retail

How CREA and the MLS are destroying commercial real estate through DDF

If you are a commercial real estate agent and you use the MLS, you may have noticed an unsettling trend in the last few years. CRE brokers are accustomed to having a particular flow to their deals that are unique and more elaborate in comparison to most residential real estate transactions. We are also accustomed to working both ends of a deal, especially when it comes to leasing. We have knowledge of how to complete these transactions with professionalism, transparency, and without assistance.

In recent years CREA has implemented DDF (Data Distribution Facility) to all MLS listings by default, unless your board office allows you to disable it at the brokerage level, many don’t. Why is DDF damaging to the commercial real estate profession? DDF allows any brokerage utilizing the MLS to market your listing, without additional consent from you, automatically. While this allows for more exposure of one listing on the internet, it’s a double edged sword that has led to incompetent representation for commercial buyer/tenant leads. Brokerages that are all or mostly residential focused are now getting buyer and tenant leads for commercial real estate listings they don’t have, and more importantly, don’t have the experience or expertise to properly represent someone in a commercial real estate transaction.

A few years ago I operated a small but profitable commercial real estate brokerage. My desire to focus on dealmaking rather than broker of record responsibilities lead me to the decision to close shop and join another brokerage. I was accustomed to operating strictly with commercial standards and it was rare for me to encounter a deal with another agent who wasn’t a commercial practitioner. These days my MLS listings barely generate direct leads for me, instead I’m regularly bombarded with showing requests from residential agents who have received a random lead and don’t know how to handle it. The vast majority of real estate practitioners are residential, with little or no experience to properly complete or even offer good advice for a commercial lease or sale transaction.

When commercial realtors encounter a residential agent with a buyer or tenant, it’s usually an incredibly frustrating experience to try and complete a deal. I for one often observe agents that:

-Don’t know anything about their clients needs or business requirements before showing a property.

-Don’t know the market conditions for commercial, office, or industrial properties.

-Know little or nothing about environmental site assessments.

-Don’t know what BOMA is or how to measure a building according to its standards.

-Make interior measurements and assume the landlord is trying to charge for extra square footage.

-Don’t know how to write a commercial offer to lease or commercial agreement of purchase and sale.

-Have never written, negotiated, or read a commercial lease.

-Can’t calculate the monthly rent.

-Don’t understand what TMI is.

-Misrepresent their clients interests because they simply don’t understand them.

-Can’t answer basic CRE questions and needs to consult their broker of record or another agent in their office for answers.

This list can unfortunately go on and on.

What this leads to is the public being misrepresented when they are accidentally matched up with someone who simply isn’t qualified to complete a commercial transaction and I have heard complaints from businesses who had incredibly frustrating experiences and difficulties as a result. Unfortunately I’ve raised concerns with CREA about this platform and there seems to be no concern about ensuring that people are matched up with quality commercial practitioners for their business needs, and there seems to be no concern for commercial practitioners unique business model.

Is there a solution? As long as the MLS is being used and has DDF implemented it will continue to degrade the commercial real estate profession at a rapid pace. Maybe it’s time commercial practitioners acknowledge the harm that is being caused to this industry and pursue an alternative. CREA has designed the MLS to cater to the housing industry and over the years have continuously failed to improve the commercial real estate sector. What if all commercial practitioners abandoned use of the MLS in pursuit of an alternative such as Loopnet or Spacelist to be the new norm? That’s a conversation worth having.

Until then, if you’re a business owner in need of commercial real estate services, just make certain that you’re dealing with an agent that’s qualified to represent your interests.

What is Base Rent in a Commercial Real Estate Lease?

Base rent, (may also be referred to as net rent) is the base lease rate a tenant pays for a commercial, industrial, or office space in a building. The base rent is net of expenses and percentage rents. What this means is that the base rent is not a representation of the total monthly rent a tenant will pay. Confusing? Possibly if you’re new to it.

As mentioned above, base rent is net of other expenses such as utilities, property tax, property maintenance, and property management etc... In commercial real estate leases it’s common practice for the tenant to pay for their share of other property expenses through additional rent commonly referred to as TMI. That means in order to see the whole picture of what your monthly rent will be you need to combine the base rent and additional rent. If you’re still confused I have another blog that explains how to calculate the total monthly rent here.

If anyone is confused over the rent structure in my listings I’m happy to provide clarification.

What is the difference between a Gross and Triple Net Lease in Commercial Real estate?

If the pricing for commercial real estate isn’t confusing enough for businesses looking to lease space for the first time, wait until you find out there is more than one type of lease you can sign, but that’s usually decided by the landlord.

The majority of the time commercial real estate landlord’s prefer to operate with some form of triple net or net lease (covered in another blog) which requires the tenant to pay for property expenses in addition to their base rental rate. A gross lease is probably more familiar to tenant’s approaching this for the first time, but don’t expect a landlord to use this type of lease. A gross lease is usually a monthly flat rate that not only includes the base rent but some or all of the property expenses as well. This is an easier option for tenant’s to understand but why is it not an option for most buildings?

The vast majority of commercial real estate landlord’s prefer to operate with a triple net lease if the building allows for it, most do. This allows the landlord to keep its net rental income separate from the property expenses which are paid for by the tenant through an additional rent commonly known as TMI, it also allows landlord’s and tenant’s to see clearly how the base rental rate compares to similar buildings in the market without property expenses clouding the comparison. Some property expenses (but not necessarily all, gross leases vary case by case) that might be grouped into a gross rental rate might be property taxes, building insurance, utilities, property maintenance, service contracts, property management etc.

As mentioned above the vast majority of landlord’s will use some form of triple net lease and a tenant should be prepared to know what that entails. Although a gross lease is easier to understand from the tenant’s perspective, don’t expect a landlord to agree to use one unless there is a unique building/situation that warrants it. For anyone that might have questions about gross and net leases I’m open to answering some questions.

Commercial Real Estate Lease

Commercial Real Estate Lease

Is HST Applicable to Commercial Real Estate Lease Rents in Ontario?

If you’re leasing for the first time you may not know the answer to this question. The short answer is yes, HST (Harmonized Sales Tax) is applicable on all commercial real estate rents in Ontario, Canada. If you have previously rented a residential apartment where HST is not added onto the rent this may be a bit of a surprise.

If you are leasing a commercial, industrial, or office building for the purposes of running your business, HST is applicable on all rents including additional rents such as TMI or CAM. You should expect that all advertisements and listings that show lease rates don’t have HST added yet, much like the prices advertised in retail stores are prices without tax added yet. When you want an agent to write an offer to lease, HST will be added then so you can see the big picture on rent.

Any confusions or questions about HST should be cleared up with your accountant or applicable government authority.

Opportunities for Cannabis Retail Space for the Next Lottery Draw

It’s time for the second wave of the Ontario cannabis retail lottery which is to be drawn in August 2019. Much like 6-8 months ago, this already has thousands of retailers looking to tie up a commercial retail space for lease and we are receiving inquiries every day from potential cannabis retailers.

With the rules of the lottery being known in advance this has forced retailers to be more selective of the properties they pursue for submission. We still expect landlord’s to potentially want some form of compensation for tying up the unit, and, with the abundance of retailers trying to compete the landlord is going to pick the tenant that caters to their interests the most… just something to keep in mind (you retailers know you have a lot of competition right?).

We currently have a limited number of retail listings available in St. Catharines of the Niagara Region that may be suitable for cannabis retail, below is information and links for each.

One of the most desirable retail locations in the city of St. Catharines is Fourth Avenue. With the high traffic count, amenities, and nearby highway access this is a very desirable area of the city. The two listings we have available are in the links below:

http://www.remaxnc.ca/listings/commercial-office-retail/lease/78933

http://www.remaxnc.ca/listings/commercial-office-retail/lease/78762

With highway exposure and make a little bit of cosmetic improvement you could have retail space with QEW highway exposure at 10 Dunlop.

http://www.remaxnc.ca/listings/industrial-retail-warehouse/lease/78886

This last one is located in the West end of St. Catharines and is in close proximity to the Go Train station, just in case you want a store that can cater to commuters ; )

http://www.remaxnc.ca/listings/commercial-office-retail/lease/78932

Feel free to reach out and ask questions about the properties. If you’re a cannabis retailer looking to lease retail space within the city let us know if these locations are worth submitting as soon as possible.

Why are Commercial, Industrial, and Office real estate leases so long?

“Why is this lease so long?”, “Is all of this wording really necessary?”

I get questions like this from either new businesses, or businesses that have come from a building that simply had a very relaxed leasing policy. More often than not, a relaxed leasing policy and short lease documents that lack detail cause problems.

A commercial real estate lease should be very detailed about the relationship between landlord and tenant. Not only should it contain important details about the deal such as lease term, start date, rental rates, size of premises, use, etc, but it also needs to have details about rules on the property, insurance requirements, types of action that can be taken in the event of a default, environmental responsibilities, and so on. The list is actually quite extensive for what can be contained in a commercial real estate lease which is why most documents are dozens of pages in length. My document often ends up between 30-35 pages depending on the tenant, building, landlord, type of lease, zoning, etc. While many tenant’s may think that’s a long document, I feel each point is necessary and would have difficulty shortening it. I would actually have an easier time finding content to add than take away.

Back to the questions, why are leases so long and is it necessary? If a tenant asks that question and I look at the building they’re in, I likely see issues such as poor maintenance, poor parking arrangements, structural issues, driveway pothole and access issues, and tenant conflicts. A properly written lease document that can address those issues and is enforced by the landlord and tenant ensures fewer issues for both parties. A lengthy lease should be considered as necessary by both parties because leases should be designed to protect the interests of both landlord and tenant. Yes, leases by default are naturally pro-landlord, but that’s because it’s their property. That doesn’t mean there isn’t or shouldn’t be protection for tenant’s so that is something you need to look for and ensure is in your lease. The landlord’s I represent take good care of their buildings because the lease requires them to. This allows the tenant’s to use the property as efficiently as possible to run their businesses, as long as they follow the rules with the other tenant’s. This is the ideal situation for everyone.

Every clause in my lease has a reason and my document is updated when new industry trends occur or new issues are discovered in the marketplace. Each clause has a purpose because at one point it was created to correct a problem or properly define something.

So is all that wording necessary? Absolutely. As long as it reflects the needs of your business and protects the interests of both parties, every clause should be seen as necessary and relevant. Make sure you are represented by a knowledgeable commercial real estate broker to ensure you get what you need from your lease.

Commercial Space for Lease in St. Catharines - 225 St. Paul Street West

Welcome to 225 St. Paul West, St. Catharines, a building with a nice updated stucco exterior for your business to make a great first impression with. There is plenty of on-site common parking right out front, the lot was recently re-paved too. For retail or food service tenant’s there is ample exposure with expansive window display.

Inside the space feel well lit from the expansive window space. The unit is open concept and cater to a variety of professional uses such as office, retail, medical, service, and food service. The ceiling height is approximately 12’ but there is a drop ceiling at a lower level. The rental rate for the entire space is $12 per sq. ft. for the base rent and $4 per sq. ft. for the TMI. Depending on the tenant the landlord may consider splitting the unit into approximately 1500/2000 sq. ft. units but the asking base rent would be up at $17.95 per sq. ft. instead.

To discuss the opportunities to lease this commercial building please contact me.

What is a rent free period in a commercial or industrial real estate lease and how do you achieve one?

A commonly requested or negotiated item in commercial real estate leases is a rent free period. Depending on market conditions for the type of space or building you’re looking to lease you may be able to achieve one.

A rent free period is a defined period where the tenant does not pay rent either prior to their lease term or at the start of their lease term. How much rent free to ask for is usually dependent on market conditions and the reasons for needing a rent free period. For Example, an office or industrial tenant looking to build out a new floor plan of offices might need 2 months to complete the work at their cost, and in turn would ask if they could achieve two months rent free to make the transition smoother. A landlord might see this as a reasonable request dependent on market conditions and the length of the lease term.

Speaking of the lease term, a rent free period is usually not considered unless you are signing a longer term lease, which in current market conditions is usually around 5 years depending on the landlord, property, and the reasoning. If you are not prepared to offer a lengthy commitment, it would be wise to not request a rent free period as you would be seen as unrealistic. It would also be wise to not request too much rent free period for the same reason unless it’s a very unique deal that warrants it.

There are also different options for a rent free period. In the situation of a triple net lease for example, some landlord’s may only agree to giving base rent free, meaning the tenant would still pay their proportionate share of property expenses through TMI, CAM, or additional rent depending how the lease is worded (this is common practice and considered a reasonable request).

There is also the option of having a rent free early occupancy period or a rent free period at the beginning of the lease term. If your lease starts February 1, 2019 and you have one month rent free early occupancy, your rent free period would be for the month of January before your lease starts. If it is rent free within the lease, it would likely make February the month you have free. What is agreed is usually a matter of preference between landlord and tenant. For landlord’s, it’s usually more of an advantage to have rent free early occupancy because if you have a 5 year lease, you still get the full 5 year term whereas with rent free within lease, the beginning of the term is eaten up with the free period.

A rent free period is a common negotiating tool for commercial, industrial, and office building leases, but it has its limitations in many markets and not all landlord’s consider it. Because it’s an incentive there may also be a claw back clause in the lease for that incentive in the event the tenant defaults. If the landlord agrees to a rent free period it’s because they feel there is a legitimate reason for the timing of the request and that it benefits their long term big picture of their investment property.

In the current Niagara industrial market, in particular St. Catharines, space is tight so rent free incentives usually aren’t very long if considered. Rent free on a commercial retail space is dependent on building and scenario and office buildings usually have consideration for it if the tenant intends to do their own improvements and alterations to the space.

To make sure you’re getting the best advice on rent free incentives, make sure you’re speaking with a knowledgable commercial real estate broker for the market that you are in.

10 things to consider if you're a tenant wanting to buy a commercial or industrial building

I work with a lot of tenant’s and something I commonly hear from them is that their goal is to buy a building. Owning commercial or industrial real estate can be an excellent investment and a worthwhile pursuit, however, I have discovered that most tenant’s with this goal aren’t aware of what is required to buy a building when they make this statement. Not only do I do commercial and industrial leasing, I also do sales, and I want tenant’s to know what the process is like not because I want to discourage them, but because it’s a process that is approached best with eyes open and expectations realistic. I would say most tenant’s abandon this pursuit after learning about the requirements and the process.

To start, the biggest thing you need to know is that getting a commercial real estate mortgage is way different than getting a mortgage for your home for many reasons. It’s common to encounter large downpayment requirements, fees, appraisals, an environmental site assessment etc. which adds time to the approval process. Many residential mortgages achieve approval within a couple weeks, but on the commercial side it could take months. Below is a list of things to consider before you even start looking at properties for sale.

1) High Downpayment Requirements - Probably the most notable obstacle for buying any real estate is ensuring you have enough for a downpayment. In comparison to residential mortgages that can offer a great deal of flexibility on the down payment requirements, it’s common to see a demand of 25% - 40% downpayment. I’ve met many business owners that have assumed this requirement can be much lower and have come to realize they just don’t have the ability to put together that much cash. There may be some flexible exceptions out there through private lending options or through the BDC that can present better options for buyer/users but this is dependent on the business.

2) Bigger Deposits - With bigger downpayment requirements comes the need for bigger deposits (and for other reasons). It’s common for knowledgeable commercial real estate brokers to try and achieve a deposit around 10%. Why? Commercial sales can take a long time to come together and if you’re expecting to tie up someones property with lengthy conditions you need to prove that you’re worth the wait, and, show that you obviously have a good chunk of cash ready for a downpayment. If you’re expecting to tie up a property with a few grand, you may be perceived as unrealistic.

3) Longer Closings - In comparison to home sales which can go firm within a couple weeks, it’s common for commercial sales to take a couple months, sometimes even longer depending on the structure of the deal. The main culprit for longer deals is usually the financing where lenders request environmental site assessments that can take anywhere from weeks to months to complete. It would be wise to expect occupancy of the building to be months into the future, don’t expect to be moving your business in within the span of a month. It’s not impossible, just very unlikely.

4) Different Mortgage Requirements - In addition to high down payment requirements, commercial mortgages are typically structured differently. The interest rates are different from residential and it’s not common to get an amortization period as long as you could achieve in a residential mortgage. Not only are the down payments higher, your mortgage payments will be higher with having to pay the building off sooner. It’s also common to come across fees in the process of commercial lending which is not something you typically encounter when buying a house.

5) Environmental Site Assessments - In Canada (and probably most of the United States) it is standard for commercial mortgage lenders to request an ESA for commercial and industrial properties to prove it is within ministry of environment standards. Most times it is standard for the seller to prove the property is within MOE standards so the cost of the report usually falls on them, but, this condition can take anywhere from weeks to months to complete which can create a lengthy conditional period and a potentially drawn out closing. Things usually get drawn out and costly if contamination is discovered.

6) Lender Selection - You would think that most of Canada’s big banks are a great source for a commercial mortgage but few actually specialize or excel in offering this service. If you’re not exactly happy with your preferred bank for commercial mortgages you may want to explore lenders that specifically market themselves for that service.

7) Borrowing Potential - If you think that owning a building might be the best thing for your business, it actually may not be for everyone. Each business only has the potential to borrow so much money and if it’s perceived that most or all of your borrowing potential is tied up in bricks and mortar, it may be difficult or impossible to borrow money for other business purposes, like if you wanted to borrow to upgrade some expensive equipment or make alterations to the property. Unfortunately I have met some tenant’s who have felt that buying a building paralyzed their business growth and regretted their decision. The positive idea of building ownership can make you blind to this potentiality.

8) Lease Payments are Tax Deductible - Mortgage payments… not as much.

9) Cost of Alterations - Unless you’re building new to spec, you will likely find it impossible to find a building that is perfect for your business needs in its current state. Alterations to make sure the building is a good fit for your business are almost always necessary because the previous business was different and had different layout needs than your business. The cost may not necessarily be high in some situations but you will want to make sure you have a proper budget allocated for this after closing.

10) Maintenance and Repairs - As a tenant the building is likely repaired and maintained by arrangements through the landlord or a property management. This is handy because it allows tenant’s to focus on their business and not maintaining a property. Once you buy a building you become the landlord and are now responsible for arranging repairs and maintenance, just something to keep in mind.

If after reading this you feel that buying a building is the right thing for your business then please reach out and lets see if there are some options available for you in the Niagara Market. It would be wise to ensure the agent you’re working with has experience with commercial or industrial real estate sales.

What is a Commercial Real Estate Lease Assignment?

Yesterday I wrote a blog about subleasing in commercial real estate which is usually the most common option when the space or unit is no longer needed by the tenant for various reasons. Today I want to touch on the other option which is commonly referred to as a lease assignment.

If you read my blog on subleasing you would notice that I mention that the original tenant still remains on the hook to fulfill obligations of the original lease in that the sub-tenant pays the tenant and the tenant still pays the landlord in addition to fulfilling other obligations in the document. The difference with a lease assignment is that it usually releases the original tenant from its obligations to the lease. While this may sound like the more attractive option from the tenant’s perspective, it’s not always an option on the table and it’s often not the preference of the landlord. In the lease assignment one tenant assigns all responsibilities of the lease to the new tenant, letting the original tenant off the hook. The new tenant would have a direct relationship with landlord going forward.

So what are some reasons that a lease assignment would be preferred over a sublease? As mentioned above the first choice and sometimes the only option a landlord wants to give is the option to sublease. In the eyes of the landlord they have an existing relationship with the current tenant so they may not feel comfortable working with a lease assignment. Reasons for a landlord to consider a lease assignment instead of a sublease is because there may be an opportunity to achieve higher rents with the newer tenant, or the newer tenant may appear to have a more solid financial backing (such as a well known national franchise) vs. a mom and pop business that is going out of business. It’s obvious the landlord would want to form a direct relationship with a tenant they perceive to be a better fit for the building and their investment goals.

If you’re a landlord or tenant who has encountered this situation and don’t know what’s best, weigh the pros and cons of either and it should be clear what is best for the scenario.

What expenses can be used in TMI, CAM, or Additional Rent in a commercial real estate lease?

What should be used as a TMI expense is dependent upon how the lease is written, but, the vast majority of the time I write triple net leases and I know most commercial and industrial landlords and practitioners prefer triple net leases where they can be applied, The list below is based on a triple net scenario and isn’t limited to what is listed:

1) Landscaping - The property needs to look well maintained to make a good first impression in a business situation. Lawn cutting, gardening, weeding, tree and bush trimming, litter pick up, and so on can be a landscaping expense.

2) Snow Removal - If you live in a province or state that gets snow, snow removal contracts are a necessity for commercial and industrial properties to ensure businesses and customers have a place to park. Salting and Sanding also falls into this category.

3) Parking Lot Repairs - Parking lots function and look best when the pavement is smooth and free of potholes.

4) Roof Repairs and Maintenance - There are various things that can cause a leak in the roof but leaks tend to occur most towards the end of the roof life. Fortunately repairs can be made and the roof can often be functional for years longer with proper maintenance. There will reach a point where repairs won’t work and a full replacement will be necessary.

5) HVAC Maintenance and Repairs - To ensure the longest life and most efficiency of your HVAC units you should have a regular maintenance contract. A few visits a year from an HVAC technician to keep the unit clean and running smoothly is a wise idea.

6) Outdoor and Common Area Lighting Costs - Tenant’s and Customers definitely appreciate it when coming and going during darker hours of the day, and, having a lit building is a bonus security feature.

7) Property Management and Administration Costs - Property management takes time and money. It would be rare to see management fees higher than 15% of the property expenses but this depends on the landlord and management company.

8) Elevator Maintenance - Elevators require monthly maintenance contracts to remain operation.

9) Waste Removal - If you have common waste, recycling, or compost bins for tenant use.

10) Outdoor/Common Walkways, Ramps, or Stairs - Need to be maintained to code for safety.

11) Fire Prevention - For buildings with sprinkler systems, common area alarms/detectors, these are items that have maintenance costs. Depending on the situation, most times tenant’s would have alarms/detectors in their own units at their own expense.

12) Security Systems - For common areas only. Tenant’s should do their own monitoring for their own unit.

13) Electrical - Maintenance of the electrical room or main transformer.

14) Water - Most units of commercial and industrial buildings don’t have a separate water meter. Water costs should be added to the TMI in this situation, except if there is evidently a tenant that uses more than the others, a fair approach to billing should be made.

15 Insurance - For building and land. Tenant’s should be providing their own content and liability insurance as per the lease.

16) Property Taxes - The largest and most obvious expense.

This list can and will be more extensive in the future, but for now this is a good base guide.

Depending on the wording of your lease you may be able to amortize capital improvements over a longer term. The default wording of my lease allows for roof, HVAC, and parking lot replacement costs to amortized over 10 years but this isn’t used in all documents.

If you’re a client of mine that needs some assistance with best TMI practices I have no problem offering that help. Make sure you work with a Realtor that knows all of the expenses that need to be accounted for.

How to Calculate TMI ,CAM, or Additional Rent on Commercial and Industrial Buildings

This blog is targeting commercial and industrial buildings that have little or no common area. Most commercial retail plazas and most industrial buildings will fall into this category. Office buildings, or buildings with an abundance of common area would usually take a different approach which I plan to cover in another blog. If you’re new to this TMI, CAM (common area maintenance), and additional rent are industry phrases to represent the expenses for the property, and whatever phrase is used is usually a matter of preference but TMI is most common.

T.M.I. stands for taxes, maintenance, and insurance so the first place to start is adding together your property taxes, all of your maintenance and repair costs on the property, and your insurance costs for the most recent year. That makes up your combined annual total of property expenses. You simply need to divide that total by the total number of square feet that make up the building. You then have your per. sq. ft. rate for TMI.

A simplified formula: (Property Taxes + Maintenance + Insurance) ÷ total square feet = per sq. ft. TMI rate

If you’re looking for information on what TMI is (also known as CAM or Additional Rent), you may want to visit my other blog post with that explanation here https://www.stevendavidson.ca/blog/2018/8/13/what-is-tmi-cam-and-additional-rent-in-commercial-real-estate-leasing

For information on how often your TMI should be calculated I have a post about that here: https://www.stevendavidson.ca/blog/2019/2/12/how-often-is-tmi-cam-or-additional-rent-updated-in-a-commercial-real-estate-lease

If you were looking for information on how to calculate month rent instead of TMI I have information on how to do that here: https://www.stevendavidson.ca/blog/2019/2/22/how-to-calculate-monthly-rent-for-commercial-real-estate-lease-listings

The Tourist Commercial Real Estate Areas of Niagara Falls

Niagara Falls is a landmark known by most of the world, and as such, there is obviously tourism around it.

One of the most well known commercial real estate areas for tourism is Clifton Hil, a short street that connects Victoria Ave to Falls Ave/Niagara Parkway. Clifton Hill is known for its over the top architecture, large colourful displays, funhouses, entertainment, and food. In peak season Clifton Hill is crowded with vehicle traffic and pedestrians traffic. At the bottom of Clifton Hill is Falls Ave. and Niagara Parkway which are a short distance from the Horseshoe Falls viewing areas, you’re also right next to the Rainbow Bridge to cross into the United States.

The tourist district expands Southwest from Clifton Hill up Victoria Avenue and although Stanley Avenue sort of acts as a border to the West, Victoria Avenue clearly has businesses that look to draw in tourist traffic past that, up Ferry Street, and even a considerable distance down Lundy’s Lane.

The Tourist Area travels some distance to the South Along Fallsview Blvd and Stanley Ave but it tapers off once you pass the Fallsview Casino and the falls itself.

The rents in the prime Tourist areas surrounding Clifton Hill are not a reflection of commercial real estate rents elsewhere in the city. Tourist area rental rates are usually AT LEAST triple compared to most areas, for the obvious reason of catering to high traffic tourism.

If you think your business might be a good fit for the prime tourist areas of Niagara Falls, be sure to connect with a commercial real estate broker who is knowledgable with the area and can act quickly as vacancies are rare.

The Prime Commercial Real Estate Areas of St. Catharines

Most main artery roads in St. Catharines have commercial retail plazas but if you’re looking for the most prime, high traffic areas you will want to consider one of the areas below or close proximity.

1) Fourth Avenue - Located just off of Highway 406 where Welland Avenue from central St. Catharines turns into 4th Ave. and continues into the West end of the city with new plazas and the hospital. This stretch is arguably one of the highest traffic areas of the city, it’s also an area of the city that is still growing (to an extent). You can find most retail amenities in this area of the city with big box stores in the Smart Centres developments, medical buildings around the hospital, and other retail buildings that house a mix of local and franchise tenant’s. A great deal of benefit can be had to locating in this area but it comes at a price with base rental rates usually starting around $18 per sq. ft.

2) Glendale Avenue (Penn Centre area) - The stretch of Glendale that runs from Merritt Street , under Highway 406 and ends after the Penn Centre is another commercial district that is incredibly high traffic. There is a mix of new buildings, old buildings, and even some nice redeveloped buildings such as where The Keg and Johnny Rocco’s, as well as the city’s largest shopping mall the Penn Centre. With a diverse mix of retailers, food options, and even government services such as the passport office, it’s no wonder Glendale Avenue is packed with traffic during business hours. You might be able to find base rents as low as $16 per sq. ft. in older buildings but you will likely be paying over $20 in most areas.

3) YMCA Drive / Fairview Mall - This is actually a large block of big box retailers and a shopping mall located next to the QEW highway. It is bordered by Lake Street to the West, the QEW to the South and Geneva Street to the East. The Fairview Mall is actually quite small but has some notable tenant’s such as Chapters, Ikea, LCBO and grocery stores such as Zerhs and Food Basics. One of the largest traffic draws in this block is Costco which is connected off YMCA Drive along with Home Depot, Pet’s Mart, and a YMCA. This is retail area may be the most central in the city and there is quite a bit of plaza development and traffic in the surrounding neighbourhoods as a result.

Other notable high traffic commercial retail areas would be Ontario Street from Calrton to the QEW, Lake Street from the QEW to Lakeport, Lakeshore Road from Lakeport to Geneva, Scott Street from Vine to Niagara, Welland Ave from Grantham to Bunting, Hartzel Road from Queenston to Merritt, Port Dalhousie, and downtown.

What is TMI, CAM, and Additional Rent in Commercial Real Estate Leasing?

If you're new to commercial leasing you are likely surprised by the way most commercial, industrial, or office spaces are priced and marketed. Most commercial listings have the price broken down per sq. ft. and while that may be confusing in itself, what I find catches most people off guard is the mention of additional rent which is also commonly referred to as TMI (taxes, maintenance, insurance) or CAM (common area maintenance). It's often an overlooked detail in the hunt for commercial space because a new tenant may notice the base rent is within their budget but after discovering additional rent the space is not affordable.

So what is this additional rent? It's the landlord's expenses for the property.

What are the landlord's expenses? Property taxes are usually the most significant of this figure but it also includes but isn't limited to property insurance, landscaping, snow removal, waste removal, cleaning and maintaining common areas, building management and administration fees, and repair and maintenance for items like the roof, HVAC, etc.

Why is additional rent separated from the base rent? Keeping the base rent separated and priced per square foot makes it easy to compare against competing spaces to determine what is in line with market value, this benefits both landlord and tenant.

Why do tenants pay additional rent for the landlord's expenses? I've been asked this a few times as if this is a deceiving practice but it isn't. The tenant pays their proportionate share of the property expenses because it's the tenant's that use the property, not the landlord. The tenant's use the structure, the HVAC, the parking lot, the common areas etc. and those items need to be paid for and maintained. Logically it should be the party that uses it that pays for it and that is why the expenses to maintain the property paid for by the tenant usually through TMI.

How is TMI/additional rent calculated? In most scenarios the combined annual total for expenses is divided by the total number of square feet of the building. This provides the per square foot rate for expenses we call additional rent, AKA, TMI or CAM. This per sq. ft. figure is multiplied by the number of square feet that make up the tenant's premises and that is the annual total the tenant is responsible for paying as additional rent.

Does TMI change or increase? Yes. I mentioned above property taxes usually make up the bulk of additional rent and unfortunately property taxes have a tendency to increase regularly. In addition to this the cost of maintenance and repairs also change over time and will have an impact.

Is additional rent negotiable? No. Property expenses are not negotiable. They are what they are.

Have a question about additional rent that isn't in here? Let me know what it is.