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Small retailers follow the trend: Buy, don’t rent.

November 16th, 2010 · 9 Comments

One of the sadder urban events for many of us is when a long-time business is forced out of its location when an area gets hip and rents go up. I still haven’t really recovered from the way Galloway’s got pushed off Robson Street back in the 90s sometime.

I’ve tried to work out in my own mind something that city halls or businesses could do so that they’re not so subject to market craziness and we get to keep those shops who form part of the identity of our neighbourhoods. Some people might say, yes, it’s all very sad but we can’t protect businesses that aren’t succeeding.

However, there have been many occasions when businesses that are actually successful still get forced out because the rents spiral way beyond the normal rate of increase. (Kind of like what most of us have experienced in the housing market.) That was the case for Duthie Books, which was doing well, but just couldn’t absorb a significant, beyond-inflation rent increase.

So when I heard about this trend of retail shops buying their own places, it gave me some hope for the future. Now, to find a way for small retailers with limited cash reserves to get into the property-owning business …

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  • Sharon

    Well done, Frances. Now, if we can do something to help those businesses caught in transition areas where their property taxes go through the roof simply because of a potential development opportunities, the possibility of owning and predictable taxes will help keep small business thriving and employing people.

  • AnnetteF

    I was watching one of my favourite food/travel shows the other night- Anthony Bourdain’s No Reservations. The episode was titled something like “Vanishing Manhattan” and was a tour through some of his favourite remaining family run food stores and restaurants- places that had been there for generations, serving fantastic foods to the locals.
    Many were located in what were once very working-class neighbourhoods, but were now much more upscale.
    One thing that all of the businesses had in common was that they all owned the building that they were in.

  • Matty

    Small retail/office businesses can purchase strata units. But, buildings in Vancouver are mostly cost-prohibitive for a small business. However, the City or a Small Business Enterprise Centre (in partnership with a forward-looking financial institution) could provide long-term funding for a “group-shared purchase” of a building by several tenants. Or, the City could provide incentives to commercial property owners to implement strata or commercial co-op strategies in multi-tenant buildings in identified enterprise zones (another topic !). There are creative opportunities that need to be implemented (weary of the talk, would like to see some action). As a former street front retail owner (tenant) it was stressful negotiating leases and tenure. The threat of redevelopment hung in the air – I could be homeless despite the lease. Now I own a commercial strata unit (albeit small) through a lot of effort that did not involve commercial mortgage (and… another topic) We have to make it easier and more efficient for commercial property ownership for small businesses.

  • Jake

    The creation of strata retail was a trend that started to take hold in here during the mid-90’s, but more often than not the units were purchased by investors (very popular offshore) who would then rent them out. Vancouver examples include the Yaletown Galleria projects on Homer, the mixed-use Milano tower at Burrard and Burnaby, and the Giga DVD shop near the north end of the Burrard Bridge that sat vacant for many years. More recently, Pinnacle developed a strata commercial/retail building a few years back as part of a mixed-use project (“Classico”?) on West Pender between Jervis and Broughton – there are still unsold commercial units available. With considerable effort, Salient sold a couple of strata retail units on Water Street earlier this year.

    The sad reality is that the vast majority of small, independent retailers simply don’t have the capital or financial capacity to commit to improvements, stock, staffing costs and a commercial mortgage. Furthermore, investors purchasing based on a projected rental income as a long term investment strategy are typically prepared and able to pay more for the real estate than the retailers can afford to pay. Unless I’ve missed something, these dynamics are unlikely to change.

  • Michael Geller

    Owning your own space, whether a home, office or shop generally seems like a good idea. At first blush. However, while ownership of residential property is preferable to renting for most people, owning office and retail space can result in unexpected consequences…which is why most people don’t do it.

    While others are in a better position to comment on this than me, some of the problems relate to the challenges of expansion (especially in the case of office users) and coordination and management (in the case of retail users).

    My major concern is that the ‘mini-mall’ strata retail developments often do not have the strong management required to create successful retail environments.

    To understand how a good retail manager operates, it is worth looking at the Granville Island Public Market. When it was first designed and tenanted, considerable effort was devoted to the placement of different shops around the complex, (flowers and baked goods near the front) and even on what individual tenants could sell. Some shops could sell cashews, but not other nuts…(yes, I know this sounds like nuts, but it isn’t!) Similarly, leases specified hours of operation, and other considerations to create a harmonious shopping environment.

    When each tenant owns their own space, the coordinating hand of a good landlord is often missing. This can lead to great uncertainty, and many problems, especially when the wrong tenant moves in next door.

    I know this can happen in leased premises, but the problems are exacerbated when you own your space. It’s much more difficult to sell, than simply not renew a lease.

    That being said, it can be a good idea to buy smaller retail units at the base of mixed use buildings. But purchasers should be very careful to examine the rights of the retail strata lot owners vis a vis the residential strata lot owners. Check the relative number of votes, etc. since problems can arise.

    I know first hand. As the developer of Elm Park Place at the corner of Larch and W41st, my lawyer and I had to intervene to avoid a potentially ugly dispute between residential and commercial strata lot owners as to what constituted a cafe, and what constituted a restaurant. Fortunately, the matter was resolved and I’m led to believe that the commercial and residential owners have co-existed nicely ever since.

    One final thought. When developers are building new retail space at the base of a mixed use buildings, they should be encouraged to provide some variety in the storefronts, awnings, etc. I know it might sound a bit ‘Disneylandish’, but the variety of shopfronts is what often contributes to the ‘village character’ we all like. It’s hard to achieve this with 150 feet of stainless steel windows and glass and steel awnings.

    Variety was achieved by developer Harold Kalke and Hotson Bakker Architects at the ‘Capers development’ on the former Plimley site in the 2200 block of West Fourth (check out the ‘hubcaps’ on the facade). I copied this approach at The Cornerstone Building at UniverCity which has various metal and wood storefronts, and different canopies. Yes it cost more, and took more effort, but I think it was worth it.

    (At UniverCity, we also specified which tenants could move in, and which couldn’t. For example, no national or international chains were permitted at first. As a result, this is one of the few ‘walkable neighbourhoods’ that doesn’t have a Starbucks! Instead a local retailer, Renaissance Cafe took over the prime corner space.)

    In my opinion, far too many new commercial facades are far too sterile. However, if sold as strata lots, purchasers may find they cannot make substantial changes, since they do not own the outside of the building. Just one more thing to consider when deciding whether to rent or buy.

  • Frances Bula

    @Michael. Nuanced, thoughtful comments as always. Thanks, Michael.

  • Joe Just Joe

    I remember asking my father why many retailers don’t own their own properties and his answer was.

    With $10M a retailer can buy one property and set up shop. Or he can take the same $10M and open up 10 stores across town. Which one will provide more revenue to the retailer?

  • Ron

    Michael’s comments also ring true for Pacific Blvd on the Concord Lnads. The north side of Pacific was sold off as strata-titled retail early on – primary to immigrant investors who set up small stores – however, the types of stores were not sufficient to create a retail focus for the neighbourhood. I recall one store selling buttons (not the political / novelty buttons, but butoons for shirts, coats, etc.). That’s why Concord held on to the commercial space for the Marinaside complexes (where Urban Fare, etc. are located – so they could control the mix and quality of tenants). The north side of Pacific Blvd. has eventually come into its own (following several cycles of openings an closures (as you see in many areas including Gastown)) – but it took a while and that’s not conducive to generating instantaneous marketing hype for a “neighbourhood”. You could also argue, however, that the strata-titled north side has more variety and unique stores than the “upscale commercial” on the south side.

  • Sharon

    the one upside to a residential up, and retail down strata arrangement is that the commercial owner or tenant is not carrying the entire value of the land on his property tax. Under the current tax regime, that can be a significant savings.