Ottawa retail insight

Local Market

Ottawa’s retail leasing market became tighter in the first half of 2023, mirroring record lows established in Q2 2022. The Bank of Canada’s interest rate hike campaign has started to affect consumer spending according to StatCan data; however, retail spaces continue to garner elevated levels of interest despite fiscal tightening, thanks to Ottawa’s robust labour market.

During the first half of 2023, both the availability and vacancy rates declined slightly, matching record lows set last year. Notably, there has been minimal new retail space delivered this year, as well as six-figure retail space absorption. This combination has created upward pressure on asking rents, which have consequently reached an all-time high in Ottawa. It’s expected that asking rents will continue to rise due to sustained demand for retail space and the absence of significant new completions in the immediate future.

StatCan data indicates that the Bank of Canada’s interest rate hike campaign has started impacting consumer spending, however, sales so far in 2023 have exceeded those seen in 2022. It appears that retail assets continue to attract considerable interest, largely due to the city’s strong and stable labor market.

Duo of experience-focused projects coming to Ottawa

The Ottawa Senators now has new owners, and downtown Ottawa is one step closer to adding a new element to its retail roster. As part of the sale agreement, the franchise will remain in Ottawa. The new owners have expressed strong interest in the LeBreton Flats site according to the National Capital Commission. The mayor also suggested other potential locations, including one situated between Bayview Yards and the Ottawa Baseball Stadium, both of which would be a marked improvement over the team’s current home in Kanata. It’s also worth noting that other urban locations may become available soon, as the federal government looks to sell off some of its assets.

Gloucester is also set to receive a notable retail boost thanks to the June ground-breaking of Canada’s first Hard Rock Hotel & Casino. The complex will boast a 150-room hotel, a 1,800-seat theater, retail outlets, and over 10 restaurants and bars. The new entertainment node is set to open its doors in 2025 and is expected to add a new experiential node in the GOA.

Retail sales growth in Ottawa outpaces province

Seasonally unadjusted sales from January to May 2023 for both the province and Ottawa remained slightly positive. Overall, sales YTD compared to last year were up 1.63% for Ottawa and 0.75% provincially. Momentum seems to be waning, as sales in Ottawa increased by 7.11% between January to May 2021 to 2022. Despite this, double-digit sales growth in Ottawa occurred in a few categories, including shoes (30.22%), motor vehicle and parts dealers (19.47%), and clothing (10.71%). Jewellery, luggage, and leather goods also saw a notable rise, with sales increasing by 9.59%. Grocery sales rose by 5.24%, largely due to the price inflation in food costs.

Consumers are still seeking to renew their wardrobes; however, it appears that the Bank of Canada’s interest hike campaign is starting to make shoppers alter their spending habits. StatCan's current projections for national Q3 sales indicate an unfavorable outlook, suggesting that consumers may finally be ready to scale back their spending.

Two of the most notable YTD drops included gasoline stations (-17.65%) and building material and home improvement (-7.38%). These categories experienced losses given the YoY drop in gasoline prices and due to consumers having already done the majority of home renovations during the pandemic years.

It’s expected that grocery sales should continue to outpace 2022 levels due to higher living expenses. Discount grocers and retailers such as Giant Tiger, FreshCo, Food Basics and Dollarama are especially well placed to take advantage of altering consumer behavior. The outlook on clothing and footwear sales is positive, as people are returning back to the office and other in-person activities in larger numbers than last year.

Air passenger traffic continues to recover

Air passenger traffic in Ottawa has been on a steady rise, reaching new post-pandemic peaks, fueled by pent-up travel demand and the removal of travel restrictions. At YOW, overall air passenger traffic saw a notable 64.7% surge between the first halves of 2022 and 2023. Air passenger volume remains 23.9% below the levels recorded in the first half of 2019, however, momentum is trending positively and could lead to post-pandemic highs in Q3. Travel demand should continue to increase in 2024, albeit with modest year-over-year gains due to reduced overall household savings.

2023 Outlook

The retail leasing market in Ottawa has tightened in the first half of 2023, reflecting record lows established in Q2 2022. Despite the Bank of Canada’s interest rate hike campaign impacting consumer spending and a disappointing return to the office, retail spaces in the city continue to garner interest. The availability and vacancy rates have declined slightly, while the limited near-term delivery of new retail space and high absorption rates have put upward pressure on asking rents, which have reached an all-time high.

Ottawa’s retail sector remains resilient, with strong sales in urban malls and new prominent tenants entering the market for the first time. The GOA is also set to see a retail boost with the development of the Hard Rock Hotel & Casino in Gloucester, and the anticipated relocation of the Senators into urban Ottawa. Although consumer momentum may be waning, certain product categories including shoes, clothing, and grocery continue to experience growth.