A recent survey on retail rents by a Calgary commercial real estate firm has found some very interesting results of what’s been happening throughout the COVID-19 pandemic.
According to Fairfield Commercial Real Estate, rents for transactions completed during the dog days of the pandemic along retail high street 17th Avenue S.W. have stayed at pre-pandemic levels.
And the company’s survey indicates some street front retail and food service rents have even increased over the last year in prime locations.
As Alberta’s economy has fully opened up, there is demand for real estate space for businesses. While many retailers and food service establishments have unfortunately pulled the plug due to the vicious economic challenges presented by COVID, there have been many new tenants out on the market looking for space in popular urban retail districts across the city.
Monika Blachut, Associate with Fairfield Commercial Real Estate, says at the start of COVID there was quite an influx of vacancy versus a hesitancy from entrepreneurs to make moves in spaces.
“We saw during the beginning of COVID when there was a higher vacancy rate there was a little bit of improvement in that first year, second year where tenants were able to negotiate a little bit of a lower rate,” said Blachut.
“However, what we’re seeing now is that deals done I would say anywhere from Christmas on in the new year of 2021 have been hitting consistently pre-COVID numbers and I would even say there are some developers who have chosen to maybe make smaller footprints because they need to reach their certain rent targets to get financing. And landlocked construction costs none of that has decreased so they’re actually reaching and achieving above market pre-COVID rates for smaller spaces.”
Blachut said this is happening specifically in inner city urban districts.
“I think the days are gone of your three, four or five thousand square foot footprint that can pay the rates that landlords need to make projects and numbers work so we’re seeing a migration to smaller footprints to achieve the higher rates,” she said.
“It’s supply and demand. The suburban market in Calgary is booming. So landlords in Calgary are achieving what they’re asking for and obviously with inflation and projections over the course of say five, 10 years there are step ups in rates and we’re just going to see ever-increasing rates over time.
“What we were curious about was in the inner city. I can assure you that the downtown core is an anomaly in the Calgary market. In the downtown core, we have heard of some very, very aggressive and interesting deals put together just because there’s so much vacancy in the office market that retailers don’t have the business to support high, high rates. But the moment you leave that downtown core, the market is there and landlords are able to achieve them.”
She said entrepreneurs are now weighing out the pros and the cons of those rates. They’re able to look at a monthly gross rate that works for their business model.
“The question that we have posed is are these rates sustainable? And really what’s going to happen in the fall when these government assistance programs are over? That’s the real question. The rates we’ve seen even when we did our market analysis on rents along 17th Avenue it was very high numbers, but is it sustainable? That is the balancing act in our industry and obviously a landlord’s hope is to get as much money and for as little space as possible and entrepreneurs are paying it for prime locations,” said Blachut.
“It will be interesting to see a year from now. If current demand sustains, then possibly yes it’s sustainable. I wish I had a crystal ball. I don’t. Maybe there’s a lot of entrepreneurs and businesses that have hung on and have maintained. Any new businesses that have opened up obviously don’t qualify for any of these government programs. That’s the interesting thing. It’s the new businesses, new deals that are being put on paper that are paying these rates. I just think from a business plan model these rates work for them.
“In Kensington for instance there was a monopoly of a few landlords who owned a lot of buildings and they were getting very very high rates and we saw a time even two years ago when there started to be a lot more vacancies because it wasn’t sustainable. Businesses weren’t able to pay rent, pay increasing staffing costs. Everything is going up. Do I think there will be another falling out? I think that’s something that will happen. But no one has a crystal ball.”
The attraction to those urban districts is the density of people living, working and visiting those areas which is driving up the rental rates.
“The consumer is there. You’re just servicing an already existing and growing population with new developments as they go up,” added Blachut.