming a recurring story in the second half of 2022, seasonally adjusted retail sales in the GMA and province during that period grew by 9% and 6.8% YoY, according to Statcan. In addition, retail sales surpassed those seen in the first half of the year, by 3.6% in the GMA and 1.8% provincially.
Double-digit increases between 1st and 2nd half sales growth in key retail categories such as shoes (29.4%), electronics (25.9%), clothing and accessories (18.9%), personal care & health (17.3%), and general merchandise (14%) were the largest drivers of growth in the GMA. Smaller gains were also seen in F&B stores (5.1%) and grocery stores (2.3%), likely explained by the price inflation in food-related items. The only key retail category that declined in the second half of 2022 was gas (-4.3%), largely due to gas prices decreasing after peaking in June.
It is likely that sales in apparel and personal care & health will grow this year considering there is still pent-up demand and that sales in early 2022 were limited by curfews and other pandemic-related policies. Grocery sales are very likely to increase in 2023 as consumers will increasingly look to cook meals at home in order to stretch their budgets.
Discount grocers and stores to gain market share in 2023
Now, with cost-saving becoming the new priority, discount grocers and retailers like Giant Tiger, Super C, Maxi, Dollarama, and MINISO are well-positioned to acquire new customers. Consumers have and will continue to increasingly search for promotional discounts and private label items, thus favoring these lower-cost retailers.
Mindful of the latter, discount grocer Giant Tiger has already committed to opening two new stores in Québec before the year’s end, including a 22,000 s.f. location in the soon-to-be renovated Plaza Cote-des-Neiges. Zellers also announced its comeback and will open two stores within Hudson’s Bay locations in the GMA by Spring 2023.
Consumers are also targeting dollar stores to buy food staples and household items, evidenced by Dollarama stating that demand is most notable in its consumable product categories. As a result, the dollar store giant hiked its 2023 forecast for comparable store sales growth. Low-cost retailer MINISO also sought to take advantage of shifting consumer behavior, announcing a “$2 plus” concept in October to compete with dollar stores.
Other retailers are poised to take advantage of this year's economic climate and look to expand their private label selection and create profitable concepts to adapt to new challenges.
New tenants announced for Royalmount, Marché Central
Landlords have also kept busy in the second half of 2022, with tenant arrival updates making headlines every month. In Q4 2022, Royalmount developer Carbonleo announced the arrival of several best-in-class brands, including Louis Vuitton, Gucci, RH, Sandro, and Maje. These arrivals are notable as they all represent their first-ever or first stand-alone locations in Quebec. Among new luxury arrivals, consumers can also expect a plethora of entertainment additions to the project, including an aquarium, a luxurious movie theatre, and the province’s first Rec Room. The mixed-use project is expected to open its doors in 2024.
QuadReal also made an important announcement, releasing additional details on the 630,000 s.f., sixth phase of its Marché Central development, located 4 kilometers away from Royalmount. In late Q3 2022, the landlord announced the addition of a new 35,000 s.f. Décathlon store which will neighbor a previously announced sustainability-driven Walmart supercentre. The delivery of these additions is scheduled for Summer 2023, with further announcements on the project expected later this year.
Plaza Côte-des-Neiges and Centropolis future-proofing
Many shopping center owners have been planning to future-proof their decades-old properties. Plaza Côte-des-Neiges is undergoing a revitalization project, which will feature a fresh façade, a modernized food court, and upgraded anchor tenants with the addition of Giant Tiger and the expansion of Marché Fu Tai. The project will be complete before the end of the year, and the changes should bode well for the plaza’s overall foot traffic activity, as daily grocery visits are increasing with shoppers staying on the lookout for bargains.
Centropolis Laval will also be improved, as the lifestyle center’s owners recently launched a project that will densify and mix the center’s uses with the eventual addition of two residential towers totaling 363 rental units and 40,000 s.f. of green space. With these additions, tenants can expect a sustainable influx of locally sourced foot traffic and sales.
The outlook for retail in 2023 in the GMA is cautiously optimistic. There were many improvements in key factors such as foot and air passenger traffic, sales activity, and vacancy in the second half of last year. Many Consumers will be more careful with discretionary spending, which could limit sales growth potential for certain businesses. However, with the Bank of Canada’s recent slowdown of interest rate increases, there is still an opportunity for savvy retailers and landlords to grow their businesses as the year progresses.