Montreal’s new Royalmount luxury megamall and the resilience of Canadian retail

Montreal developer Carbonleo was a few years away from opening its ambitious luxury megamall in the city when the COVID-19 pandemic hit — and they freaked out, scaling it back and delaying a second phase.

“I mean, we didn’t know that physical retail was going to continue to exist.” said Michael Stroll, vice-president of leasing at Carbonleo, in an interview with Yahoo Finance Canada. “We saw online sales and consumer behaviour entirely change as you phased through that.”

Four years later, Royalmount’s first phase has opened to great hype (fanned enthusiastically by Carbonleo), with its 170 stores 93 per cent leased, including more than a handful of global luxury brands not previously seen in Quebec.

The developer’s $1-billion-plus gamble on a redevelopment of industrial land on the edge of the city’s centre now looks like a story of exquisite timing (and luck) and a testament to the resilience of Canadian retail (and luxury retail in particular). At 824,000 square feet, Royalmount’s first phase is far from the biggest mall in Canada or even in Greater Montreal, but its splendour and novelty set it apart — which, says strategy consultant Mark Satov, are essential in the higher-end retail world.

“In order for those luxury brands to compete, they need their experience to be out of this world and so we continually see an upping the ante on retail experience to get people to go to the store,” he said. “Because if you want people to get off their ass and buy in the store instead of online, you need to make it worth the trip.”

As such, it’s a soaring, extravagant place that Carbonleo refers to as a “​​shopping, dining and entertainment destination,” with massive glass ceilings cascading over wide indoor promenades dotted with contemporary art and sculpture.

Retail consultant Doug Stephens, who took part in early brainstorming sessions about Royalmount but is not a stakeholder, describes it as “a total community planning project” with an emphasis on meaningful experiences. “If we look at Gen Z, for example, there’s significant evidence that they look to physical experience now as, frankly, a means of disconnecting from the matrix.”

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The corridors to the bathrooms have immersive audiovisual features. The central outdoor square boasts heated sidewalks that will keep the spaces free of snow and ice and extend patio season at the restaurants on the perimeter. A smartphone parking app will direct you to an open spot, or you can take the metro and stroll over the perpetually gridlocked Décarie expressway through a glass-walled climate-controlled flyover that Carbonleo built for around $50 million.

(The pedestrian bridge is partly a response to heavy criticism about traffic: Royalmount is nestled at the intersection of the Décarie and Highway 40, possibly the two busiest roads in Montreal and often a traffic-choked nightmare — even before the existence of a mall that developers hope will attract some 30 million visits per year. Carbonleo says it expects two-thirds of those visits to come via the metro.)

The state of brick and mortar

In spite of fears during the pandemic, the Royalmount project has taken shape alongside what Stroll calls “a really huge narrative shift from headlines like, ‘Is brick and mortar retail dead?’ to … ‘Retail is actually thriving.’”

While office real estate is still recovering from the pandemic and the hybrid work trends that emerged from it, retail real estate is going strong. A CBRE retail rent survey found that the first half of 2024 was defined by “incredible demand and the race for space” with rents rising in many markets across the country. In Toronto, quality space is so limited, CBRE says, that “tenants are starting to widen their search area” beyond the coveted downtown core.

In Stroll’s experience, current demand for retail space is characterized by “a flight to quality,” in which brands are willing to pay elevated leases for a specific list of characteristics and where lower-calibre spaces will lose out. “It’s not a circumstance of all winners, but there’s certainly a winning environment for the top tier.”

That top tier “usually has exposure to luxury and contemporary and then mass-market brands,” he says. “It’s usually connected to public transit. It usually has high population density. It usually has entertainment, and as we look towards the next generation, it will likely become even more mixed use … But there’s a recipe, and the top centres have thought about it a lot better than B and C or even D centres.”

‘They can still afford a bag’

At Royalmount, the recipe is a ground floor full of known luxury brands — Quebec first standalone boutiques from Louis Vuitton, Gucci, Versace, Saint Laurent, Jimmy Choo, Longchamp and Moncler — with facades made for social media posts whether or not there’s a shoe or handbag purchase.

The luxury segment has proven it can endure uncertainty, Satov notes, ably navigating the 2008 financial crisis and COVID. “That’s because wealthy people, if they’re having a bad year, they used to make $2 million a year and now they make $1.5 million a year,” he said. “That’s a giant drop for them, and they may delay a giant reno, or they may delay changing homes or whatever …but they can still afford a bag.”

Carbonleo has pointed out that Montreal includes four of the 10 wealthiest postcodes in Canada but has a conspicuous shortage of luxury brand stores. But Royalmount is not just for the affluent. Stroll says a big target demographic is a luxury consumer who is “not necessarily someone who would be regarded as rich,” but “a millennial or Gen Z who’s stretching” to make a purchase. It’s “the status or emotional feeling they’re getting from buying a luxury product,” he said.

“I don’t know where they get their money,” quipped a jocular Carbonleo CEO Andrew Lutfy, who also runs the Dynamite and Garage fast-fashion brands, during a media tour. “I don’t know if they’ve got side hustles. I don’t know if they took their mother’s vintage purse or sold it, took the cash and spent it.”

If they can’t afford it, Carbonleo has them taken care of anyway. On the mezzanine overlooking the swanky brand flagships sits a range of well-known mass-market stores where a purchase won’t have the same bank account impact — many of them with larger footprints than at any of their other outlets in the city. Those shops have 18-foot facades (higher than industry standard, Stroll says) that make their signs visible from the ground floor. If you can’t afford a meal in the food hall, there’s an A&W stationed near the Décarie footbridge.

The future

Stroll says the current space represents “less than 10 per cent of the density that we can build of leasable or sellable space,” and Carbonleo hopes the site will eventually feature a mix of retail, residential and office space worthy of the “Montreal’s Midtown” moniker it’s trying to pin on the entire project.

Their ambitions for site expansion have been held up so far by the Town of Mount Royal, the municipality in which the Royalmount site sits, but Lutfy remains upbeat.

“I’ve come to appreciate that ‘no’ is not ‘no,’” he told media at an event before the mall’s opening. “’No’ is just ‘no’ for today,” he said.

Beyond Royalmount, Stroll says Carbonleo, which also built the Quartier Dix30 shopping complex on Montreal’s south shore and the five-star Four Seasons hotel and residence downtown, is thinking big.

“We don’t share it publicly, but I’d say the plan includes quite ambitious growth. And it’s not limited to just Quebec or Canada, or even the U.S.”

John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.

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