Research

Ottawa retail insight

Ottawa retail market to soften amid economic headwinds

February 26, 2024
Contributors:
  • William Schneider
  • Heli Brecailo
Market News
  • The retail leasing market in Ottawa is stabilizing, with a small decline in the availability rate and relatively low absorption levels. Despite economic headwinds, net rental rates increased as new retail supply continued to underwhelm.

  • Private and public stakeholders are working at both ends to create a much-needed boost in Ottawa’s residential supply.

  • Retail sales growth in Ottawa experienced a notable slowdown in 2023, with minimal or no expected growth for the current year.
Leasing market tightened

Despite a slowdown in retail consumption, the retail leasing market in Ottawa remains highly competitive, with availability rates slightly decreasing and notable growth in net rents. The limited new supply delivered in 2023 has sustained a market favorable to landlords.

General retail has accounted for the largest portion of absorbed retail space in Ottawa, while neighborhood, power, and strip centers have experienced stagnant absorption levels.

CF Rideau Centre and Bayshore Shopping Centre in Ottawa have managed to secure leases from renowned retailers including RW&Co., Uniqlo, and Imaginaire.

While rents in Ottawa are still on the rise, the rate of growth is expected to level off. Rent increases this year will be primarily influenced by the lack of new competitive retail space, inflation and escalating property taxes, rather than the improved retail fundamentals that drove the rent uptick in 2023.

The trend of decreasing retail completions is anticipated to be reversed soon. Nonetheless, few projects in the pipeline will address the urgent requirement for more retail space in the downtown area in the immediate future. Instead, development activities are primarily focused on areas beyond the downtown core.

ByWard Market revitalization

Downtown Ottawa may not see a substantial influx of new retail space, but the city is determined to uplift ByWard Market. With a significant budget allocated for upgrades, the city aims to enhance security measures and rejuvenate key areas such as ByWard Market Square, William Street, and the adjacent parking garage. Addressing security concerns and rejuvenating the market will help stabilize the area and give locals and tourists alike another reason to shop in the city.

Residential to drive retail growth

Even with the lack of imminent retail supply in urban Ottawa, there remains optimism for boosted sales thanks to a multitude of residential projects slated for delivery in the coming years.

Colonnade Bridgeport has an extensive development pipeline aimed at addressing Ottawa's housing crisis, encompassing 14 buildings across the city. The multi-billion-dollar pipeline is set to deliver over 3,400 residential units upon completion. While the towers won’t be concentrated downtown, they will be strategically positioned in areas with transit access to the downtown core. The company plans to start construction on at least two sites off Highway 417 by the year’s end.

The public sector is also actively addressing the housing shortage, using its power to revise zoning bylaws. The revision involves introducing new areas for infill development and allowing increased residential density in the suburbs. These actions will complement the existing residential growth already taking place in suburban Ottawa. Upon completion of the bylaw revision in 2025, these efforts will create new possibilities for residential projects, leading to increased sales and demand for additional retail spaces.

Ottawa retail sales plateauing

In 2023, retail sales in Ottawa experienced a notable deceleration, growing by just 1.2% compared to the growth rate of 3.4% in 2022. Ongoing economic pressures have further contributed to the anticipation of limited growth in retail sales for the current year, as consumer spending is expected to decline. Notably, there has been a slowdown in sales growth for retail staples including general merchandise, clothing, and shoes.

Although Ottawa saw a deceleration in sales growth in 2023, the city remains supported by robust long-term fundamentals due to its significant number of high-paying public sector jobs and anticipated population growth driven by immigration.

The food services sector, encompassing full and quick-service restaurants, fared better than the goods sector in 2023 and is expected to maintain growth in the low single digits, albeit at a slower pace.

Airport and public transit ridership still recovering

Over the past three years, air passenger traffic volume has continued to rise, growing by almost 37% in 2023. Although the number of passengers has not yet reached pre-pandemic levels, the delivery of Hard Rock’s 150-room, 1,600-slot Hotel & Casino by mid-2025 offers an added incentive for travelers to visit the nation’s capital.

Public transit has also shown growth, increasing by 36.2% annually. However, ridership levels remain well below pre-pandemic levels. The prevalence of hybrid work models, which require employees to be present for only 2-3 days per week, will likely continue to limit public transit usage for the foreseeable future.

Outlook

Ottawa’s retail sector is experiencing a weakened outlook as the growth rate of spending on general merchandise, clothing, and shoes is slowing. However, there are positive prospects for sustained growth in food services and tourism. Efforts are underway to tackle the city’s housing shortage, which will ultimately provide retailers with a larger pool of potential customers as more transit-accessible towers are delivered.

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