By Mike Kehoe, Broker at Fairfield Commercial Real Estate
As a commercial real estate broker, I have focused on leasing storefront and restaurant space over the past 28 years across the inner-city urban business districts of Calgary, Alberta. Cool areas such as Kensington, Marda Loop, Bridgeland, East Village, Mission, Marda Loop and the City’s premiere high-street 17th Avenue SW.
Economic factors such as a soft local economy, low consumer confidence and high property taxes are taking a toll as stores and restaurants close their doors in these once vibrant shopping and dining areas. Since 2016 there have been 48 storefront transitions along 17th Avenue SW in the 16 blocks that stretch between 14th Street SW and 2nd Street SE according to a local business group. Most are recycled quickly with new tenants, but the optics can have a negative perception. Currently in this district there are around 38 storefronts facing lease renewals or some sort of transition in 2019.
Commercial property taxes outside the downtown core continue to escalate and are expected to increase again significantly in 2019. The significant loss of tax revenue from the downtown core due to high office vacancy will shift to the commercial sector in the inner-city and suburban markets. Businesses outside the downtown core will see double digit property tax increases in 2019 with sectors such as retail and restaurants taking the hardest hit. This in the face of keeping residential property taxes artificially low at the expense of the Calgary business community.
Retail tenants think of their bricks and mortar overhead costs as a bundle of expenses that include a base rent, additional rent that contains such items as building insurance, common area costs, utilities and the largest single component in Calgary – property taxes. For retailers and restauranteurs, the delicate balance between their rent and their sales (the formula) in a soft market can be a nerve-wracking monthly dance.
Lease costs and a tenant’s ability to pay rent are supported by a tenant’s sales productivity and at the end of the day ‘the formula’ states that rent is always a function of sales. If the sales are productive the retailer can afford to pay their rent. If one or more components of this formula go out of whack such as lower sales due to a soft economy or large increases to certain costs such as property taxes or rent the results can be catastrophic. Right now, we have a combination of both, a kind of ‘perfect storm’ and this is reflected by the high store and restaurant turnover rate. The only negotiable variable in ‘the formula’ is the base rent and many tenants and landlords I am sure are having serious conversations these days.
Property owners on behalf of their retail and food service take note that property taxes can be appealed annually through a formal appeal process at the City of Calgary. There are companies who specialize in ensuring your property tax burden is fair and equitable. Do not just blindly accept your assessment from the City of Calgary related to your property tax bill. Ask the tough questions of the City assessors: “How is my ‘market valuation’ derived?” If you don’t like the answer, it may be time to contact a company who will advocate for lowering your property taxes through appeal on your behalf. Such firms as Altus, Ryan’s, AEC and Colliers can help.
There is good news on 17th Avenue as the new 30,000 square foot Canadian Tire store is now open at Mount Royal Village. The Urban Fare grocery store (by Save on Foods) in the same building is set to open in the early spring of 2019.
Retail is always changing and evolving. 17th Avenue SE is Calgary’s high street and a great barometer of the local economy and one of the City’s thriving urban business districts.
Michael Kehoe is a commercial real estate professional with over forty years of experience in the retail real estate field. He has an international profile related to retail real estate, commercial real estate leasing, marketing and shopping centre management. Michael is the Broker / Owner of Fairfield commercial Real Estate based in Calgary.