Winnipeg retail insight - Year end 2021

Winnipeg retail market put to the test by omicron

January 30, 2022
  • Heli Brecailo
Local Market

The Winnipeg retail leasing market should successfully navigate another period of uncertainty in light of the omicron pandemic wave. While in late December the province of Manitoba reintroduced restrictions that could affect retailers, leasing activity is expected to perform well in 2022 once the province enters a more stable environment, likely in Q2.

The new restrictions limited the capacity of indoor dining, bars, gyms, movie theatres, and concert halls to half-occupancy. Fortunately, retail stores and shopping centres remain completely open in Winnipeg. Workplaces also remain open without restriction.

In addition to the depth and duration of the restrictions, businesses have been concerned about the length of the pandemic as a whole as we experience the fourth wave in 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 is encountering 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. The federal government has also 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 to allow for shopping methods that cater to differences in shoppers’ hesitancy. Also, many shoppers will take this opportunity to build up savings and spend once they feel safer.

Retailers have certainly paid attention to foot traffic when deciding to lease spaces. The focus remains outside the CBDs, as many office workers have stayed beyond the downtown areas and worked from home.

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 continue their recovery trajectory in 2022, as the trend for base-rent concessions and adoption of percent sales agreements has receded and rent collections have improved. In the Prairies, while rates decreased by 6 percent in 2020, they have started to rebound in 2021.

Indoor Dining Under Pressure

Restrictions to indoor dining will impact already-afflicted restaurants, prompting questions about the sustainability of the sector as a whole. Many businesses will continue to assess whether to keep shops operating through restricted and non-restricted periods.

Fortunately, the federal government has offered continued support for the hospitality sector. Under the Tourism and Hospitality Recovery Program (THRP), businesses with a revenue drop of at least 40 percent might be eligible for rent subsidy, wage subsidy, or both.

In addition, through its Sector Support Program, the province of Manitoba is providing $3,000 to $12,000 per business to dine-in services, movie theatres, concert halls, museums, galleries, recreation and sport facilities, and gyms.

Several Winnipeg restaurants have temporarily closed their doors or moved to takeout-only as omicron cases soared among their staff and prompted rising worker absences. In turn, major food courts and food-court tenants have operated with no closures.

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 restrictions. During the pandemic, food services job vacancy in the province of Manitoba has soared.

The recovery of full-service restaurants is now on hold. With the new restrictions, foot traffic dropped in December and early January. Many patrons shifted from food services to food retail. In 2021, Manitoba’s sales were down 23 percent from pre-pandemic levels. 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. This September, Filipino chain Jollibee opened its third location in the city.

Supply Chains and Labour Remain Obstacles

Supply chain issues affect not only local retailers but also the metro area’s significant manufacturing sector, driving slower economic growth. The ongoing pandemic, especially during surges, has prolonged supply chain disruptions, leading to slow production and logistics delays. The good news is that, once the disruptions subside, strong employment and economic gains are expected.

Job vacancies are expected to remain high. In the province of Manitoba, job vacancy rates in both the accommodation & food-services sector and in the arts, entertainment & recreation sector soared in 2021.

Downtown Struggles

The trend continues to be in favour of suburban areas as Winnipeggers prefer to telecommute during omicron. Although many workers returned to offices in 2021, visits to workplaces and transit stations remained below pre-pandemic levels. Winnipeggers are spending more time at home for work, shopping and leisure.

During the pandemic, downtown’s residential population has been insufficient to sustain its ground-floor retail, service, and hospitality businesses. Only 2.3 percent of Winnipeggers live in the downtown area, a lower proportion than Edmonton, Calgary, and Ottawa.

Despite some improvements during the summer, business owners in downtown Winnipeg continue to deal with reduced foot traffic in areas that were once bustling with office workers. More than 70,000 workers previously visited the downtown area every day.

The University of Winnipeg and various college campuses in the downtown area reverted to remote learning for most courses at the start of the 2022 winter term.

Tourism downtown had undergone a modest recovery before omicron, but that has now been curtailed.

Downtown suffered a blow recently with Starlight Investments no longer pursuing the purchase of the Portage Place mall. The project would have helped to rejuvenate downtown, bringing more restaurants and residents above the retail level. In 2019, Starlight offered $70 million to buy Portage Place and promised $400 million to redevelop the 440,000-square-foot mall.

In 2021, the Downtown Recovery Strategy working group was formed to assess and address the pandemic’s impacts on the businesses and communities in downtown Winnipeg. The group is requesting a total investment of $90 million from the three levels of government, which will generate more than $300 million in private-sector investment.

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