Vancouver’s west side shopping districts are emptying out, and we can’t blame the pandemic and online shopping anymore. Steep tax hikes, a pattern of speculative buying and holding, and shifting demographics have all had their impact on shopping districts, hitting hard in places like South Granville, which used to be the place to go for high-end shops and art galleries, and in Point Grey Village on West 10th Avenue.
So far, Kerrisdale Village had mostly been spared, but that could all change, say business owners, now that BC Assessment has issued property assessment increases of around 25% on several retail properties along West 41st Avenue, near West Boulevard. And what’s most baffling about the hikes for the retail street is that they are all based on building value, not the land on which they sit. The norm in Vancouver real estate, particularly residential, is that the buildings are valued at a pittance compared to the land.
The retail building at 2182 W. 41st Avenue, for example, went from $1.569M in 2023 to a value of $3.625 million in 2024. Meanwhile, the land value for the property remained the same, at $7.045M. The one level building was built in 1928 and contains a shoe shop, a luggage shop and a bubble tea shop. The owner of Kerrisdale Cameras, a family business since 1961, has seen their building value soar from $155,000 last year to $991,000 this year, while the land value stayed at $3.522M. There are several other examples.
Most of the tax hikes that result will be felt by the tenants who lease the buildings, because the long-standing triple-net lease arrangement means commercial tenants pay the property taxes as well as the rent and usually utilities and other expenses.
And they will feel the full impact beginning this July, when the property tax increases go into effect, says property tax expert Paul Sullivan, who’s representing several Kerrisdale owners in an appeal. He estimates a 39.5% property tax increase for business owners who’ve seen their assessments go up around 25%. That’s because of the way the formula works out. Retail and office space throughout the city fall under the same commercial category. The average change within the classification was a drop of 7%, largely due to the emptying out of downtown office space. For a retail space in Kerrisdale whose value went up 25%, that translates into an increase of 32% above the overall average. On top of that, the city has added a budget increase of 7.5% to the tax bill, which puts the tax increase at 39.5%, says Sullivan.
Many tenants won’t even know what’s coming, he says.
“You don’t know until July when the tax bill comes how bad things are, and then you will start to see the vacancies creep up,” says Sullivan. “The new values reconcile on the July tax bill, not the one they just paid. July will catch up, and it will be a whopper.
“It’s causing retailers to have to drum up hundreds of thousands of dollars of new revenue to pay the increase in property taxes. That’s just not possible. Retail is suffering enough right now… Come on. Do you like your local independent businesses or not? You will kill them off with this kind of tax increase for sure.”
Over on West 10th Avenue, with Safeway gone and a lot of businesses cleared out, it has the depressed air of a ghost town. Kerrisdale still has a vibrancy to it, with pedestrians on the street, even though major fires have either destroyed or shut down at least a dozen businesses in the last seven years. The 100-year-old wooden structures share walls and roofs, without fire walls and modern building code standards. The condition of the buildings means owners can only demand a certain amount for rent.
Forero’s Bags and Luggage is one of the tenants potentially affected by the hike. Owner Mabel Forero said a tax increase just isn’t feasible for her and some of the other tenants who’ve seen declining sales.
“Retailers know what’s happening. It’s very bad for our industry and people I know,” she says. “We’re down from November, and it’s going down very badly in retail… for our retail, luggage and stuff, it’s going down 20 to 30% [in sales] since last year I would say, and that’s a lot.
“This tax increase is not a benefit to anybody – it’s just going to be the opposite,” she says. “We will have to start cutting hours to pay more taxes. Who loses there? The employees do. They lose wages, because we need to cut expenses to pay more taxes,” says Forero. “The property is worth a lot for the land, but it is not the landowner paying the taxes. It is us, [the tenants] paying the taxes.”
The city has a nine-year-old tax relief program for assessment increases on properties that have suddenly spiked in value, but it won’t help them because the program only applies to land values, not building values.
The rationale for the increases comes down to market rents and capitalization or “cap” rates, says Sullivan. Appraisers often use sales comparables to determine property values, but since there haven’t been many sales in Kerrisdale’s commercial district, they relied on rents and leases instead – and they determined economic value in the buildings.
Investors use cap rate formulas to determine their level of return, as well as risk. The assessments don’t reflect the high level of risk involved in owning a retail property that could sit empty depending on the economy, or the success of the tenant, or any number of factors that make it different from the residential rental market, says Sullivan.
“Appraisal or valuation is based upon a level of expertise in which appraisers have opinions, and opinions are fine,” says Sullivan. “But you must also support your opinions with evidence.”
The high assessments are also concentrated on one street, which is not the norm, he says.
“What’s unusual about this circumstance is that it happened in one retail node. Normally, markets trend, so the rents are all going up, or interest rates have dropped, or cap rates are coming down.”
If Point Grey Village is the cautionary tale, policymakers should take note, says Friends of Point Grey Village advocate and resident Jean Baird. They’ve seen tax hikes hurt businesses, as well as investors who choose to leave shops empty. They’ve also had a couple of fires, which have closed shops.
Baird estimates that the commercial vacancy rate in their shopping street is between 14 and 17%, if you just count storefronts. If you were to base it on square footage that’s empty, including the Safeway store that used to anchor the neighbourhood, and the old library and the many other stores that are long gone, the vacancy rate would be worse, says Baird.
“For those businesses dependent on street traffic, it’s brutal, just brutal… If you talk to merchants, they will tell you that taxes are certainly an issue. It all gets passed on.”
