To attract better commercial tenants, sometimes it actually makes sense to raise the rents
Municipalities trying to attract business often try to lower rents – but the practice can backfire by attracting startups (many of which fail) or businesses whose profit margins aren’t big enough to weather changes.
In Chilliwack, lease rates have traditionally been low and the area – especially the downtown side – has seen a lot of turnover.
“From our perspective, we’ve tried to encourage property owners to hold out for the tenant they want, rather than the rate. The challenge comes with patience, or lack thereof, and they often jump at anyone who gets close to an acceptable rate,” said Kyle Williams, Executive Director of the Downtown Chilliwack Business Improvement Association.
The same is true on the reverse side. “Many who do not have good business models will jump at a location simply based on a low lease rate, which often leads to a failed business and more desperation for that landlord to find a new tenant, and the cycle continues,” he said.
Business in Vancouver’s Glen Korstrom found that a similar scenario seems to be playing out for marijuana shops. The only two approved in B.C. so far are in municipalities where the cost of doing business is comparably low.
“Both of those stores are in Kimberley, where the municipal business license fee for cannabis retailers is $100 — a sharp contrast to the $33,097 business license fee that the City of Vancouver plans to charge cannabis retail entrepreneurs for each store in 2019.”
“As the revitalization of downtown Chilliwack has really only been happening in small patches so far, we have seen lease rates vary from under $10 per square foot in an older building, up to $20 or more in a new or renovated building in the same area,” said Williams.
The downtown revitalization project being done by Algra Bros Developments will establish more consistent lease rates and higher than what the neighbours are charging. The project is already more than 60% leased before a shovel has even hit the ground; Williams says that for the first time in years they are seeing renovations in the surrounding area and vacant spaces nearby being filled in anticipation.
It’s a fine line to walk, however, since pushing rents too high too quickly can force even profitable businesses with a great model out. According to a report released by CBRE Group, the “occupancy costs” for tenants in downtown Vancouver offices increased by 16.1% this year to $47.98 per square foot – roughly five times the overall growth rate for North America.
The result is vacant retail spots with landlords unable to fill them.
The balance, it seems, is somewhere in between.
Ada Slivinski is the Founder & Principal of Jam PR, a boutique agency focused on helping small businesses get big exposure. You can reach her at email@example.com