Western Investor: Retail Revival

May 15th, 2008

Dermot Mack and Andrew Petrozzi
May 2008
Western Investor

Vancouver street-front retail space may become the darling of commercial real estate this year due to authoritarian mall owners and a change in traffic flows. 

Increasingly, major mall space in Metro Vancouver is in fewer hands, allowing the owners to dictate rates and tenancy requirements that have some tenants chaffing. 

Oakridge Centre, Metropolis in Burnaby and Guildford Shopping Centre in Surrey, for instance, are all owned by Caisse de dépôt et placement du Québec, which runs them through subsidiary Ivanhoe Cambridge. A separate Caisse subsidiary, SITQ, owns Bentall Centre in downtown Vancouver. 

The Ontario Teachers Fund, through Cadillac Fairview Corp. Ltd, owns the other major shopping malls in the Metro region, Pacific Centre downtown and Richmond Centre in Richmond. 

“If the same person that owns Oakridge [Centre] owns [Metropolis at] Metrotown and the same person that owns Metrotown owns Guildford [Shopping Centre], they can decide, ‘You will not open up in any of our malls,’” said Thomas Skidmore, CEO, chairman and president of Glentel Inc. 

Skidmore’s company owns 101 WirelessWave stores and 60 stores branded either Telephone Booth or La Cabine Telephonique at malls across Canada. It also operates 63 Wireless Etc. kiosks within Costco stores. “I would love to open up 10 stores in the Greater Vancouver area, if I could get malls to allow Telephone Booth to come in and give competition to other cellular dealers,” Skidmore said.

But he said the only thing that recent inquiries at mainstream Lower Mainland shopping malls have thus far landed him are spots on the waiting list. 

It is this frustration, combined with a shortage of mall space (the retail vacancy rate has dropped below two per cent for large shopping centres) and rent increases of up to 15 per cent, that could be leading the revival of Vancouver street-front retail, especially on the lower-cost east side of the downtown.

Crosstown

“We expect to attract Yaletown-type retailers,” said Phillip Kim of the 7,000 square feet of retail space at the base of the old Sun tower at 100 West Pender Street in the Crosstown area of Vancouver. 

Sun Capital Corp. and Argo Ventures Inc., owned by Kim and Jason Hong, bought the 1912-built tower in March for $15.5 million.

This works out to close to $190 per square foot, but listing agent Clare Stevens of Barclay Street Real Estate, notes there is a potential bonus: a large unfinished basement that could add to the streetfront retail. Based on that scenario, the price would be about half of what retail space is selling for in nearby Gastown. 

Kim said the building’s 82,000 square feet of office space, about 90 per cent leased at the time of sale, could be crafted into loft-style space to attract “bigger tenants.” 

Kim and Hong bought the landmark building from M.D.M. Holdings Ltd. The sale was brokered by Cushman & Wakefield LePage.

Kim said that work to clean up the building would begin immediately and continue through next year. Cleaning the tower’s façade is among the first orders of business. Interior renovations beginning with the lobby will follow.

Kim noted that Townline Group and the Salient Group have tackled residential projects further south on Beatty, while a block away, the Woodward’s redevelopment is rising with a mix of residential, retail and office space. 

He plans on applying for Heritage grants from the City of Vancouver to help cover the cost of renovations. 

Refurbishing commercial space in the area promises to enhance the mix of projects in the neighbourhood, said Kim, who has previously worked on the Walden Building on Main Street at King Edward. He’s also working on a redevelopment of the Metropole Hotel on Abbott Street. 

Argo Ventures, which has a real estate portfolio totalling nearly $500 million across Canada, is providing the financial muscle for renovations of the 17-storey tower.

Gastown

Spending to create higher-end retail in the eastern edge of downtown appears to make economic sense. 

Gastown, for example, is emerging as one of the hottest markets for street-front retail. In the past few months, Koolhaus, a trendy furniture store, moved from West Fourth Avenue to take 10,000 square feet on Water Street in Gastown, and Inform Interiors has completed a new 30,000-square-foot store and another just across Water Street. 

Vancouver’s noted designer John Fleuvog Boots and Shoes has claimed 5,600 square feet on Water Street for its second location in the city, and Yaletown-based Coastal Peoples Fine Arts Gallery has also opened a second store in Gastown. 

The movement from Yaletown is to be expected as merchants tire of dealing with traffic disruptions. 

The effect of the Canada Line construction on Yaletown retailers has been “significant,” with sales down 40 per cent to 60 per cent, according to a study by DTZ Barnicke. One gift shop has closed “and other retailers could follow.” 

As a result, some Yaletown landlords have dropped rents by as much as 15 per cent. In historic Gastown, meanwhile, retail rates are soaring. 

Recent retail strata space has been selling for $480 per square foot, a heady rate once seen only on Robson Street. Lease rates on Water Street are approaching $50 per square foot, up 10 to 20 per cent from 2007.

The timing is ideal for the old Flack block, at West Hastings Street and Cambie, which is expected to complete redevelopment this year with 13,000 square feet of retail space. 

The reasons for the action are clear: the development of the historic Woodward’s site, which will have 500 new condos and more than 50,000 square feet of retail space, including a two-storey London Drugs; and the expansion of the Vancouver Convention and Exhibition Centre, which will include 80,000 square feet of high-end retail. 

An anomaly in the area is the largely empty International Village, which is owned by Hong Kong billionaire Lee Shau Kee’s Henderson Developments.

Robson Street

Meanwhile, more trendy strolls in the city continue to go from strength to strength. 

Robson Street, where net retail lease rates range from $155 to $225 per square foot in the prime blocks, continues to attract new tenants. American Apparel has taken a total of 2,000 square feet in two separate locations on the strip. TNA has opened with 1,100 square feet on Robson. 

Alberni Street may be the retail location to watch this year, as the ultra-luxury Shangri-La hotel and residential tower creates a magnet for upscale retailers. Tiffany’s, Gucci, and Salt Lik will be soon joined on the street by Urban Fare, Bobili and Ki, a high-end Asian eatery.   

Downtown Vancouver retail lease rates

Location Lease Rates*
Robson Street (Burrard to Bute)     $155-$225
Robson Street (Bute to Denman)     $60-$130
West Georgia (Richards to Bute)     $33-$140
Granville Street     $40-$130
Hornby Street     $22-$77
Davie Street (Burrard to Bute)     $35-$55
Water Street (Gastown)     $35-$50
Mainland Street     $35-$45
Alberni Street     $60-$110

*Per square foot, net lease.
– Courtesy: DTZ Barnicke, Vancouver