Building mid-rise? Retail at street level critical to success
Posted on 02-27-2014 05:02
Summary: The Canary District, downtown Toronto’s newest mid-rise condo neighbourhood, home to the 2015 Pan American Games athletes village, posed a familiar problem for developers. The vacant site lacked character.
The Canary District, downtown Toronto’s newest mid-rise condo neighbourhood, home to the 2015 Pan American Games athletes village, posed a familiar problem for developers. The vacant site lacked character.
The sprawling site, bounded by a floodplain of the Don River and three highways, lacked amenities aside from a dilapidated diner, The Canary. It was, however, the starting point for two of the city’s main waterfront walking and cycling trails, the Lower Don and the Martin Goodman.
For Dundee Realty Corp., those trails, the site’s proximity to the water as well as the diner were features that could be highlighted to develop and add value to the property, said Jason Lester, chief operating officer.
“Almost every neighbourhood has history and character if you take time to look for it,” Mr. Lester said. “If it’s developed correctly it can become a much more valuable place to live and that can end up in the [condos’] sales price.”
While some developers still treat retail in mid-rises as an afterthought, Dundee, which is in a joint venture partnership with Kilmer Van Nostrand on Canary, seeks those opportunities and develops a strategy for a project’s retail and commercial space from the outset, he said.
“We thought it would appeal to people who were active, cyclists, runners, walkers, who would like to have access to the trails and who would appreciate a health and wellness lifestyle,” he said. “If you match the location with destination retailers, you can create character. Our strategy and approach is to define the type of retail that will go in on the ground floor.”
Since then the 18-acre Corktown Common park and a new YMCA community centre with a swimming pool, gym and fitness studios have been added. Completion of the construction phase of two condo and two rental apartment buildings at the Canary site is on schedule to meet the Pan Am Games’ opening in July of 2015. With the buildings scheduled to begin their legacy uses the following March, Dundee Kilmer is now about to start a marketing campaign to sign retail tenants who will include those who supply activity and wellness goods and services, Mr. Lester said.
The retail and commercial tenants of a mid-rise condo building are more important to a project’s success than they are to a high-rise, according to experienced mid-rise developers.
For one thing, mid-rises, which Toronto defines as being between four and 11 storeys, although some are allowed to go a few storeys higher, have a higher proportion of retail-commercial space to residential square footage than high-rises. Residential sells for significantly more per square foot than retail or commercial.
“The retail and commercial space is proportionately more significant to our profitability than it would be in a tower,” said Les Mallins, president of Streetcar Developments, a mid-rise specialist that has been building along Queen Street for the past decade.
Street-level space can account for about a quarter to a tenth of the space in a mid-rise, much more than a high-rise of 20 to 30 storeys or more, where retail would account for less than a 20th of the space.
In addition, mid-rise condo buyers, unlike high-rise buyers, tend to focus on the neighbourhood around their building when making their buying decisions rather than the view from the unit itself, Mr. Mallins said. In high-rises, residential prices rise incrementally by floor and street-level retail and commercial space is less expensive than residential.
The only exception to that might be in premium high-end retail areas such as Toronto’s Bloor-Yonge or Bloor-Bay, said Jonathan Pearce, principal with Avison Young in Toronto.
“If retail is well established in the area, it’s possible that ground level space might go for more than residential,” Mr. Pearce said. “Every project is different but usually retail goes for less.”
“It can be a challenging piece for developers and retailers,” said Mary Mowbray, senior vice-president retail group for Colliers International. Developers who don’t have a retail strategy for a building and who do not design the near-ground floors with their objectives in mind, are taking a risk, she said.
Commercial establishments generally prefer to have their own HVAC systems, for instance, or may need garbage staging and delivery receiving areas. Restaurants and bars have specific needs to meet regulatory requirements, agreed Ms. Mowbray and Mr. Pearce, who say less-experienced developers may overlook these details, which will strain the fragile economics of mid-rise even more.
“A developer who’s thought this through and designed the space to meet the needs of commercial tenants will do better,” Ms. Mowbray said. “It can be as simple, as where [support] columns are placed but if a developer gets it wrong it can make it more difficult and time consuming to find the right retailer.”
Streetcar, which also partners with Dundee for financing and leasing, puts as much thought into its buildings’ retail and commercial as it does into residential space, Mr. Mallins said.
“Our model is that we retain ownership of the retail and commercial property in our projects, so we have an ongoing stake in the neighbourhoods that we build in,” he said.
In condo development, a project’s profit depends on the result of the last few units that are sold or leased, said Ms. Mowbray, so a delay in bringing in retail tenants comes directly off the bottom line.
On King Street north of the Canary District, for instance, Streetcar built two mid-rise condos that, as an interim measure, have had car dealerships in their street-level retail space since they opened, Mr. Mallins said.
The dealerships’ owner is building his own facility. When he is ready to move out of the condo buildings Streetcar expects the neighbourhood to have developed enough that it will attract retailers able to pay higher rates than would have been warranted when the buildings first opened, he said.
By contrast, at Streetcar’s three-building condo site on Queen West near Gladstone, which will have a total of more than 600 units when completed, the area’s population density is ready for larger-scale retail.
There Streetcar’s Carnaby mid-rise’s first and largest retail tenant will be a Metro grocery store, scheduled to open in relation to when first residents move in.
At the other end of the scale, on Carlaw Street in Leslieville, which has little pedestrian traffic and only low-value wholesale and retail shops, Streetcar is taking a different approach.
In The Carlaw, a 12-storey condo starting construction at the Dundas Street corner, Streetcar is building a performing arts centre for a respected local group, Crow’s Theatre. Responding to the local councillor’s interest, Streetcar will turn space for a 200-seat performing arts facility and rehearsal facilities as well as a gallery bar and café over to Crow’s to finish and operate, Mr. Mallins said. It is working to ensure the innovative performance company’s success by also helping Crow’s raise financing for the project.
“Ideally we really like to have tenants that enhance the neighbourhood and provide services that residents need.” Mr. Mallins said. “For example, I’d love to find a daycare to go into a building. Imagine how great it would be if you could drop your kids off at a daycare in your own building. I think that would really add value for young families.”