Centre Eaton, Sainte-Catherine Street West. A 44,840 square foot Saks OFF 5TH will move into the former Les Ailes as the malls merge. Photo: Ivanhoé Cambridge — *Centre Eaton, Sainte-Catherine Street West. A 44,840 square foot Saks OFF 5TH will move into the former Les Ailes as the malls merge. Photo: Ivanhoé Cambridge*

By: Gina Mastromonaco, Christine Slevan, and Lynn Johannesson, CBRE.

Downtown Montreal is in transition. The real estate market has become increasingly dynamic as traditional sectors evolve; the retail sector is no exception to this trend!

The core retail sector, as we define it, is based predominantly along Sainte-Catherine Street West, with the addition of some adjacent cross streets such as Crescent, de la Montagne, Stanley, and Peel. Home to major retailers such as Hudson’s Bay, Simons, and Ogilvy, Sainte-Catherine West has been the heart of downtown retail activity for over a century. To complement this corridor and to accommodate shopping during the harsher winter months, there are also five shopping centres that front on Sainte-Catherine Street, and are linked together through the under- ground network, housing a larger variety of fashion, entertainment and services. This retail sector is on the verge of one of its largest shifts ever.

Demographic change is impacting retail

This shift involves the notable population growth in the central area of downtown. We are focussing mainly on the area bounded by Avenue des Pins, Saint-Urbain Street, the river and just west of Guy Street. This area recorded an increase in population of 18.7% between 2010 and 2015 and is forecast to achieve another 15.2% increase in the next five years, compared to the Montreal CMA which is estimated to see 5.3% population growth between 2015 and 2020. This growth equals an additional 13,000 residents downtown, who will all need somewhere to buy their groceries, work-out, eat out, be entertained and relax. It is of great significance that the majority of these residents are in the 25 to 34 year age cohort, the average annual household income is $76,000 and there is an average of only 1.6 persons per household. Moreover, more than 57% of the downtown population has a university degree, far above the Montreal average of 25%. All of these factors can be summarized by stating that for the first time in decades downtown Montreal is filling up with young urban, well-educated professionals with healthy amounts of disposable income.

As a growing portion of the population is becoming university educated, and with that higher education and the time it takes to achieve, today’s graduates are more frequently delaying having children until later in their lives, rather than in their early 20s. This leaves them without the parental responsibilities that might otherwise usher them into family life, which has in recent decades meant moving off-island to the suburban markets as a young family. Without children at the top of their priority list, these young professionals are instead able to prioritize the prized “Lifestyle” that can be found by residing in the downtown core. This lifestyle choice includes proximity to work, and the ability to walk or cycle to the office. The rise of this highly-educated, high-earning, childless demographic has opened up a significant market for residential property in the downtown core, which has been quite active in Montreal in recent years with intensive condominium and apartment construction. Recent data indicates that there are more than 4,000 condominium units under construction in downtown. Just look at the cranes along Rene-Levesque Boulevard West and in Griffintown to see this growth.

The Shift In Retail

As this demographic shift continues to gain momentum, the makeup of the downtown retail sector is shifting with it. Retailers in the downtown core, which historically had fewer residents, were able to focus predominantly on more consumer goods like fashion. As the number of residents downtown continues to rise, so too does the number of retailers to meet the newfound demand for services and daily needs, with entities such as grocery stores and pharmacies sprouting up. With more people living downtown, the demand for leisure after work, such as restaurants and cinemas, will also rise.

Aside from mere proximity, another major factor drawing these young professionals into the downtown core is “The Lifestyle” made available to them at their fingertips. The increased prevalence of mixed-use developments is responding to this demand, in that one needn’t trek over to the next neighbourhood for something if it is available downstairs or around the corner.

An example of lifestyle-centric development in the pipeline is the redevelopment of the Ogilvy store and surrounding properties by Carbonleo. This mixed-use development will contain a 5-star hotel, high-end condominiums, and retail and restaurant space. The centre-piece of this development, a newly renovated and expanded Ogilvy/Holt Renfrew combined store, will have over 220,000 square feet of retail space. Completion is expected in late 2017. The Tour des Canadiens sports-themed condominium complex is another example, and L’Avenue comprises residential, commercial and office space all in one building. Furthermore, the City of Montreal has seen the need to redevelop its main retail corridor, to meet the needs of this changing demographic and create a better experience for shoppers. The City’s multi-phase construction project on Sainte-Catherine is expected to launch in 2017 and last four years. Plans include wider, heated sidewalks to make navigation easier in the winter, free Wi-Fi, and fewer parking spaces (more pedestrian spaces). All of this will attract the new residents to this area.

*Carbonleo's Ogilvy/Holt Renfrew project will include an adjacent luxury hotel and condos. Rendering: Carbonleo*

Some Fail & Disappear, Some Succeed And Grow! The Darwinian Law Of Retail

In addition to increases in day-to-day shops in terms of overall market composition, the makeup of individual sectors is also changing to accommodate for the preferences of the new residents. While the closures of a number of mid-range fashion retailers has been making news headlines lately, a number of newer/trendier/younger brands have been lining up to fill the vacancies. For example Mexx, Jacob and Tommy Hilfiger all closed their doors on Sainte- Catherine in the last year. The nature of the stores that are closing versus the stores that are replacing them speaks to the rising importance of the newer generation, and how, as consumers, they are the new dominant force in the retail world. Rather than the closures indicating any kind of retail slump in Montreal, they speak to the responsiveness of the market to the constantly-changing needs of consumers, or from another angle, the constantly-changing composition of the body of consumers as a whole. Some of the newcomers to the Sainte-Catherine strip are Aritzia, COS, and G-Star RAW. On a longer horizon, one can expect to see downtown retailers like MUJI, Uniqlo, Hudson Bay’s newly-acquired Saks Fifth Avenue, F21 RED, AllSaints, Karen Millen, and more. The majority of these fashion retailers cater to a younger generation. Even with the store closures and new openings, the actual vacancy along Sainte-Catherine Street in particular has remained fairly stable, and in fact has decreased in the last year. Vacancy between Guy Street and Robert Bourassa Boulevard decreased from 6.0% in the spring of 2014 to 4.4% in the spring of 2015. Major international retailers understand the significance of this corridor. They are making careful location decisions in order to better serve customers; new entrants to the downtown core, such as Lolë and G-Star, sought out unique spaces that have character and high visibility. Frank & Oak, originally an on-line only retailer, has opened a store on Stanley Street, just north of Sainte-Catherine, where men can get a haircut and pick out suits at the same time. These types of stores cater to the young, hip demographic and understand the significance of the in-person shopping experience they offer.

*Place Ville Marie features a substantial retail podium. Photo: Ivanhoé Cambridge*

The Technology Era & Its Influence On Retail

Likewise, as the population in the downtown core continues to be more educated, young, and most importantly tech-savvy, they will begin to demand further technological integration in the purchasing process. With the continued rise of online purchasing, it will likely alter the very definition of a store – we have likely already surpassed the traditional brick-and-mortar vending of merchandise. Instead of acting essentially as warehouses where consumers explore the merchandise and ultimately make a purchase, stores of the future will be more successful integrating themselves with online purchasing to make a smoother and more logical overall process.

Instead of brands building redundant, two-track infrastructure and competing with themselves, they would be better served by integrating into one, smoother system. Tech-savvy consumers could select items they like online, and use stores as pickup points, important on the logistical chain. Instead of the traditional warehouse role, stores could adapt to service the parts of the consumption process that [at least today] continue to require physical presence, such as checking sizing.

Les Cours Mont-Royal. Photo: www.tripadvisor.ca — *Les Cours Mont-Royal. Photo: www.tripadvisor.ca*

As the merchandise aspect of brick- and-mortar retail continues to slide onto the sidelines, the defining role of a store could soon be entirely redefined. Since the 1700s, the word ‘store’ has referred to a place goods are stored in order to be showcased and sold. With the rise of online shopping, spurred by a rapidly growing demographic of computer-literate consumers, the storage and sale of merchandise could in large part be replaced. The main objective of stores could shift, becoming more important as delivery and distribution centres for products decided upon online. With the sale of merchandise beginning to be sidelined, stores will need to do some soul-searching to carve out their new role in this increasingly online retail landscape – with focus on the creation and/or expansion of services that require a physical presence, and cannot be replicated online with today’s technology. This will likely manifest itself in the conversion of stores into marketing vehicles where branding and lifestyle-based marketing can be promoted. The in-store experience will become more important than the inventory!

Retail is constantly in flux; consumer preference is ever-changing, demographics vary over time; technology is impacting historical means of acquiring goods. As such, the retail sector must be incredibly responsive to the preferences of consumers and retailers alike. Evolving demographics requires an evolution in the shops and services required to meet perpetually shifting demand. The significant increase in the residential population is going to alter the retail landscape as we know it in the heart of Montreal’s busiest downtown retail districts. Retail is probably the most dynamic of asset classes, its success depends on new consumer preferences, their ability to spend and their level of confidence in the economy. Montreal is no exception when it comes to retail, either to adapt and thrive or fail and disappear.

Sources: Sitewise demographics, CMHC, City of Montreal.