Just before it went belly up, the Fairfield Book Shop’s former owners passed the keys over to Glen and Donna Ashmore.
Though the store has been in business for 18 years, things just got too tough about nine months ago, when it changed hands.
The Ashmores have since turned things around at the little Cook Street Village store, where a steady stream of browsers check the rows of used titles, and hunt through the display on the table outside the big front window.
“It’s a tough town – you’re getting it from all directions,” said Donna, referring to the many struggles Victoria businesses face.
It started with a general downturn in the economy, where consumers watched their wallets more than in the city’s boom days. Then, the HST took hold and spending was scaled back yet again. Now, many businesses say despite the cooling economic climate, rental rates are still hot and they’re biting into the bottom line.
Fairfield Book Shop naturally isn’t the only business struggling to keep its foothold in what many still call a shaky economic climate.
In an informal survey of Government Street businesses, most said times are tough – though they declined to be quoted for this article. Some businesses owners said they were hanging on by a thread. The most common reasons: low consumer confidence and high rent.
Paul Dragan, owner of Reckless Bike Store, packed up both his Victoria locations recently and moved to what he sees as greener pastures in Vancouver. In December 2009, he closed his store at Government and Chatham streets, then his Yates Street location last August.
“I love the city, I just couldn’t make any money there,” Dragan said from Vancouver.
“You can eke out a living, but it’s a tough way to live. I couldn’t see it getting any better anytime soon. (Victoria has) got all the right stuff … but it doesn’t have that pro-retail aura you’re looking for.”
Though Dragan’s paying higher rent in his two downtown Vancouver stores, he said business is better there.
Rent, however, is the issue for many local businesses.
“The rents keep going up,” Donna Ashmore said.
It’s not an easy pill to swallow when a poor economy is at play, and consumers are increasingly turning to e-readers and online shopping for books. Still, she said, Fairfield Book Shop, which sells used books, gets by just fine.
Next door, at home furnishings retailer, Surroundings, business has hardly been on a downswing at all. Owner Kristiane Baskerville also credits a good working relationship with the landlord.
“(If) you have a bad lease, you’re screwed and you won’t survive,” Baskerville said.
She added, “The day of the triple-net lease is going by the wayside.”
Triple-net leases can hurt tenants during times of increasing operating costs, because those costs are passed on to the tenant, said commercial landlord David Hamilton.
So, like Baskerville, business owners are increasingly opting for a gross net lease, where costs are fixed for the tenant. In such a case, the landlord eats any increase in operating costs.
The biggest and fastest-increasing operating cost faced by landlords is property taxes, said David Brumby, financial consultant and broker for NAI Commercial in Victoria.
“Commercial businesses are taxed at a significantly higher rate, and it keeps going up,” he said. “That impact is really heavily felt – the landlords just pass it on to the businesses.”
Higher than normal vacancy rates aren’t pushing rents down, either.
According to a Colliers International report forecasting the Greater Victoria retail market this year, the vacancy rate for downtown streetfront properties was slightly above average.
“At the end of the day, you’ve got to be rational and reasonable, and look at supply and demand,” Hamilton said of landlords.
“If your occupancy has gone from 95 per cent to 70 in the last couple years … your strategy is not working out. A good building full of tenants shows a landlord is doing (his or her) best to provide the best service.”
Hamilton said desirable storefronts, such as Lower Johnson and Government Street, have seen increasing base rents for the past 10 to 15 years, while non-prime locations haven’t gone up as much.
But reducing base rent for tenants to ease the burden isn’t necessarily the answer either, said Sasha Angus, economic development officer with the Greater Victoria Economic Development Agency.
“It’s really up to the individual landlord what they can afford to do,” Angus said. “They’re a business like any other business and need make sure they’re not losing money. If businesses have increased operating costs, they have to pass that on to the consumer” which, in this case, is the tenant business.
Vacancy rates and rent prices are forecast to remain steady through 2011, according to Colliers.
What’s the solution to the cost of doing business in Victoria? It depends who answers the question.
Baskerville, at Surroundings, saw her operating costs shoot up 20 per cent in just five years. Negotiating a gross net lease helped ease the pain, but she said becoming a one-of-a-kind business in the city did the trick.
“That’s probably why I’m doing quite well in a tough economy,” she said.
Baskerville and Ashmore agreed eliminating the HST might make consumers more amenable to spending.
Expanding the number of walk-to, highly attractive retail destinations is key to keeping rents reasonable, Hamilton added.
He pointed to development of lower Pandora Avenue as a sign the city is moving in that direction, however “the city of Victoria is not very development-minded, so when there’s not a lot of new supply on the market” rents remain high.
From the Greater Victoria Chamber of Commerce’s perspective, taxes are rising faster than the region’s growth, a trend they’ve called unsustainable.
“It’s obviously something the chamber’s been concerned about,” Angus said.
“It makes it a very challenging environment. You need to make sure through good times and bad, you stay disciplined … and reduce the cost of doing business as much as possible so we can be competitive on a global level.”
The property tax issue was also tackled by the Canadian Federation of Independent Business this month, which called on municipalities to freeze business tax increases until they were twice the residential rate. The current ratio is closer to 3:1.
Meanwhile, Brumby said hard times are part of life for any business owner.
“That’s the economy. At any point in time during the business cycle, you’ll see different things happening.
“I think there is room for optimism. It is a challenge, but we’re managing through very well.”
Paying the taxman
Greater Victoria business tax ratios in 2009:
• N. Saanich: 6.00
• Victoria: 3.59
• Saanich: 3.58
• Langford: 3.16
• Esquimalt: 2.98
• Oak Bay: 1.79
Retail vacancy rates in Greater Victoria:
• 2010: 5.9 %
• 2009: 3.5 %
• 2008: 2.7 %
• 2007: 2.9 %
• 2006: 7.0 %
• 2005: 7.8 %
• 10-year avg.: 5.5 %
• Shopping centre vacancy, 2010: 3.5%
Source: Colliers International
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