Toronto : The downside of up

[ErickMontreal]

Toronto : The downside of up

 

 

TENILLE BONOGUORE

Globe and mail

 

Old Toronto is booming, thanks to a flood of new condo dwellers. So why are prime retail strips awash in 'for lease' signs? Tenille Bonoguore recently counted 54 empty storefronts on one stretch of Queen alone. With rents soaring, is it only cashed-up chains that can survive?

 

The garlands were up, the Christmas songs were playing, but inside the Danforth Avenue store Paper and Presents, the mood was anything but merry.

 

It was December, 2007, and instead of spreading good cheer, customers were hurling abuse about cross-border price discrepancies. Store owner Grace Wong was facing her second year without drawing a paycheque, and she was fed up with skyrocketing business costs.

 

After 15 years as an independent retailer, she finally realized that it was time to go.

 

"The Danforth has really changed. It's not as vibrant," Ms. Wong said this week from the store that will close this summer. "Stores are flipping, and nobody wants to take a chance. I wouldn't choose a place where stores keep flipping over. ... That's not a good sign."

 

Like many tenant retailers, Ms. Wong pays both rent and part of the property taxes. The combination had reached $5,500 a month for her 800-square-foot storefront, a hike of 40 per cent in five years. Meanwhile, insurance had risen to $1,800 a year, up 50 per cent in 10 years, and other costs were soaring.

 

She was caught in the unprecedented blaze of interest in downtown retailing that is reshaping Toronto's shopping strips, and threatens to turn the city into a whitewash of chain stores.

 

Ms. Wong's is one of seven stores that have closed, or are preparing to close, this year in the Danforth Business Improvement Area.

 

Thirty shut up shop last year, 10 of which had been open for less than two years.

 

The empty storefronts don't reflect a lack of demand - just the opposite. Demand for downtown retail on hot strips like Queen Street, Bloor Street, Yonge at Dundas, and now Yonge at College, has driven up rents, speeding up turnover and forcing out the independent shops that made the strips vibrant in the first place.

 

"A lot of landlords are making the rent so high because they're hoping for a Starbucks or a major chain to come in. They're waiting for the big guys," said Ms. Wong, who is opening an online Japanese paper store.

 

Or storefronts turn into what Charlie Huisken, of This Ain't the Rosedale Library, calls "retail hotels" - a building that hosts a continuing rotation of short-lived ventures.

 

"I don't know if that's a problem of [the retailers] lacking capital, or whether it's because the rents are too high. It might be a combination of the two. They pop up and just disappear," said Mr. Huisken, who recently moved his bookstore from Church and Wellesley to Kensington Market, partly because of escalating rent.

 

Mr. Huisken believes that independent business can survive in the city centre only if retailers are given a mandatory option to buy property.

 

Others wonder if the independents can survive at all.

 

BIG BOX, BRAND OR BUST

 

All of the factors that appear to help business - an influx of residents, increasing demand for downtown property - are sending independents running for shelter.

 

John Crombie, senior managing director and national retail director for Cushman & Wakefield LePage, said he has never seen such demand for downtown retail space.

 

Yorkville now commands rents of $300 per square foot, making it the third-priciest retail space in North America. Storefronts at Queen West and Spadina now cost $125 to $150 a square foot, and a ripple effect is washing across the city.

 

The hot residential market of the past few years has had an impact too: Mushrooming condo developments seem poised to produce ready-made customer bases, which landlords can use as a basis for rent hikes. The condos can increase competition too, because of the retail spaces included in such developments.

 

Meanwhile, Toronto businesses are paying some of the highest property-tax rates in North America, and subsidizing relatively lightly taxed residents.

 

The City of Toronto has pledged to even that out over the next 15 years by shifting more of the tax burden from businesses to homeowners. But that could prove little comfort when new property valuations are issued this fall for the 2009 tax year, says the Canadian Federation of Independent Business's Ontario vice-president, Judith Andrew.

 

"If there are really trendy spots that are seeing values go way up ... their share of the total assessment pie goes up and their share of the tax bill goes up too. That's bad news for retailers, even if they're renting," Ms. Andrew said.

 

As independents are being priced out of hot neighbourhoods, cashed-up chains and luxury or trendy brands are moving in, Mr. Crombie said. "There's no question that there's a [residential] filling-in, and they're saying it's more of an affluent consumer coming down," he said. That's an irresistible prospect for big-brand players

 

Queen Street West is a perfect example of the cycle. The city's best-known shopping strip is full of chains, such as Gap, H&M, Zara, Billabong and HMV, that use cheaper, globally homogeneous product to nab the city's disposable income. Brand flagships are getting in on the action too, with Mexx opening its own storefront and Crocs about to do the same.

 

As they move in, the displaced stores seek cheaper locations. Historically, that has meant moving farther west. Now, Queen Street is threatening to run out of western succour.

 

Just look to Parkdale's speedy transformation from blighted hovel to boho-chic haven.

 

"I think there's a frustration for the smaller ma-and-pa regional players, but what can you do? It's really only following consumer behaviour," Mr. Crombie said. "... I've never seen such an interest in downtown street properties."

 

At the start of last year, the Greater Toronto Area had almost 185 million square feet of retail real estate, more than two-thirds of which was in shopping centres and big-box stores. Until now, suburban malls held the most appeal to retailers. But that changed for Toronto in 2007, according to Cushman & Wakefield LePage's annual report.

 

Vacancies on retail strips dipped to 8.4 per cent in 2007, down from 8.5 per cent the previous year and 9.7 per cent five years previous. Meanwhile, vacancies in shopping centres rose to 7.4 per cent, up from 6.7 per cent in 2006.

 

Danforth BIA president Glyn Laverick said it's essential that small businesses be given a helping hand if they are to survive. "There's not an awful lot of support from an institutional or governmental level for small business. There's really not a plethora of grants available if you're not opening a manufacturing company," Mr. Laverick said.

 

One hopeful note is that there are still plenty of people bellying up for the challenge. While the Danforth BIA has lost 37 businesses since January, 2007, 29 others have opened up.

NICHE IS THE WORD

 

Studio Brillantine owner Ferdinand Suzara spent last Christmas doing a bit of shopping of his own. Eleven years after establishing the retail beachhead on West Queen West, the design boutique owner was on the hunt for a new 'hood.

 

Not that there was anything wrong with his spot just west of Ossington: He had hoped to buy the building from his landlord, as they had discussed, but his landlord was in no rush to sell.

 

And who could blame him? That part of town will soon welcome hundreds of new residents as part of the City of Toronto's Queen West Triangle densification plan.

 

Mr. Suzara started looking elsewhere, snapping up a more affordable building in Parkdale instead.

 

Studio Brillantine and its inventory of leading-edge design products had opened long before Ossington's hipster influx. So the posters announcing the move shocked the neighbourhood.

 

"Our whole block is up for sale. It's just in the air for this block," Mr. Suzara said as he started preparing for the August move. The south-Roncesvalles area his store is moving to still holds the edgy appeal of Queen West's earlier days, he said, but the clock is ticking. By his reckoning, the chain stores will start arriving in five or 10 years.

 

As the cycle gains speed, independents scramble to seek out the last shrinking oases of affordability. The Danforth's Carrot Common is one such hub. Roncesvalles Avenue where it meets Queen West is quickly becoming another.

 

Shannon Doyle moved her gourmet nook The Mercantile to "Roncy" in May, despite having a legion of loyal customers on College Street.

 

But the rental of her tiny College storefront was about to jump 45 per cent, by her calculations (a figure with which her landlord disagrees), and there was no way she could keep up.

 

Plus, the College strip she had entered in 1999 had disappeared in a slew of bars. It was time to go.

 

"You're really watching businesses move or close," said the diminutive Ms. Doyle, now happily serving her new regulars. " ... They're just flipping every year. You want to say to a landlord, 'Why not just have a good tenant and work with them?'

 

"It has to stop eventually, or everything's a Gap."

 

Space: the final frontier

 

Source: Cushman & Wakefield LePage

 

Toronto Retail Strips:

 

Average Overall Vacancy

 

2002 - 9.7%

 

2006 - 8.5%

 

2007- 8.4%

 

Retail Strip Examples:

 

Vacancy Over 5 Years

 

Yorkville

 

2002 - 10%

 

2007 - 7.7%

 

Chinatown

 

2002 - 8.6%

 

2007 - 8.2%

 

Pape & Danforth

 

2002 - 15%

 

2007 - 9%

 

Yonge & Wellesley

 

2002 - 8.3%

 

2007 - 9.1%

 

Dundas & Dufferin

 

2002 - 13.7%

 

2007 - 12.9%

 

Source: Cushman and Wakefield LePage