Commercial rents that have risen about 140 per cent over five years are putting Toronto’s smallest businesses at risk, according to a new report from Better Way Alliance.
The group says the skyrocketing leases are affecting businesses’ bottom lines far more than wage increases.
“Labour is a cost, but for a small business in Toronto, it may not actually be the biggest cost,” said Aaron Binder, communications director for the Better Way Alliance, a network of Canadian business owners and non-profit executives that promotes investing in employees.
“There’s a return on investment when the minimum wage goes up or when you decide to pay a worker more than minimum wage. There’s generally a productive element there, whereas with a rent increase and insurance increase, that can be net negative.”
On Oct. 1, Ontario’s minimum wage increases to $17.60 an hour, up 40 cents.
To arrive at their figures, Better Way Alliance analyzed cost increases for a typical Toronto neighbourhood “micro business” — a 1,000-square-foot retail space with three employees such as a dry cleaner, convenience store or strip mall restaurant — including commercial rent numbers from the Toronto Regional Real Estate Board.
That data shows commercial retail lease rates went from $19.54 per square foot in the first quarter of 2019 to $47.21 in the third quarter of 2024 — a 142 per cent increase.
Business insurance was up $650 annually, and electricity costs $200 to 800, while minimum wage labour rose 23 per cent, the report found.
Anita Agrawal, CEO and designer of Jewels 4 Ever, a small jewelry manufacturing company that sells to other small businesses and Walmart, had to downsize last year due to increasing rent costs, closing a second location. She now has under 1,000 square feet on Queen Street East.
“It just became insurmountable” said Agrawal.
Meanwhile staff costs have been manageable and expected.
“The minimum wage increase is nowhere near where it needs to be. It actually needs to be much higher,” she said. “Our jewelry is known to be affordable. That’s why Walmart is one of the places that we sell to. There’s no way anybody can afford it if they’re not making enough money.”
Fellow jewelry manufacturer Laura Sultan, who owns Designs by Nature Gems, said paying employees a living wage means they are more likely to return, even if they are laid off when times get tough.
Not having to train employees from scratch is “worth gold,” she said.
Binder said higher commercial rents threaten what makes the city’s neighbourhoods so special.
“You don’t necessarily move to the neighbourhood for McDonald’s or a Starbucks, but you will move to a neighbourhood that has great local restaurants, and great local cafes, where people know your name, your order,” he said.
Small retail spaces are in high demand in Toronto, and some long-standing businesses have had problems paying off pandemic-related debt, Binder said, leading them to close their doors or move.
The good news is that there are a lot of ways that “every level of government can help small businesses,” Binder said.
They range from encouraging developers to build smaller spaces with more affordable rents, to creating “more rights for small renters, who are often negotiating against multibillion-dollar companies when their leases come up,” he added.
“What the feds can do is create greater access to capital so that small business owners can actually buy their spaces and simply remove themselves from the volatile rent market.”
