Quebec City retail insight - Year end 2021
Quebec City retail recovery interrupted by omicron
- Heli Brecailo
The Quebec City retail leasing market should successfully navigate the current period of uncertainty from the omicron pandemic wave. Although in late 2021 the province of Quebec reintroduced lockdown restrictions that hinder retailers’ ability to make plans, leasing activity is nonetheless expected to increase once the province enters a more stable environment, likely in Q2.
The province maintained its heavy-handed approach from previous pandemic waves and reintroduced strict measures aimed at reducing mobility, including the expansion of the vaccine passport to retail, a nightly curfew from 10 pm to 5 am subject to hefty fines, and mandatory work-from-home. To the disappointment of many Quebecers, the province’s rapid advance in covid vaccination and treatment has yet to prevent rigorous measures.
The restrictions also included the temporary closing of indoor dining, bars, gyms, cinemas, and enclosed venues. Fortunately, retail stores and shopping centres remain open, albeit with reduced capacity limits. On Sundays, only essential retail is allowed to open.
In addition to the scope and length of the restrictions, businesses have been concerned about the duration of the pandemic as a whole as we experience the fifth wave over the course of two years. Given covid’s unpredictable nature, new waves might continue to disrupt the market and call into question the feasibility of businesses.
Even so, omicron encounters a more resilient and prepared market. Despite the let-down of a new big wave, retailers and landlords are now familiar with the restrictive measures and what they entail. Many leases already include clauses that anticipate a reduction in rents in times of stress. Also, the federal government has put into place emergency programs to assist the most impacted businesses.
Shoppers are less hesitant about covid and more confident about consumption. Many businesses updated their online platforms, allowing for shopping methods that cater to differences in shoppers’ hesitancy. Also, many shoppers are taking this opportunity to build up their savings to spend once services reopen.
In this context, neighbourhood centres, anchored by essential shops a few steps from shoppers’ homes, will experience continued interest. Power centres and general retail, which enjoy exterior frontage, should also remain attractive.
Rents should see their recovery trajectory interrupted and are likely to stall. Depending on the length of the omicron wave, there might be another surge of base-rent concessions and percent sales agreements, and rent collections could suffer. While rates in the province of Quebec moderately increased in 2021, slowly approaching those of 2019, they could drop in the first quarter of 2022.
A big push for local retail real estate was the purchase of Cominar Real Estate Investment Trust (REIT). In one of the largest commercial real estate takeovers in Canada in 2021, Canderel Real Estate recently led a $5.7-billion deal to buy Cominar, which is based in Quebec City. About half of Cominar’s retail properties are also located in the city.
Canderel and Groupe Mach will acquire Cominar’s office and retail properties and Blackstone the industrial properties. The official closing is set for Q1.
A Major Setback for Indoor Dining
The shutdown of indoor dining will certainly impact already-afflicted restaurants, prompting questions about the sustainability of the sector as a whole. Many businesses continue to assess whether to keep their shops operating through lockdowns and reopenings.
Fortunately, the federal government has offered continued support for the hospitality sector. Under the Tourism and Hospitality Recovery Program (THRP), businesses that had a revenue drop of at least 40 percent might be eligible for rent subsidy, wage subsidy, or both.
Once they reopen, food services will find it increasingly challenging to recruit labour, which continues to transition to sectors that are more stable and less subject to government shutdowns. During the pandemic, food-services job vacancy in the province of Quebec has soared.
The recovery of full-service restaurants is suffering another setback. With the temporary closures, patrons have shifted from food services to food retail until indoor dining reopens. Right before omicron, sales were still reduced due to the fall weather, requirement of proof of vaccination, and covid hesitancy. Nevertheless, restaurants should see a strengthening in business in spring as the weather warms.
QSRs will continue to outperform other food services and drinking places. Fast food restaurants quickly rebounded from covid and have consistently seen increased sales from 2019.
Downtown versus Suburban
The trend continues to be in favour of suburban areas, as residents have been instructed to telecommute during the omicron wave. People will continue to spend more time at home for work, shopping, and leisure. In 2021, although many workers returned to offices, visits to workplaces and transit stations remained below pre-pandemic levels.
A recent study reported that 43 percent of local workers teleworked in 2021. As a provincial capital, Quebec City hosts several economic sectors compatible with telecommuting. Remote work remains popular, with 79 percent intending to continue with this arrangement, either three or five days a week.
Laval University and various college campuses in the downtown core and surrounding areas shifted to online classes in early January in compliance with provincial guidelines. The return to in-person classes will depend on new provincial instructions.
The Laurier Quebec shopping centre saw some foot traffic recovery in late 2021, but overall visitation remained below 2019 levels. In turn, Les Galeries de la Capitale mall – located in the suburbs at the intersection of highways 40 and 740 – also saw decreased traffic, but experienced a better summer, primarily because of Mega Park and the presence of families from outside the region on vacation. In Q3, Cominar saw an increase in footfall and total comparable sales in its non-urban core retail properties in Quebec City.
In the long run, new transit-oriented projects should improve mobility into and out of the city centre. The province recently unveiled ambitious transit plans, including $7 billion for a third link between downtown and the municipality of Lévis in the form of a tunnel.
In addition, the province plans to build a tramway network to connect Quebec City east to west, passing through downtown. The 20-kilometre route should be in service in 2027. The new project will give larger sidewalks to pedestrians and rewire car access into and out of retail properties.