Cost of change

Com­mer­cial rent in­creases force re­tail­ers to re­think busi­ness

Cape Breton Post - - BUSINESS EXTRA - BY JOYCE M. ROSEN­BERG

Ris­ing com­mer­cial rents in newly trendy ar­eas are forc­ing some small com­pa­nies to change not only where they do busi­ness, but how they do it.

When Turchin Jew­elry’s own­ers de­cided to leave Mi­ami’s De­sign Dis­trict rather than ab­sorb a rent in­crease of $18,000 — more than triple what they were cur­rently pay­ing — they couldn’t find af­ford­able re­tail space. They ended up in a suite in a build­ing near a ma­rina with far less pedes­trian traf­fic. Now, in­stead of re­ly­ing on re­tail cus­tomers they are be­com­ing more of a whole­saler, mar­ket­ing their ar­ti­san jew­elry to other stores.

“We went from a mom-and­pop store to, how can we grow a brand and how long is it go­ing to take,’’ Theresa Turchin says.

The av­er­age an­nual rent for a 2,000 square-foot store has climbed more than $18,000, or more than 4 per cent, na­tion­ally since the third quar­ter of 2011, when rents hit bot­tom fol­low­ing the re­ces­sion, ac­cord­ing to Reis Inc., which com­piles real es­tate sta­tis­tics. In Mi­ami, the rent for a 2,000 square-foot store is up $43,200, or 8 per cent, from the third quar­ter of 2009, when rents bot­tomed in the city.

As neigh­bour­hoods across the coun­try trans­form from shabby to trendy, ris­ing rents have forced in­de­pen­dent re­tail­ers and other small busi­nesses to move and in some cases re­make their busi­nesses to fit their new lo­cales. Once they get set­tled in, own­ers are left with the con­cern that the whole cy­cle could hap­pen all over again if their new neigh­bour­hood gen­tri­fies, too.

Turchin Jew­elry opened in the De­sign Dis­trict in 2007, when the area was known for mug­gings and purse snatchings. Theresa Turchin and her hus­band Tommy found space near a pop­u­lar res­tau­rant that drew af­flu­ent peo­ple. Their jew­elry, priced from the low hun­dreds into the thou­sands of dol­lars, sold well.

In 2012, lux­ury stores like Louis Vuit­ton and Cartier be­gan mov­ing in. When the Turchins’ lease was up for re­newal last year, the land­lord wanted $18,000 a month; they had been pay­ing $5,000.

“Your rent should be 10 per cent of your ex­penses per month. We were do­ing our num­bers and it just didn’t make sense,’’ Theresa Turchin says.

They set­tled into a suite, not a store­front, five miles away in Mi­ami Beach, pay­ing $3,000 for half their pre­vi­ous space. They knew the new lo­ca­tion wouldn’t bring them sales from passersby, so they de­cided to be­come whole­salers. They learned how to ap­peal to re­tail­ers; for ex­am­ple, by cre­at­ing dis­plays for store­own­ers to show off the mer­chan­dise. They tar­geted re­tail­ers like op­ti­cians with a neck- lace that dou­bles as an eye­glass holder.

Brook­lyn Brew­ery found ware­house space in 1990 in Wil­liams­burg, then a run-down neigh­bour­hood in New York’s bor­ough of Brook­lyn. Com­mer­cial rents were about $3 per square foot per year, mak­ing the an­nual rent for the ware­house $90,000, says Steve Hindy, a coowner of the brew­ery. Now Wil­liams­burg is one of the city’s trendi­est sec­tions, and rents are at least $30 a square foot — which means a lease signed to­day would cost more than $900,000.

“The prices are way be­yond what any man­u­fac­turer could af­ford to pay,’’ Hindy says.

Although Brook­lyn Brew­ery has 10 years to go on its lease, it’s al­ready look­ing for space in other parts of Brook­lyn, some of which may also be­come ex­pen­sive, Hindy says. This time, the com­pany will pro­tect it­self from soar­ing rents.

“We are in­sist­ing on buy­ing any place where we’d build a brew­ery,’’ Hindy says.

The rent was go­ing to dou­ble to $6,000 a month for Keli Faw’s fab­ric store in Seat­tle’s Bal­lard area. She op­er­ated Dry­goods De­sign in the once run-down neigh­bour­hood for two years, selling in the back of a cof­fee shop. She wanted a store­front, but couldn’t af­ford $3,000 more a month.

Faw found a store six miles away in Pi­o­neer Square. For years the area was known for hav­ing home­less peo­ple and drug ac­tiv­ity. To­day, it’s turn­ing around. Restau­rants and ho­tels are open­ing, and pa­per pro­ducer Wey­er­haeuser Inc. is mov­ing its head­quar­ters there.

Be­cause her store is more vis­i­ble and larger than the Bal­lard lo­ca­tion, Faw’s fo­cus isn’t only selling fab­ric.

At least 50 per cent of her mer­chan­dise is dif­fer­ent; she stocks tote bags and other mer­chan­dise that ap­peal to pass­ing tourists. She turned part of the store into an art gallery. Her rent is 30 per cent higher than in Bal­lard.

Faw’s con­cerned that when her five-year lease is up, she’ll need to move again be­cause Pi­o­neer Square may at­tract other mer­chants who can af­ford even higher rents.

“We may be con­tribut­ing to the same thing,’’ she says.

ELAINE THOMPSON/AP PHOTO

Keli Faw poses for a photo in her shop, Dry­goods De­sign, which she moved from the Bal­lard sec­tion of Seat­tle, to the Pi­o­neer Square neigh­bor­hood. Rent hikes are forc­ing small busi­nesses to move and re­vamp.

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