Consumer spending in National Capital Region expected to drop in 2024, new reports say

David Sali

March 5, 2024
4:23 PM
ET

Organizations: Brentcom Realty Corp., CBRE, Jones Lang LaSalle, Marcus & Millichap

People: Brent Taylor, Candice Lerner-Fry, Casdin Parr, Jamie Boyce

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Retail sales are expected to level off in Ottawa this year as budget-conscious consumers cut back on discretionary spending, two of Canada’s largest real estate firms say – but local brokers who specialize in retail leasing say the industry remains healthy due to population growth and the region’s stable economy. In a pair of reports released last week, CBRE and Jones Lang LaSalle said real consumer spending in Ottawa is expected to drop by 0.4 per cent in 2024. In its spring 2024 Ottawa Retail Insight report, JLL said there has been a slowdown in sales growth for retail staples such as clothing and shoes in recent months as shoppers contend with rising prices and interest rates. “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,” the report said. Retail sales growth has been on a downward trajectory in Ottawa for the past two years, according to JLL. While spending rose by 3.4 per cent year-over-year in 2022, it increased just 1.2 per cent last year. But the report also suggests Ottawa is better-positioned to weather economic headwinds than many other parts of Canada, thanks to “robust long-term fundamentals due to its significant number of high-paying public sector jobs” and anticipated population growth fuelled by immigration. “The pie is actually getting larger,” JLL’s executive vice-president of retail advisory services, Casdin Parr, told OBJ in an interview last week. “While we see a flattening of sales, it’s not alarming for the broader retail community.” Veteran broker Brent Taylor agrees. Calling Ottawa a “strong, stable market,” he says health-care service providers such as physiotherapists as well as businesses such as quick-service restaurants continue to be in “expansion mode” in many parts of the city apart from the downtown core, which has struggled to bounce back from the effects of the pandemic. “While some retailers are definitely struggling, others have found a niche and are flourishing,” said Taylor, president and broker of record at Brentcom Realty Corp. “From where I sit, the demand is pretty strong.”

Space crunch continues

Yet a shortage of supply continues to plague the industry, local brokers say. Just 90,000 square feet of new space was added to Ottawa’s retail inventory last year, CBRE said, and the firm is projecting no new developments to come online before the end of 2024. JLL’s 2024 forecast calls for the city’s retail availability rate to hold firm at 2.4 per cent as limited new construction has “sustained a market favourable to landlords,” the company said in its latest outlook. As a result, retail rents are still rising in many parts of the city as real estate remains at a premium, especially in red-hot suburban areas such as Barrhaven, Kanata and Orléans. JLL expects average asking net rents to rise to $23.41 in Ottawa by the end of the year, up from about $22 two years ago. Earlier this year, brokerage Marcus & Millichap said it expects average retail rents in the city to jump 4.2 per cent to about $25 a square foot. Even in some neighbourhoods where merchants are perceived to be struggling such as the ByWard Market, retail landlords are still commanding anywhere from $35 to as much as $70 per square foot, Taylor said. “We’ve seen no (new construction) of significance over the last four or five years,” explained Jamie Boyce, an Ottawa-based senior vice-president at CBRE who specializes in retail leasing. “We’re really into a supply imbalance as a result of that.” Candice Lerner-Fry, vice-president of leasing at Marcus & Millichap’s Ottawa office, told OBJ last month that skyrocketing labour and material costs since the pandemic have scuttled potential retail construction projects but haven’t stopped shoppers from flocking back to brick-and-mortar stores in droves. “More and more landlords and developers can’t make (economic) sense of developing retail, so they’re kaibashing it and building (residential) towers,” she said. “There’s just not a lot of product and you still have a lot of tenants looking to expand.” Meanwhile, landlords in softer markets such as Centretown are getting “more creative” in their efforts to fill vacant storefront spaces, Boyce said. Property managers are willing to consider everything from discounted rent and more flexible lease terms, to renovation subsidies and revenue-sharing agreements with tenants in a bid to lure new tenants, he explained. “I think anything is open for conversation,” Boyce said.