This is Part One of a two-part series on challenges to Vancouver restaurant owners thanks to rising rents and Vancouver real estate appreciation. Part two: Being too large can kill restaurants in off-prime locations
Restaurant owners along Vancouver’s Alberni Street strip fear for their survival as lease rates soar and luxury tenants show that they can pay inflated rents.
Kamei Royale Japanese Restaurant owners were forced to close their decades-old sushi restaurant at the corner of Alberni and Burrard streets earlier this year and move to 1066 Hastings Street.
Kamei’s landlord, the Burrard Group, had approved Tiffany & Co.’s request to expand its jewelry store into what was Kamei’s second-level space.
“It comes down to, during the term when [a restaurant’s] lease is renewed, what is the market lease rate at that time,” said Burrard Group vice-president of development Jason Wexler.
“Typically, we have to charge whatever that rate is as we’re running a building as well and have taxes to pay. Sometimes it doesn’t pencil out for [the restaurant], but there’s someone who’s selling jewelry who does make the needed margins.”
That marketplace reality scares another restaurateur in the Burrard Group’s Burrard Building.
Italian Kitchen owner Emad Yacoub told Business in Vancouver that his landlord has told him that if he wants to renew his lease next year, he should expect to pay double the $45 per square foot that he negotiated for his two-floor eatery in 2007.
That would be unsustainable, he said.
Yacoub operates three other Alberni Street restaurants across the street from Italian Kitchen: Coast, Black+Blue and The Roof.
Lease negotiations for those sites are set for 2019, 2021 and 2022, respectively.
(Image: Emad Yacoub stands outside the first restaurant that he opened on Alberni Street: Italian Kitchen | Chung Chow)
What makes the high lease rates particularly sting for Yacoub is that he believes he was pivotal in building the street’s newfound luxury allure.
He estimates that he serves 800,000 guests annually at his four Alberni Street eateries and that before he arrived in 2007, the strip was a wasteland.
“I brought in the luxury cars, the Lamborghinis, Ferraris and that client base to the street,” Yacoub said. “Then all these big European brands see expensive cars on the street and they say, ‘We want to be on the street.’”
Steep lease-rate hikes should be expected given the street’s steady arrival of new luxury brands.
Prada, De Beers Jewellery, Versace, Strellson, Brunello Cucinelli and Saint Laurent Paris have all moved close to the corner of Alberni and Thurlow streets in the past couple of years while Van Cleef & Arpels is readying to move into an under-construction, 6,200-square-foot building mid-block on Alberni Street between Burrard and Thurlow streets.
Retail analysts stress that restaurants are important for a street’s vitality.
(Image: Kobe Japanese Steakhouse opened in 1968 | Kobe)
“The last thing you want is a bunch of luxury retailers all in a row, with no restaurants, unless you want a dead street,” said Retail Insider Media owner Craig Patterson.
“If you want five very rich people walking up the street and shopping, that’s one thing, but if you want a really vibrant area, you need restaurants.”
Patterson added that luxury retailers can pay higher rents than high-end restaurants, which is an incentive for landlords to squeeze out the bistros.
“Restaurants can only pay about 10% of their sales on the lease if they are to be profitable,” said Brian Bruser, who owns Kobe Japanese Steak and Seafood House – a restaurant that Bruser’s father, Michael, opened on Alberni Street in 1968.
Kobe is profitable but a hefty lease-rate increase could force it to close.
Another possibility is that Kobe could be demolished along with Coast, Black+Blue and The Roof.
That’s because Bruser, in 2014, sold the land underneath his 48-year-old restaurant to an offshore buyer who wanted to aggregate the site with his other holdings.
Bruser said the offer was too good to refuse, before adding that he now has a short-term lease.
Streetscape renewal poised to drive rents higher
A walk between Burrard and Thurlow streets on Alberni Street reveals a streetscape that is at odds with its luxury tenants.
Blotches of white filler concrete form a patina with darker grey pavement. There are no benches to encourage shoppers to linger. Nor are there flower baskets or any other touches that delineate high streets in other cities.
Prada has Photoshopped out telephone poles and street lamps in widely available images of its new Vancouver store.
(Image: Promotional images for Prada store at the corner of Alberni and Thurlow streets have photoshopped out telephone poles and street lights | Prada)
Landlords are keen to have the street improved to attract more luxury retailers and increase the pedestrian traffic needed to generate higher sales and help pay for higher lease rates.
“Conditions are subpar for what the street has evolved into,” admitted Downtown Business Improvement Association (DVBIA) CEO Charles Gauthier.
He successfully lobbied the city several years ago, when the West End Community Plan was being drafted, and the city agreed to Gauthier’s pitch for the city to remake the street in what he called a “distinctive” way, similar to how it resurfaced Granville Street before the 2010 Winter Olympics.
(Blocks of different-coloured pavement and spray-painted marks are visible on Alberni Street | Glen Korstrom)
“There’s a clear division of responsibilities here,” Gauthier said.
“As has been practised in other parts of the city, major revitalization projects tend to be done by the city because the business improvement associations don’t have the budget or the wherewithal.”
The city, however, is waiting to generate the needed funds from community amenity contributions (CACs). Those in-kind or cash contributions come from property developers after city council grants development rights through rezoning.
Once future rezonings pass and developers pay the city the CACs, the money could flow. Gauthier estimated that $2 million will be spent on the street, and he thinks that it could take between three to five years for the funds to be available.
“We’ll be advocating for some kind of new streetscape design for the sidewalk so it looks and feels different than anywhere else in the city,” he said.
“That’s the argument we made for Granville Street – that this is a different street than anywhere else in the city. The normal sidewalk is what they call broom-finish concrete. We’ve said that we want something different.”
Once the street is revitalized, the DVBIA will pick up the tab for banners, flower pots, additional trash bins and other small improvements.
“We would be pretty excited to have [revitalization] happen as soon as possible,” said Burrard Group vice-president of development Jason Wexler, “but it’s a pretty big project and it’s not like the retailers are avoiding putting work into their stores.”•
Part two of this series: Being too large can kill restaurants in off-prime locations