Montréal retail insight - Fall 2022

Retail sales activity heats up, boosted by tourism and the re-emergence of downtown Montréal

August 09, 2022
  • William Schneider
  • Heli Brecailo
Local market

As expected, the Montréal leasing market has strengthened largely due to the government’s easing of pandemic-related restrictions. The reduction of travel restrictions combined with the arrival of summer was the perfect recipe for increased foot traffic and sales in the Greater Montréal Area. As retailers take advantage of these favourable conditions in the second half of the year, there is sustained upward pressure on rental rates and subsequently downward pressure on vacancies. This trend is expected to continue until there is a drastic change in consumer behaviour.

Effective rental rates have surpassed Q1 2020 levels and are inching their way up further QoQ. Overall, vacancy rates have yet to truly recover to pre-pandemic levels. Landlords and tenants are still agreeing to shorter lease terms than usual. The prevalence of vacant spaces and shorter leases have allowed prospective out-of-market retailers to experiment with pop-up shops to gauge consumer interest before committing to larger-scale investments.

In order to garner more interest in their vacant spaces, some landlords have become creative and have leased out their traditional retail spaces as showrooms and for medical uses. Modifying interior spaces continue to be landlords’ last option given the lack of labour available in the market.

The improvement of the retail situation in downtown Montréal cannot be overstated. Most businesses in the central business district have experienced rebounding sales thanks to a pronounced increase in foot traffic from residents, office workers, and tourists.

Tourism has surely had a part to play in the urban core’s recovery from COVID-19 times, as air passenger traffic at the Montréal-Trudeau airport has finally rebounded this year and will soon eclipse Q1 2020 activity. Full-service restaurant activity has skyrocketed compared to last year’s figures. Limited-service eating places continue to benefit from elevated activity, thanks to increased online sales.

Urban core recovery

Unsurprisingly, there are now fewer businesses that are closed in downtown Montréal compared to Q2 2020 levels. According to Montréal’s City Centre Report, approximately 19% of businesses in urban malls and Sainte-Catherine are currently closed, mirroring levels seen at the start of the pandemic. The situation for both has improved over time, given that 24% of businesses on Sainte-Catherine Street and 34% located in malls were closed in Q1 2021.

Both mall-based and Sainte-Catherine Street-based retailers in the urban core have recovered in 2022, but mall-based retailers had more lost ground to recover and were more severely impacted by COVID-19 restrictions.

The recovery and persistence of business activity in the urban core are noteworthy, and even more so when considering that most downtown workers are still working from home on a full or part-time basis. Despite this, foot traffic in the core for Q2 2022 is up almost 40% compared to Q2 2021. This is further evidence that downtown Montréal is gradually reclaiming its identity as a prime destination for shopping, eating, and entertainment.

Royalmount, Fairview Pointe-Claire and Sainte-Catherine attract new tenants

With good fundamentals in place, retailers from outside the province are expressing interest in the Royalmount project. Over 200,000 square feet of retail space has been pre-leased since Q4 2021. The project will likely satisfy shoppers’ appetites, as 50% of the pre-leased space will be occupied by new-to-market, best-in-class global brands.

Fairview Pointe-Claire has also undergone a physical makeover during the pandemic. The mall moved its food court to the busier first floor near a future REM station and welcomed Simons and Uniqlo as its new anchor tenants. The upscale food court now occupies the former Sears location and is now welcoming new food and beverage operators such as Tommy Café, Poulet Rouge, and Lucille’s Oyster Dive.

Sainte-Catherine Street is also bolstering its roster of notable tenants and reinventing itself. Nike has recently announced that it will build a large flagship store at the location of the former multi-level Gap store in the Eaton Centre by Q3 2023. Furthermore, fashion retailer Chlorophylle is also set to open a store in front of the Eaton Centre.

Much like Royalmount and Fairview Pointe-Claire, the street is also undergoing its fair share of physical changes. The thoroughfare will be revitalized with the help of broader sidewalks and extra greenery lining the street between De Bleury and Mansfield Streets. The city also aims to create spaces that will combat heat-island effects.

The focus on pedestrianizing the strip will encourage more foot traffic and ensure that shoppers will enthusiastically spend more time and money while on the street. These upgrades should in turn help asking rents on the street to eventually exceed the $200/square foot threshold.

Comparing states of Montréal malls, pre-pandemic and post-pandemic

When comparing the state of major malls in the GMA pre-COVID-19 and post-COVID-19, there was initially a significant decrease in sales, however, they are now recovering. There has also been a decrease in foot traffic, although the decline was softer for sales per square foot. Both conditions are expected to improve in the second half of the year.

Interestingly, the number of sales per visit has increased, implying that consumers are now shopping with a set goal.

This figure is expected to decrease slightly by the end of the year when more shoppers return to malls and are eventually satisfied with their updated wardrobes. Vacancy rates have also risen compared to pre-pandemic levels, but recovery should occur if consumers maintain their current shopping appetites.

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