As Toronto's Fashion District changes, small businesses are feeling the heat

For 43 years, Four Seasons Fur was a fixture of the fashion district. From the corner of Adelaide and Peter, owner Angelo Papaevangelidis watched trends come and go, stores open and close, buildings come down and condos rise.

Still, when change came to his own shop he was shocked.

In March, his landlord refused to renew his lease. He offered to pay market rent – $70 a square foot, almost double what he had been paying – and move into half the space after learning that the owner, Allied Properties REIT, wanted to bisect his unit. Eventually, given no other choice, he relocated to shiny new premises on Davenport, near Avenue Road.

"Allied wanted me out of that nook," says Mr. Papaevangelidis whose manufacturing and retail business was spread over approximately 3,200 square feet on the ground floor of a 1920s building at the southwest corner of Adelaide and Peter. "They don't want the small businesses any more. Or at least they didn't want mine."

Formerly a no-man's land of factories and cheap eateries supporting Toronto's once thriving apparel trade, Toronto's historic Fashion District is in the midst of a massive transformation.

Prices on the short section of Adelaide, just east of Spadina, have skyrocketed over the past two years, to upward of $70 a square foot from $16.

Small businesses, such as Khao San Road Thai food restaurant, have moved on because of the increased rents, replaced by popular food chains, such as Flock Rotisserie + Greens, occupying small-scale retail space on the ground floor of one of the street's new condominium buildings.

"Obviously, we'd like to keep our existing tenants happy, and keep them in their space," says Allied leasing manager Jennifer Tait. "But if it's a very low market then it is something we would consider, bringing a new tenant in."

The turnover was inevitable once the street attracted the attention of developers, says Norma Rantisi, a professor in the Department Of Geography, Planning And Environment at Concordia University in Montreal.

"I would say that it is definitely gentrification, driven by real estate speculation that is tied to new condo development in the area and to a lack of rent regulation that could protect independent businesses from such drastic rent hikes," Prof. Rantisi says.

The neighbourhood is now home to Bell Lightbox, the official home of the Toronto International Film Festival, as well as Montecito, a glamorous restaurant on Adelaide owned by Ivan Reitman of Ghostbusters fame.

Down the street stands perhaps a metaphor for the gentrification – a Starbucks teeming with young residents who spill out of the proliferation of condo buildings rising out of old parking lots. The U.S. coffee giant serves up lattes along with a newly expensive reality for smaller retailers accustomed to rents as low as $16 a square foot – it is paying about $70 a square foot, according to one landlord, and the ripple effect is being felt up and down the street.

"My rent has increased by almost 1,000 per cent," says Brennen Demelo whose eponymous high-end hair salon has been on Adelaide Street West since 2008.

"When I first started my rent was $3,295.46 a month. The new lease Allied wants to offer me in June, when my lease is up for renewal, is $32,000 a month. They want to charge over $75 a square foot – and for an older building. As a small business owner it doesn't make sense for me to pay that kind of rent. Just because Starbucks can do it doesn't mean the rest of us can."

Philip Traikos, senior vice-president at Cushman & Wakefield commercial real estate agency, believes increasing rents on Adelaide are simply a reflection of demand.

"I don't think it's the Starbucks effect at all. I think it's density – that's what's driving up rates," Mr. Traikos says.

"That area was nowhere 10 years ago, lagging behind Queen Street West to the north and King Street West to the south, and mainly because, like nearby Richmond, Adelaide is a one-way street, meaning it never was a true retail node. It was the centre of the needle trade. But with manufacturing shifting overseas, all those buildings have converted to offices. The new businesses service the office and residential density now in the area."

Allied president and CEO Michael Emory identifies a similar growth pattern. "As a multilane thoroughfare, Adelaide is a poor street for retail use, especially when compared to King or Queen. Richmond is pretty much the same as Adelaide for the same reasons, " he said in an e-mail exchange.

"While we own a number of excellent heritage properties on Adelaide West and Richmond West, we don't see any of them having meaningful retail potential, certainly not comparable to the properties we own along Queen West and King West, where the retail potential is enormous."

Business, however, has always been good for Mr. Demelo on the strip. "I started out here with six chairs and now I have 17," says Mr. Demelo, standing in the midst of his busy salon. Haircuts range in price from $55 to $150, depending on the stylist – and there are more than 20 to choose from.

Celebrity clients include big name TIFF attendees and Canadians actors and actresses who come to see him regularly. (He won't disclose names for privacy reasons.) They are drawn to Adelaide, Mr. Demelo says, because of him. "I provide an oasis of artistry on the street. I've helped Adelaide become a dynamic area. I had hoped that Allied would have valued my contribution. I had wanted to stay and be a fixture here for another 25 years."

Mr. Demelo points to a recent e-mail exchange between him and a representative of the landlord that clearly spells out the fate of his salon.

"I do realize the rates are much higher than the existing lease ($16.00/ sqft) but unfortunately we have to get up to the current market rates for retail on Adelaide Street," the e-mail from Allied reads. "For some comparables, please note that the Starbucks and Flock further west on Adelaide are paying $65-$70/ sqft and the retail in the Pinnacle development at John and Adelaide is at $45-$50/sqft. So what we have offered is right in line and on the lower end."

Mr. Demelo cannot afford the rent increase and is planning his exit. He's looking to move his business to Ossington, where "artists are appreciated," he says.

Mr. Papaevangelidis, meanwhile, has already gone forward. While disappointed by how he had been treated, he feels he is now in a better place, professionally and personally.

"I am surrounded by art galleries, antiques showrooms and luxury bridal salons, we serve some of the same customers," Mr. Papaevangelidis says. "I wish I had made the move 10 years ago."