If it seems like the kitschy small businesses that make shopping districts like 17th Avenue S.W., Fourth Street S.W. or Marda Loop unique are dropping like flies, it’s because they are. It is always more difficult for a small independent business to survive than for an IKEA, but some analysts say the costs of running a business in Calgary these days is fating many to premature failure.
Richard Truscott, the Alberta director of the Canadian Federation of Independent Business, says the high cost of renting retail space is a major problem in Calgary, driving many shops out of the city to survive.
Depending on the area and nature of the space, lease rates currently range from $20 per square foot in some strip malls, to as high as $80 per square foot in street-front properties such as those on 17th Ave., and an upper extreme of $200 per square foot in malls. That is not including costs such as taxes and utilities.
“There are certainly some key locations in which it is particularly difficult for some small business owners to operate. Calgary is definitely one of those places,” says Truscott, who has recently received attention for protesting to the media that city business taxes are unfair and gouge the little guy.
According to Truscott, Calgary’s business tax is roughly five times higher than for equivalent residential taxes. The City of Calgary bases its tax rates on annual rent values for a business’ location, regardless of the specifics of the operation or its profits. That means that as rents go up, so do the taxes, which Truscott maintains are already too high.
“Any time you load extra costs onto a small business owner, they have limited capacity to pass those costs along in the form of higher prices, and what really ends up happening is they end up eating some of those costs themselves, so that eats into the compensation they receive — the salary, the income — that they receive from their own business. Or they’re forced to reduce the hours or layoff people.... So any time we’re making it more difficult for them, we’re harming our overall economy, and ultimately it’s something that consumers will end up suffering because there’ll be less choice,” he says.
Bernie Bayer is the president of Calgary’s Taurus Property Group, a leasing agent for retail property owners. He agrees that high rent is detrimental to the small businesses that lend the inner city’s character areas their charm.
“As districts become more popular and therefore more expensive, some tenants move to other locations within the city. You have, for example, 17th Avenue. Now it’s reaching a point where it’s priced some of the traditional kinds of tenants we usually see on 17th Avenue, say Megatunes, out of the market,” says Bayer.
He says the reason rent is so high is because vacancy is at an unhealthy level. Vacancy rates for retail space in Calgary hovers around two per cent. Colliers International Calgary reports that it’s even lower for Kensington and Stephen Avenue — both less than one per cent.
The situation is profitable for the owners of retail space, increasingly represented by corporate investors paying a mint for what looks like a sure profit. A 2011 Avison Young report notes: “retail remains the go-to product of the investment world.” Yet even investors aren’t getting a free lunch. Avison Young found that between 2008 and 2010, the average price paid to own retail space jumped from $316 per square foot to $356, forcing owners to jack up the price on leasing and parking rates.
“I’m a big believer in free market forces [instead of having] government interfere with what is fair rent or not a fair rent,” says Bayer. However, he believes the rent problem is entirely related to a planning failure by the city of Calgary.
“The city just hasn’t planned out enough retail in and around the city,” he says. “Northwest and west and southwest, south and southeast have all been historically very, very poorly supplied as far as retail development land is concerned.”
Bayer argues that conditions for small businesses in Edmonton are comparable to Calgary in every way except the availability of space.
“For every one Macleod Trail that we have, Edmonton has 10 Macleod Trails. They have a lot of retail, commercial streets in Edmonton. There’s a lot of retail so the market’s a little bit more competitive and rents are therefore less expensive.”
More retail space is coming. The NAI Commercial Calgary Office Market Report says there is 500,000 square feet of retail space planned or under construction to supplement the 32 million square feet of retail space currently available.
Calgary Economic Development’s business development manager for real estate, Susan Thompson, says if there isn’t enough space for rent in the premium commercial areas in Calgary’s core, business owners must be prepared to change their plans to reflect what they are capable of sustaining. She says smaller businesses will have to move out of areas they can’t afford to be in, but they needn’t be fatalistic.
“Calgary has one of the highest disposable incomes in Canada... people are out spending money,” she says.
“I always encourage small businesses to outline their business plan in as much detail as possible,” Thompson explains. “You should have a model of what’s your expected income, what’s your overhead going to be for salaries and taxes and just keeping the lights on in your projected space.”
Truscott agrees. “Calgary and Alberta is a relatively strong economy and that should help,” he says. “We think that if consumers are given a choice they should think about shopping small. And yes, the Wal-Marts of the world can provide consumers with a lot of choice and relatively low prices, but small businesses can certainly compete with providing additional service and value and knowledge and experience to consumers.”