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NEWS FEATURE: Space for lease in downtown Victoria
Dawn Partridge-Wood was full of optimism in the days before opening her dream business in the heart of downtown Victoria.
She and her partner, Sterling Wood, had just finalized their business plan and were eager to fill their new storefront window with delicate metal sculptures, antique shelving and unique home decor accents.
“When we were starting the business and we talked to the bank, they more or less were saying, ‘We’re at the bottom now. There’s nowhere to go but up,’” Sterling-Wood says.
“That’s what other retailers were saying, too,” adds Wood. “And it never went up.”
Those happy days three years ago are now just a fading memory, as About The House becomes yet another small business in the downtown core to fall victim to a stagnant economic recovery.
The easy answers are that the couple simply chose the wrong location, opening an interior design shop on a worn-out strip in the 600-block of Yates St., and that consumers haven’t yet returned to spending over saving.
The Woods’ story is all too familiar across downtown, as many retailers are faced with either renewing their lease at rising rates or packing it in.
At the end of 2012, retail vacancy rates in the downtown core sat at 7.1 per cent, a far cry from the 2.9-per-cent rate seen in 2008. About one in 12 downtown office spaces are also empty, leaving a multitude of “For Lease” signs to collect dust on brick facades and in prominent shop windows.
“I don’t know how they afford to let so many properties stay vacant,” Sterling-Wood says.
“The thing we don’t know about the rent is whether it’s just greed on behalf of the landlords or whether the (property) taxes are just grossly higher to explain why the rent is sticking so high,” Wood says.
City of Victoria property tax rates are about three times higher for commercial properties than for residential properties of the same size, a disproportionate balance that comes down to a philosophical argument debated around council tables for decades, says Coun. Geoff Young, an economist by trade.
“There are some councils that have blithely increased the rates on commercial property in order to keep residential rates down, and really harmed the future in order to prevent immediate pain,” he says.
Slick new retail space outside Victoria isn’t something council can control, but Young believes the city can help by improving rapid transit and continuing to “chip away” at property tax rates.
“My private business occupies rental space in the downtown and we pay taxes as a component of rent. It’s a very significant part of total occupancy cost. So that is one of the main factors that we’re conscious of and are trying to affect by keeping our rate of budget growth down.”
Commercial spaces tend to sit empty for months because landlords are justifiably cautious about who they’re allowing to use the space, Young says.
“It’s not quite like the residential rental market in the sense that people are prepared to move in for short periods of time and with short notice. With retail tenants and restaurants, it’s very expensive to move in and you want someone who’s going to be there for a long time.”
Another factor in empty retail space is that commercial real estate valuations tend to be reflective of longer-term economic outlooks. Some contracts signed prior to the 2008 recession are only coming up for renewal now, Young says.
Strong 2013 tourism season could preclude rent reductions
If there are vacant spaces nearby that are offering cheaper rent, it could take years before the market rate properly adjusts to the new reality.
But an eventual drop in retail lease rates may never come, if early tourism indicators are any indication, said Bruce Carter, CEO of the Greater Victoria Chamber of Commerce.
“We’re having a very strong tourism season and very strong retail sales this summer, but it will take awhile before that turns itself into tenants,” he says.
Carter is less enthusiastic about the city leading the charge on economic development, but says one small-scale fix would be to revert Yates and Fort streets to two-way streets.
“One-way streets are terrible for retail,” he says, adding he’d also like the city to rely less on parking revenue.
“We could use a much more comprehensive strategy as a community, perhaps a citizens committee, going after the festivals and conferences we want, not waiting for them to come to us. And you’d start to see a positive impact on delegate days.”
But the grand plans come too late for Sterling-Wood, who plans to find a retail job in home decor and put to rest her “labour of love.”
“I wish I had more positive input for what the city could do to improve things,” she says. “We’re not that optimistic about the economy improving in the next two years, five years – we just don’t know.”
City, business try to find way out
Commercial real estate expert Colliers International’s 2012 retail report forecasts “continued soft retail leasing market in the downtown core and downward pressure on overall rental rates,” due to sustained retail competition from outlying shopping centres. This year’s report will be published in December.
Downtown Victoria Business Association chair, Fran Hobbis, points to the DVBA’s three-year strategy launched earlier this year as a roadmap for co-ordinated effort in downtown revitalization.
She champions the example of urban mecca Portland, Ore., where city hall, building owners and business sectors worked together to lure larger retailers to stagnant areas of the city, enticing other businesses to put down roots nearby.
“We have to compete with Langford and Uptown and Mayfair, and what we’re trying to say is, here’s why you want to be downtown,” she says. “You need to have a few anchor stores downtown and you enhance that with a unique, local flavour and promote the ways downtown is different than shopping in a mall.”
The city’s newly hired executive director of economic development, Sage Baker, will also be key in moving discussions forward and in identifying arts and cultural events that can attract Greater Victoria residents to the downtown core, Hobbis says. Baker will report back to council on her plans later this fall.