47 replies to this topic

[Mike K.]

True, but we're barely half the size of fourth biggest city. This just further makes our retail and office lease rates that far out of sync with where they should be.

[jonny]

True, but we're barely half the size of fourth biggest city. This just further makes our retail and office lease rates that far out of sync with where they should be.

Where should lease rates be Mike? Is there a magic formula somewhere? You sound a bit like Mulcair going off about how he knows where the Canadian dollar "should be" valued at.

Does being a smaller city mean it should cost less to run a business? Should businesses in larger cities be more profitable than those in smaller cities?

Why are property values so high here if it is a small city? Smaller cities should be cheaper, right?

[aastra]

If Government Street is $55 then what would we expect Fort Street to be? If we're saying Fort Street is currently about one-third of Government Street then that doesn't seem so outrageous to my untrained eye.

[Mike K.]

Where should lease rates be Mike? Is there a magic formula somewhere? You sound a bit like Mulcair going off about how he knows where the Canadian dollar "should be" valued at.

Do you believe storefronts are empty because there's a lack of entrepreneurs to lease them? Is "Shop Local Victoria" a celebration of business success? Is City Hall's plan to offload more taxes onto residential properties to alleviate the burden on business just a knee-jerk reaction?

Our retail industry isn't doing very well. The proof is in the growing list of empty storefronts.

[Greg]

I'm not sure I'm convinced that $120/day is outrageous for the amount of pedestrian traffic that exists on that block. Seems reasonable for the right kind of business. I think it is possible that there are larger issues with the cupcake retail business model than just high rents.

[Mike K.]

I'm not sure I'm convinced that $120/day is outrageous for the amount of pedestrian traffic that exists on that block. Seems reasonable for the right kind of business. I think it is possible that there are larger issues with the cupcake retail business model than just high rents.

I don't know if any business stays open 365 days of the year, but let's use that number for the sake of argument.

Lease: $120 + taxes
Employees: 7.5 hours @ minimum wage + CPP + EI = ~$100 per employee, per day
Utilities, insurance, general maintenance and supplies: $50/day, at least

This gives us at least $270/day to just open the doors with a single employee. On top of this comes the actual material cost.

For what it's worth both Pink Sugar and it's immediate neighbour Plain Jane (clothing retailer) are now for lease. Ironically in that streetview link Pink Sugar was just about to open up. This must have been some time in 2009, I'm guessing?

[Mike K.]

If Government Street is $55 then what would we expect Fort Street to be? If we're saying Fort Street is currently about one-third of Government Street then that doesn't seem so outrageous to my untrained eye.

Forget $55/sq. ft. Brown Bros has a space at 901 Government for $75 / sq. ft., + NNN + taxes + utilities. Monthly cost is $8,040 + taxes + utilities per month for a 958 sq. ft. space (includes a 373 ft. mezzanine).

[G-Man]

I am not so sure that the retail sector is doing poorly in Victoria. I mean given its relative small size there has been a huge expansion in actual retail square footage across the region. This has to eventually show in some vacancies. Given the expansion it actually seems to be doing better than I would have thought.

[sebberry]

I think the only people making much money in retail these days are the property owners.

It's worse in shopping malls where you also owe a certain % of your gross sales if you go over a certain $ amount, on top of the extended hours you need to staff your store. I think shopping malls are open 364 days per year? 12 hr days two or three days per week, mandatory stat holiday operations, etc..

I liked what I did but I'm glad I don't do it anymore

[aastra]

Forget $55/sq. ft.

I'm merely referencing the info in that Colliers report:

[Mike K.]

See, that's what I'm talking about. We're Canada's 15th largest metropolitan area meanwhile our lease rates are the fourth highest in the country. I'm not sure that's sustainable.

Sebberry echoes what I've been hearing a lot from retailers, in that lease rates together with operating costs have become major obstacles to doing business in this region.

I am not so sure that the retail sector is doing poorly in Victoria.

I think if the retail sector were doing well we wouldn't have local businesses pooling together to figure out how to re-energize their sales (i.e. Shop Local movement) and we wouldn't be approaching a decade high downtown storefront vacancy rate.

I've been quite optimistic since the economic slowdown believing that Victoria will fare well, but this year in particular I've begun to change my outlook. Too many retailers are facing financial difficulties and the Shop Local movement cements the fact that there is general unease throughout the local business community.

[LJ]

Forget $55/sq. ft. Brown Bros has a space at 901 Government for $75 / sq. ft., + NNN + taxes + utilities. Monthly cost is $8,040 + taxes + utilities per month for a 958 sq. ft. space (includes a 373 ft. mezzanine).

OK now I'm confused. I thought NNN covered your portion of taxes and utilities, now you're saying that they are additional. What exactly is NNN?

[G-Man]

So landlords in Victoria are not trying to make money? If we see a lot of shops closing then rents will go down.

[aastra]

We're Canada's 15th largest metropolitan area meanwhile our lease rates are the fourth highest in the country.

I suppose that's one way of looking at. But you could also say the various Canadian cities that have populations of a few hundred thousand are all showing roughly the same rates. You've got the big three and then you've got the rest.

[Mike K.]

OK now I'm confused. I thought NNN covered your portion of taxes and utilities, now you're saying that they are additional. What exactly is NNN?

To be perfectly honest every NNN arrangement can be different, but generally speaking the cost includes a tenant's portion of the municipal tax, property maintenance/service fees (like Colliers' services), landscaping, and some shared utilities like water and sewage. Some NNN also includes hydro but that's rarely the case.

So on top of NNN and the lease rate itself you pay additional taxes, plus utilities (hydro, gas, internet, telephone, alarm, etc.), plus mandatory insurance (at least $750-$1000 annually), plus parking, plus signage (in many cases the landlord doesn't even own/operate the signage, a third party does), plus signage manufacturing costs, plus other soft or hard costs associated with a given space.

In the end a $15/sq. ft. lease rate will easily end up costing a tenant double or more that amount in order to open for business.

So landlords in Victoria are not trying to make money? If we see a lot of shops closing then rents will go down.

It's not solely the issue of lease rates, it's also an issue of operating costs that keep rising every year, sometimes at rates far exceeding expectations. For example, in 2012 you might have an operating cost of $11.25 per square foot, but in 2013 that cost may rise to $12.20 due to higher than expected property maintenance costs, property insurance increases, Collier's property management rate increases, etc. $0.90 might not sound like much but on a 5,000 sq. ft. property that's an additional $4,500 in rent for the year.

I also think that the major issue in Victoria is landlords have kept their rates relatively high despite the growing inventory of empty spaces, much to the frustration of people trying to enter the retail scene and existing tenants unable to negotiate a more favourable rate (as in the case of Paboom).

I suppose that's one way of looking at. But you could also say the various Canadian cities that have populations of a few hundred thousand are all showing roughly the same rates. You've got the big three and then you've got the rest.

You'd be surprised how much of a difference even $5 or $10 (in the case of Edmonton and $20 for Saskatoon) makes for a tenant. But lease rates aside, other Canadian cities have lower operating costs, lower material costs and commercial properties have lower value and therefore lease rates are generally lower. In Victoria retailers are hit with relatively high lease rates, relatively high operating costs, very high transportation costs, higher material costs and most businesses pay above minimum wage to secure an employee due to the higher cost of living. It all adds up to a very difficult scenario for the average small business owner.

I guess what I'm trying to show in the case of Pink Sugar is that despite the lower lease rate compared to higher-end properties, the business owner still had to pay $44,000 annually just to secure the physical space. On top of that came the actual soft and hard costs of running a business.

[Wally]

I'm not sure I'm convinced that $120/day is outrageous for the amount of pedestrian traffic that exists on that block. Seems reasonable for the right kind of business. I think it is possible that there are larger issues with the cupcake retail business model than just high rents.

1. There are a half dozen companies selling cupcakes in town. It ain't that big a market!

2. Why on earth would you need 1,500 sq ft of retail space to sell cupcakes? 300 sq ft gets you a counter, a few stools and a cash register. Works well for Timmies and Starbucks express outlets and they have far more product to sell.

[Mike K.]

You need space to bake and prepare the product then store it together with supplies. The Pink Sugar space was actually very efficient for what it was.

As for the small Starbucks or Tim Horton's outlets at Safeway's, etc., they only prepare beverages and all products are delivered from a food processing facility. And despite the small physical space customers interact with there is ample storage out of sight in another part of the building.

Victoria actually lacks many small retail spaces under 500 sq. ft. Those that are available lease for a premium compared to larger retail spaces.

[Matt R.]

Want to give it a try? Cupcake franchise for sale in Uptown, only $309,000! Now THAT'S a lot of cupcakes.

http://victoria.en.c...3016043928.html

Matt.

[Mike K.]

Unless they're doing an incredible business over at Uptown the price just seems high, doesn't it? I mean you could theoretically walk up to Morguard and lease a space in any one of the many commercial units about to become available and open a competing cupcake business. All you'd pay for is finishing off the interior and securing quality recipes, which should work out to about $50k for 1,500 sq. ft. digs.

Anyways, I wonder if this is a sign we've reached cupcake saturation. With Pink Sugar gone and now the Uptown location of "Cupcakes" up for sale this can't bode well for the fad.

[gumgum]

Burgers and tea places are the craze now.