Urban centres prove too costly for most businesses, especially when there's cheaper options on the outskirts

By Denise Deveau
financialpost.com
17/10/2016

Outlying regions of major urban centres continue to attract entrepreneurs unwilling or unable to manage the tax and property burdens of a downtown location

An interesting coincidence took place when Jeff Ekstein attended a networking event. The president and CEO Willow Printing Group Ltd. ran into a graphic designer who once worked for him. The address on his business card just happened to be Ekstein’s old business location in Toronto. “It used to be my father’s office,” he said.

Ekstein, a third-generation business owner, said the family business operated from the west end of Toronto for decades. By the 1980s, he was fed up with the escalating costs, sold the property and moved the operations to Concord. “We were pioneers in the neighbourhood when we moved in,” he said.

The move not only provided ample space for consolidating his different divisions on to a single floor, it also could easily be customized with specialized flooring and drive-in doors. It was also close to a major highway artery and a Toronto transit bus stop.

“The city of Vaughan was much friendlier to business in terms of getting permits and taxes,” he said. “It was a great move. We really made a good decision.”

Ekstein wasn’t alone in making a move to the outskirts. The latest Entrepreneurial Communities report from the Canadian Federation of Independent Business compiled for the Financial Post shows outlying regions of major urban centres continue to attract entrepreneurs who are not willing or able to manage the tax and property burdens of a downtown location.

“It’s something we’ve been noting for quite a while,” said Ted Mallett, vice-president and chief economist with CFIB. “The peripheral parts around major urban centres tend to be a little more conducive to business startup and growth. It’s easy to figure out why. It costs quite a bit lower than urban cores; and in most parts of the country, those areas have better tax policies compared to the urban cores.”

Vancouver has the most expensive property tax ratio at a factor of 4.34 more than residential rates compared with the periphery at 3.41. Calgary stands at 2.89, with the ratio of 1.80 in the periphery; Edmonton’s rate is 2.39 vs. 1.65. Toronto and Montreal are comparable at 3.54 vs. 2.15 for the periphery; and 3.61 vs. 2.74, respectively.

That being said, the choice of location can be dictated by the type of business you are in, Mallett said. “If you’re a business that needs lots of space, or provides services that keep you on the road most of the time, you don’t need to be located downtown. Some specialty businesses, such as restaurants and retailers, may prefer to locate downtown. Some businesses, such as architecture or design, might want to be located around a node of expertise. But for the vast majority of business types dealing with goods and basic services, or looking to service a growing population base, the suburbs is a better place.”

One counter trend he noted is the downtown areas of many Canadian cities are becoming more densely populated than ever through condominium development. “The redevelopment in Montreal Old Town for example, offers plenty of opportunities for businesses to service new populations.”

An interesting coincidence took place when Jeff Ekstein attended a networking event. The president and CEO Willow Printing Group Ltd. ran into a graphic designer who once worked for him. The address on his business card just happened to be Ekstein’s old business location in Toronto. “It used to be my father’s office,” he said.

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The peripheral parts around major urban centres tend to be a little more conducive to business startup and growth.… It costs quite a bit lower than urban cores; and in most parts of the country, those areas have better tax policies compared to the urban cores

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That’s the thinking behind the rejuvenation of Montreal’s L’Acadie-Marché Central neighbourhood, a once-thriving textile manufacturing area, by DCMTL Development for District Central Montreal. The intent, said Frédérick Lizotte, vice-president of commercial development at DCMTL, is to turn the neighbourhood into an up-and-coming epicentre of new office spaces for entrepreneurial, growing and established companies.

“When the textile industry left, there were all these big buildings and lots of square footage,” he said. “We decided to create an entrepreneurial hotspot in the geographic centre of the city by offering small and medium-sized businesses affordable rates.”

The buildings comprise 1.5 million sq. ft. of space, and represent an overall investment of $20 million in the next five years. Commercial leases are being offered at $10 a sq. ft. (gross), including heat and electricity. The developers will pay up to $30 a sq. ft. for tenant improvements. “That fee includes everything a young company needs to start,” Lizotte said.

Amélie Morency is one of the first entrepreneurs to take advantage of the deal. She rented 8,000 sq. ft. of ground-floor space, where she runs The FoodRoom — an industry-first culinary co-working concept that caught the interest of all the dragons on Radio-Canada’s Dans l’oeil du dragon.

She founded The FoodRoom after running into problems with a space she was renting for her catering business. “When I lost that access I knew I had to build my own kitchen.” Her co-working model allows other food service professionals needing access to fully-equipped food preparation to use space in her kitchen, which she said can accommodate up to 20 business at one time.

Morency may have thought a Montreal address was out of the picture. But with the lower rent, and a creative business approach, she proved otherwise. “The best thing is, in this neighbourhood I get the best of both worlds: affordable costs and access to my markets.”