A Vancouver-based non-profit is spearheading a new project to address commercial space affordability issues for small businesses in B.C.’s urban areas.
Amy Robinson, LOCO BC’s founder and executive director, said the organization is securing partners to launch its Supporting Commercial Affordability and Independent Business project in January.
“The goal of the project is to identify innovative models, tools, potential policy changes that can help improve affordability and keep independent businesses as part of existing and new developments,” she said. “Part of what we’re doing is an environment scan and developing case studies. We’re trying to get as many partners in the door as we can.”
Partners so far include PCI Developments, Community Impact Real Estate Society (CIRES) and Nicola Wealth Real Estate.
The multi-phase project, currently focused on Greater Vancouver and the Victoria area, will include sector-specific and multi-stakeholder meetings.
Robinson said running a small business is becoming “untenable” as owners face multiple obstacles including recovering from COVID-related issues, labour and supply chain challenges, inflation, higher taxes and insurance, and crime-related challenges. A September Business Improvement Areas of B.C. survey of more than 500 small and medium-sized businesses found 39 per cent of respondents don’t think their businesses will survive longer than two years, while 52 per cent don’t expect to last beyond four years.
“Astronomical increases in property taxes are part of the issue,” explained Robinson. “A lot of new lease negotiations include demo clauses, so if a business moves into an older, affordable space, they don’t really have any security in that space if it might be developed in the future.”
Robinson said commercial space affordability is linked with the affordable housing crisis. She said while there’s a focus on affordable housing, not enough is being done to ensure affordable commercial spaces.
While recent B.C. government initiatives such as increasing the Employer Health Tax payroll exemption threshold to $1 million and the Securing Small Business Rebate to repair vandalism damage have helped, small businesses continue to struggle.
Facing an uncertain future
The LOCO BC-led project could be too late for The Beaumont Studios, according to executive director Jude Kusnierz who said she’s “out of ideas” to keep her doors open.
The Beaumont—which has 45 studios providing space to about 85 artists, a gallery, performance hall and other amenities—laid off six staff members in recent years. It’s now run by two employees and volunteers.
“We don’t know how we’re going to get through this next year with a property tax increase in January,” said Kusnierz, who founded The Beaumont in 2004. “We’re in the process of trying to acquire charitable status in the hopes that we’ll start to see some philanthropic dollars.”
Kusnierz said rent has increased $10,000 over the past five years, which was especially challenging during the COVID-19 pandemic.
“We told the landlord that we can’t take any increases,” she said. “We fall shy of our rent every month.”
The Beaumont, located in a two-storey building on West 5th Avenue, pays highest-and-best use tax based on the potential of it being developed.
“We’re never going to be a five-storey building, but we’re paying for air space above our building that we can’t monetize,” said Kusnierz.
Looking for solutions
Operating under a head-lease model for commercial spaces in BC Housing-owned buildings, social enterprise CIRES subleases below-market or close-to-market space to small businesses and non-profits, mainly in Vancouver’s Downtown Eastside.
Steve Johnston, CIRES’s executive director, said partnering on LOCO BC’s project makes sense due to the “parallel crisis” in B.C.’s residential and commercial real estate market. Johnston said downtown Vancouver small businesses, non-profits and social enterprises are being “priced out of the market.”
“As we see the increasing gentrification of downtown, we’re seeing these really important service providers forced out of the community, but the residents are still here,” he explained.
Johnston said many small business owners lack information about commercial leasing, triple-net lease impacts, posted per-square-footage rental rates and carrying costs. He recommends seeking help from a broker.
“The posted rate is not necessarily what a landlord will offer to lease,” said Johnston, encouraging business owners to negotiate. “Some of those prices can come down given the right line of questioning, having good financials and demonstrating being a good tenant.”
Johnston said a key challenge for small businesses is the hybrid work model.
“A lot of the businesses that exist as lunch counters, dry cleaners, convenience stores, the market they used to serve—downtown office workers, five days a week—doesn’t exist anymore,” said Johnston.
CIRES seeks to work with private sector developers to align with their goals around affordability.
“Currently, we’re looking at different levers that would encourage a developer to offer a below-market or more affordable retail space,” said Johnston, mentioning the need to take a deeper look at Vancouver’s Community Benefit Agreement Policy.
PCI Developments’ president Tim Grant said LOCO BC’s plan to consult across the board, learn best practices and bring different parties together is what brought PCI to the table.
“The opportunity to bring everybody together and try to work on the cause directly using good practice examples was really important and a much better approach than in the past, which has been regulation-driven and siloed,” said Grant.
Grant said “onerous guidelines and restrictions” around municipal zoning and bylaws are some of the biggest challenges for developers, but he’s noticed a shift to more “user-friendly” processes.
Rent controls
As the ongoing debate over rent controls continues, New Westminster council passed a motion by Coun. Tasha Henderson in February for the province to give local governments legislative authority to “enable special economic zones where commercial rent control and demo/renovation policies could be applied.”
The Union of BC Municipalities endorsed a resolution at its annual convention in September allowing local governments to apply commercial rent controls, which is under B.C. government review.
According to Grant, introducing commercial rent controls would be “overly prescriptive.”
“The thought of putting those types of restrictions in, in our view, is counterproductive,” he explained. “It really hinders the ability to get a new space built.”
Paul Sullivan, partner at global tax services firm Ryan and a property tax agent representing business properties in BC Assessment appeals, disagrees with rent controls.
“I don’t think tinkering with the real estate market with government regulations ever works out,” said Sullivan. “Rent controls will not be something that’s workable because of all of the contractual obligations in place between property owners and tenants, and it would create a very tenuous relationship between tenants and owners.”
Sullivan said rent controls would also lead to reduced property maintenance, resulting in deteriorated retail spaces.
Another issue, according to Sullivan, is the over-taxation of local independent businesses on interim-use properties, as in The Beaumont’s case. To address this, the province introduced an optional Development Potential Relief Program (DPRP) as a property tax relief for small businesses. The City of Vancouver was the first and only municipality to adopt the pilot in 2023.
Sullivan said he wants DPRP imposed on all municipalities and the provincial government to include its share.
The Business Tax Alliance, a partnership between Ryan and Vancouver’s business improvement associations, recently wrote a letter to Vancouver Mayor Ken Sim opposing tax increases and demanding they be held at the “lesser of inflation, two per cent over the actual budget increase.”
“No more five-per-cent, 10-per-cent increases,” said Sullivan. “If you’re going to jack up over two per cent this year, we’re going to rally back together and start fighting to get the commercial vote back in municipal politics.”
