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THE DOWNSIDE OF UP Add to ...

The garlands were up, the Christmas songs were playing, but inside the Danforth Avenue store Paper and Presents, the mood was anything but merry.

It was December, 2007, and instead of spreading good cheer, customers were hurling abuse about cross-border price discrepancies. Store owner Grace Wong was facing her second year without drawing a paycheque, and she was fed up with skyrocketing business costs.

After 15 years as an independent retailer, she finally realized that it was time to go.

"The Danforth has really changed. It's not as vibrant," Ms. Wong said this week from the store that will close this summer. "Stores are flipping, and nobody wants to take a chance. I wouldn't choose a place where stores keep flipping over. ... That's not a good sign."

Like many tenant retailers, Ms. Wong pays both rent and part of the property taxes. The combination had reached $5,500 a month for her 800-square-foot storefront, a hike of 40 per cent in five years. Meanwhile, insurance had risen to $1,800 a year, up 50 per cent in 10 years, and other costs were soaring.

She was caught in the unprecedented blaze of interest in downtown retailing that is reshaping Toronto's shopping strips, and threatens to turn the city into a whitewash of chain stores.

Ms. Wong's is one of seven stores that have closed, or are preparing to close, this year in the Danforth Business Improvement Area.

Thirty shut up shop last year, 10 of which had been open for less than two years.

The empty storefronts don't reflect a lack of demand - just the opposite. Demand for downtown retail on hot strips like Queen Street, Bloor Street, Yonge at Dundas, and now Yonge at College, has driven up rents, speeding up turnover and forcing out the independent shops that made the strips vibrant in the first place.

"A lot of landlords are making the rent so high because they're hoping for a Starbucks or a major chain to come in. They're waiting for the big guys," said Ms. Wong, who is opening an online Japanese paper store.

Or storefronts turn into what Charlie Huisken, of This Ain't the Rosedale Library, calls "retail hotels" - a building that hosts a continuing rotation of short-lived ventures.

"I don't know if that's a problem of [the retailers]lacking capital, or whether it's because the rents are too high. It might be a combination of the two. They pop up and just disappear," said Mr. Huisken, who recently moved his bookstore from Church and Wellesley to Kensington Market, partly because of escalating rent.

Mr. Huisken believes that independent business can survive in the city centre only if retailers are given a mandatory option to buy property.

Others wonder if the independents can survive at all.

BIG BOX, BRAND OR BUST

All of the factors that appear to help business - an influx of residents, increasing demand for downtown property - are sending independents running for shelter.

John Crombie, senior managing director and national retail director for Cushman & Wakefield LePage, said he has never seen such demand for downtown retail space.

Yorkville now commands rents of $300 per square foot, making it the third-priciest retail space in North America. Storefronts at Queen West and Spadina now cost $125 to $150 a square foot, and a ripple effect is washing across the city.

The hot residential market of the past few years has had an impact too: Mushrooming condo developments seem poised to produce ready-made customer bases, which landlords can use as a basis for rent hikes. The condos can increase competition too, because of the retail spaces included in such developments.

Meanwhile, Toronto businesses are paying some of the highest property-tax rates in North America, and subsidizing relatively lightly taxed residents.

The City of Toronto has pledged to even that out over the next 15 years by shifting more of the tax burden from businesses to homeowners. But that could prove little comfort when new property valuations are issued this fall for the 2009 tax year, says the Canadian Federation of Independent Business's Ontario vice-president, Judith Andrew.

"If there are really trendy spots that are seeing values go way up ... their share of the total assessment pie goes up and their share of the tax bill goes up too. That's bad news for retailers, even if they're renting," Ms. Andrew said.

As independents are being priced out of hot neighbourhoods, cashed-up chains and luxury or trendy brands are moving in, Mr. Crombie said. "There's no question that there's a [residential]filling-in, and they're saying it's more of an affluent consumer coming down," he said. That's an irresistible prospect for big-brand players

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