A recent report from CBRE Canada shows rising retail rents as demand for space skyrockets across the country.Wallace Immen
Generations of customers shopped for imported spices, grains and nuts at East India Company Ltd. on Cawthra Road in Mississauga, Ont. The 50-year-old family-run business made it through the pandemic, but when the store’s lease was due for renewal in 2022, the new asking rent was double the previous rate of $8 a square foot.
From there, the situation only got worse, says Sapna Jain, East India Company’s chief executive officer.
She and her brother Ravi, the company’s president, signed an interim month-to-month lease while trying to negotiate a more affordable rate. But the previous owner then sold the building to a new landlord, who found a tenant willing to lease for more than three times what they were originally paying.
The Jain family had to close their store in May, 2023, with hardly any notice to customers. “I didn’t want to leave and disappear in the wind, but that’s exactly what happened to us,” Ms. Jain says.
East India Company was previously located on Cawthra Road in Mississauga, Ont., though the small business was forced to relocate after rent increases.Ravi Jain/Supplied
It’s an extreme example, but it shows the potential consequences of the broader Canadian retail landscape, which has seen rental rates on the rise due to unprecedented retail space demand. All this comes as brands expand their footprints and new commercial projects are put on hold. This “race for space” is pushing up retail rental rates across the country, with rents expected to continue to appreciate for the rest of the year, according to a recent survey from commercial real estate company CBRE Canada.
“Two years ago, we were looking at empty stores popping up everywhere, and now we are seeing bidding wars for prime locations,” says Alex Edmison, senior vice-president of CBRE Canada. He adds that brokers across Canada are increasingly scouting retail properties to bid for locations with soon-expiring leases that are not currently on the market. This comes as new construction activity is at historic low levels in many cities across Canada.
Demand is happening across nearly all retail categories – most notably health and wellness, grocery and discount. All have been aggressively expanding over the past year, with inflation driving discount retailer growth, Mr. Edmison says. At the opposite end of the spectrum, luxury and other high-profile domestic brands have also been expanding across the country.
“We will again find ourselves one day where supply and demand reach equilibrium; it’s just a pendulum,” Mr. Edmison says. “But right now the pendulum is at the extreme for demand and lack of supply.” The imbalance in supply and demand is putting intense pressure on many small businesses that are struggling to be able to afford to operate, says Liliana Camacho, director of operations of the Better Way Alliance, which advocates for small businesses.
The group tracked retail rents in Toronto and found new commercial lease rates went up an average of 32 per cent between 2022 and 2023. “We’ve heard stories – and seen the receipts – of rent going up by more than 100 per cent,” she says. “Many are being forced to close because they can no longer cover their soaring rental costs.”
Small business advocacy group Better Way Alliance found new commercial lease rates in Toronto went up an average of 32 per cent between 2022 and 2023.Wallace Immen
In 2022, Better Way Alliance launched a national program that asked provinces to establish standardized retail leases with predictable rent increases. “Currently, there are no regulations surrounding commercial leases, meaning landlords control every aspect of these agreements that can be worth millions of dollars,” Ms. Camacho says. “Levelling the playing field will give businesses and landlords a greater opportunity to build toward long-term success together.”
As a first step in May, Toronto City Council adopted a motion, introduced by Councillor Josh Matlow, to request the Ontario government to implement commercial rent control for small, locally-owned businesses and to establish a tribunal for commercial tenants and landlords. Tenant protections are governed by Canada’s provinces, though the province of Ontario has yet to respond, Ms. Camacho says. Her organization is organizing similar initiatives in other Ontario municipalities, as well as in British Columbia and the Atlantic provinces.
The scarcity and price of space is even having an impact on independent businesses hoping to expand, says Simon Gaudreault, chief economist and vice-president of research for the Canadian Federation of Independent Business. In July, the federation released a survey that found 55 per cent of respondents are optimistic about the coming year – just below the historic average of 60 per cent. But many small- and medium-sized businesses thinking about expanding or opening an additional location said they might not be able to do so because they can’t find or afford a suitable building to rent.
The survey also found 48 per cent of businesses report difficulty coping with rising occupancy costs, including mortgages and property taxes, as well as rental rates. “Many businesses are faced with very difficult choices: either they relocate and risk losing their customer base and harming the DNA of the business, or they bite the bullet and eat the costs and find other expenses to trim,” Mr. Gaudreault says. “Hopefully through public policy we will be able to keep the cost pressure in check.”
East India Company was able to pivot by finding warehouse space at another location in Mississauga, Ont., for $14 a square foot to focus entirely on its existing wholesale business. “We were fortunate, but the sad thing is we have seen a lot of businesses and entrepreneurs out there who were not able to get back on their feet after experiences like ours,” Ms. Jain says.
“To not have any protection from the government on huge rent increases kills the spirit of entrepreneurship. We haven’t opened a retail space again because we refuse to do it if we have to lease a property. We can’t go through this again.”