SHOP TILL YOU DROP

Ottawa’s ca­pac­ity for new re­tail knows no bounds

Ottawa Business Journal - BOMA Magazine - - Generators Of Wealth - BY LEO VALI­QUETTE

“We have well over 1,000 new home starts each year and that shows no signs of chang­ing.”

— An­drea Steen­bakkers

Each year, the Ottawa mar­ket needs another mall the size of Billings Bridge just to keep abreast of the re­gion’s pop­u­la­tion growth, says Barry Na­ba­tian.

That’s the equiv­a­lent of about 450,000 square feet of new re­tail space. From new ex­pan­sions at old main­stays like the Rideau Cen­tre and Bayshore Shop­ping Cen­tre, to fresh de­vel­op­ments such as Grant Cross­ing in Kanata/Stittsville, de­vel­op­ers con­tinue to take ad­van­tage of the re­gion’s hunger for re­tail.

Ac­cord­ing to Na­ba­tian, a vet­eran re­tail an­a­lyst with real es­tate ap­praisal and con­sult­ing firm ShoreTan­ner & As­so­ci­ates, the mar­ket is far from reach­ing a sat­u­ra­tion point.

Com­mon in­dus­try wis­dom holds that a typ­i­cal res­i­dent can sup­port 30 to 40 square feet of re­tail. The Ottawa mar­ket is still av­er­ag­ing just un­der 30 square feet per res­i­dent, and the pop­u­la­tion grows by about 10,000 per year.

Na­ba­tian also another telling statis­tic: most re­tail out­lets, achiev­ing an­nual sales of $350 to $400 per square foot is con­sid­ered healthy. The av­er­age across Canada is about $480. Ottawa tends to be some­what higher. The Rideau Cen­tre, for ex­am­ple, is past $1,000. St. Lau­rent Cen­tre, Car­ling­wood Shop­ping Cen­tre and Bayshore are all above $700.

BUSY IN THE ‘BURBS

But the big­gest growth sto­ries are be­ing told in the sub­urbs. In Ottawa’s sub­ur­ban mar­kets alone, Na­ba­tian said, one mil­lion square feet of new re­tail is un­der con­struc­tion, with another 1.5 mil­lion in the works.

About 350,000 square feet of this new ca­pac­ity is lo­cated in Bar­rhaven. But ac­cord­ing to An­drea Steen­bakkers, ex­ec­u­tive di­rec­tor of the com­mu­nity’s busi­ness im­prove­ment area, Bar­rhaven still suf­fers with a short sup­ply that is lim­it­ing op­por­tu­nity.

“We have well over 1,000 new home starts each year and that shows no signs of chang­ing,” she said. “It’s a steady, healthy num­ber but we haven’t re­ally had much in terms of new com­mer­cial growth in a while.”

She is reg­u­larly con­tacted by niche busi­nesses that want to lo­cate in Bar­rhaven, as well ma­jor re­tail­ers look­ing to ex­pand, but un­less de­vel­op­ers are step­ping up to the plate, th­ese prospects have no choice but to stall their growth plans, or opt in­stead for an ad­ja­cent com­mu­nity.

From Steen­bakkers’ per­spec­tive, big an­chor re­tail­ers are a boon for ev­ery­one, even the smaller re­tail­ers they may com­pete with, since it brings traf­fic to the bed­room com­mu­nity.

“It’s bet­ter to have them in­side of our com­mu­nity than out­side be­cause it keeps peo­ple spend­ing their money in Bar­rhaven,” she said.

NEVER ENOUGH SPACE

Brent Tay­lor, bro­ker with Brent­com Realty, is no stranger to the chal­lenges re­tail­ers face in find­ing suit­able space in the Ottawa mar­ket. He works with the land­lords of com­mer­cial prop­er­ties, as well as larger re­tail­ers such as Shop­pers Drug Mart and Farm Boy.

“There never seems to be enough good qual­ity re­tail space when we are look­ing for lo­ca­tions for grow­ing re­tail­ers,” he said.

Ac­cord­ing to Na­ba­tian, one is­sue with the Ottawa mar­ket is the im­pact of a tight va­cancy rate on real es­tate costs. A healthy mar­ket has a va­cancy rate of four to eight per cent, but in Ottawa, the rate is hov­er­ing just un­der four per cent. This is cre­at­ing fi­nan­cial chal­lenges for re­tail­ers as their leases come up for re­newal with stiff in­creases in the rental rates.

As a re­sult, many re­tail­ers are be­ing forced out of the more cen­tral ar­eas of Ottawa, where leas­ing costs are at their high­est, to rel­a­tively more af­ford­able op­tions in the sub­urbs, Na­ba­tian said. But Tay­lor added that lo­ca­tion, as with any sec­tor of the real es­tate mar­ket, re­mains the most

im­por­tant con­sid­er­a­tion in re­tail.

“Suc­cess­ful re­tail­ers will lo­cate in the best area for their busi­ness and they will pay more for a lo­ca­tion if it is best for their busi­ness,” he said. “They won’t re­lo­cate sim­ply for cheaper rents. Rent is only one con­sid­er­a­tion in the suc­cess of the busi­ness.”

In Tay­lor’s ex­pe­ri­ence, rental costs alone are not fu­el­ing any sub­stan­tial mi­gra­tory trend out to the sub­urbs. In­stead, it is the ap­peal of lo­cat­ing in a lu­cra­tive growth area.

For Steen­bakkers, this means keep­ing the Bar­rhaven BIA’s mar­ket re­search cur­rent to iden­tify gaps and op­por­tu­ni­ties for new de­vel­op­ment. The BIA doesn’t ac­tively pitch de­vel­op­ers to in­vest in the area, but it does sup­port the de­ci­sion-mak­ing process and as­sist with nav­i­gat­ing city hall’s red tape to en­sure sus­tain­able, pos­i­tive growth.

But Ottawa needs more than just more re­tail space, said Na­ba­tian.

“We don’t have a lot of high-end re­tail­ers.”

— Barry Na­ba­tian

BUT OTTAWA NEEDS QUAL­ITY, NOT JUST QUAN­TITY

“Over­all we have a lot of mid-priced, mid-qual­ity and dis­count re­tail­ers,” he said. “We don’t have a lot of high-end re­tail­ers.” This lack drives shop­pers to the U.S., Mon­treal or Toronto.

While this has be­gun to change with the re­cent ar­rivals of up­scale re­tail­ers such as Si­mons from Que­bec and Norstrom from the U.S., it will take time for mar­ket de­mand to grow enough for oth­ers to fol­low, he said.

The other is­sue fac­ing the Ottawa mar­ket is the im­bal­ance be­tween the sub­urbs and those ar­eas of the city that are “over­stored,” such as the down­town area bounded by King Ed­ward Av­enue, Dow’s Lake and Bron­son Av­enue, Na­ba­tian added. This area of the city holds only eight per cent of the city’s pop­u­la­tion, but is home to 12 per cent of the re­tail. This means that area busi­nesses can’t be sup­ported by area res­i­dents alone.

“One of the good things for the down­town in the last three or four years is that a lot of con­dos have been pro­posed or are un­der con­struc­tion,” Na­ba­tian said, which should re­sult in a sub­stan­tial in­crease in the num­ber of high­in­come pro­fes­sion­als liv­ing in the area.

De­spite the im­bal­ances be­tween parts of the city ver­sus oth­ers, Tay­lor is con­fi­dent in the over­all health of the mar­ket.

“I think the re­tail mar­ket in Ottawa is sta­ble and solid, with strong de­mand for both ur­ban and sub­ur­ban re­tail space,” he said.

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