Pricey Bloor St. a bargain for U.S retailers

While Khabouth, the head of INK Entertainment, figures he has opened as many as seven restaurants in the Yorkville area, this is his first on Canada’s most prominent retail road.

“The rent certainly wasn’t cheap. But I’ve always wanted to do Bloor St. This is one of the most prominent areas in the country and it signals that you’re serious about doing business.”

Khabouth’s timing is fortuitous: The city’s “Mink Mile” is coming off a multi-million dollar facelift and is attracting international luxury retailers once again after a bruising recession.

According to a report released Tuesday by Colliers International, The strip was the only retail corridor to make the Colliers global top 50 most expensive list.

It ranked 37th in the world with an average lease rate of $291.66 USD per square foot, or $300 Canadian, falling five places from 32nd spot in 2010.

While the cost per square foot remained the same as last year, other international cities showed much more bounce in rents after the global economic crisis of 2008 that crushed the luxury market.

“Toronto is the pre-eminent Canadian city and that’s why Bloor Street retains value,” said Drew Keddy, vice-president of Colliers International. Low vacancies on Bloor street over the last year has meant that prices have not moved because the turnover was so low, said Colliers.

New entrants expected to debut with flagship stores are American designer Michael Kors, known for luxe sportswear, and high end retailer Intermix, known for their fashion forward clothing.

Khabouth, the operator of the Guvernment nightclub and a developer of the Bisha Hotel and Residences condominiums, isn’t saying what he pays in rent for his second floor Bloor St. restaurant which is across the street from Hermes and just upstairs from Prada. But at 7,000 square feet with a 2,000 square foot main floor patio, he will need to sell a lot of $17 burgers to pay the bills.

“You get mainly corporate high end stores on Bloor because that’s typically who can afford to pay the rent,” said Khabouth.

With the closure of the last great bistro on Bloor, the fondly remembered Bemelman’s, night life on the strip died after 6 p.m., said Khabouth. Channelling the spirit of Bemelman’s, Khabouth flew to Paris with Toronto designer Alessandro Munge to scout authentic French cafes and patisseries.

“We are hoping to change the vibe on the street. Our prices will be affordable even though our rents might be high. I don’t want people to think that we can only eat at La Société if we shop at Gucci. This is for the people who live and work in the neighbourhood, for the store clerks, for everyone. It is not about being snooty just because we’re on Bloor.”

Still, Toronto is something of a bargain when you compare the city to other international luxury locations, according to Colliers.

At $300 per square foot, a 1,000 square foot boutique on Bloor St. would have to pay about $300,000 in rent annually.

But that pales in comparison to New York’s Fifth Avenue, where rents increased by an astounding 72 per cent to $2,150 per square foot, making it the most expensive area to set up a retail space. That was followed by Russell Street in Hong Kong up 25.6 per cent to $1,510 per square foot.

Setting up shop in high end retail districts means that some stores may be unprofitable, but it is a loss that some brands might take in exchange for exposure to the world’s pickiest consumers. Having a store on Fifth Avenue or Bloor Street creates a halo effect for the brand and serves as a marketing vehicle, say analysts.

That also explains the influx of U.S. retailers who have their eyes set northward. A strong Canadian dollar and high consumer confidence has some American chains looking to set up camp here.

So far it has been the midmarket brands such as Target and Marshalls. But analysts say higher end brands are also looking seriously.

“Compared to many locations around the world, it is easy to see why Canada is an attractive market to high end retailers,” said James Smerdon, director of retail and strategic planning for Colliers. “This explains the influxes of U.S. retailers who have announced or are in the process of establishing presence north of the border.”

Smerdon said the current U.S. invasion will not have an immediate impact on the luxury sector, but may have a trickle-down effect in the future.

“While the effect of this trend will have an immediate impact on high street lease rates, over the long term, Colliers expects pressure on rent rates trickling up in this market segment as well.”

Across Canada, Montreal’s Ste-Catherine Street was in second place nationally at $204.16 per square foot, while Vancouver’s Robson Street cost $194.44.

And not all Canadian markets saw upward growth. Calgary’s 17th Avenue saw rents drop 27 per cent to $53.47 and Ottawa’s ByWard Market saw a 20 per cent drop to $38.89.