Province Planned to Open 40 Stores Before Government Signaled It Will Let Private Sector Run Retail Operations
Ontario’s decision to reverse course on offering marijuana out of government-run shops – once recreational use is legalized on Oct. 17 – might leave it open to expenses from breaking agreements with property managers, according to an occupant source.
However Avi Behar, president of The Behar Group, a Toronto brokerage that concentrates on retail, said the move to let personal operators open marijuana shops could also offer an increase to an ailing sector.
” They have actually signed no less than 2 leases with us,” stated Behar, who would not discuss the terms of the offers that were signed by the Crown corporation of the provincial government, however noted it is basic for there to be break fees if a renter does not follow through on a signed dedication.
In November, the government, which was under Liberal control at the time, announced that it would approach legalization by opening 40 stores across the province, later identifying municipalities and showing its retail operations would be operated under the Ontario Cannabis Shop brand name and overseen by the Liquor Control Panel of Ontario.
Inning accordance with report this week, the Conservative Celebration, which was elected in June, has chosen to move equipments and permit personal operators to run retail outlets – a decision currently made by other provinces including Alberta.
” If you don’t have a provision [saying you can break a lease], it’s even worse because you don’t have a right,” stated Behar, indicating a tenant in that circumstance might be on the hook for the full regard to the lease.
The leases, being run by an arm of the LCBO, are stated to have been worked out at market rates throughout the province, although the square video of the agreements is expected to be only in the 3,000- to 4,000-per-square foot variety.
With the Oct. 17 date for legalization looming, Behar stated the province would need to currently have some leases signed to have actually been prepared for opening. “You ‘d have to think a minimum of half of them had been signed,” he said.
The privatization might assist the retail sector, although the Greater Toronto Area retail market has actually remained relatively resilient with CoStar information showing the job rate was 3 percent at the end of the 2nd quarter, down 10 basis points year over year.
Roelof van Dijk, CoStar market expert for Canada, said Edmonton and Calgary have experienced stronger market activity than the GTA driven by speculative activity in cannabis retail.
The vacancy rate in those 2 cities is down 30 and 20 basis points on a year-over-year basis to 3.8 percent and 2.7 per cent, respectively.
Net asking rents are up 14.8 per cent on a year-over-year basis in Edmonton to $23.07 however down 2.75 percent in Calgary to $26.15 per square foot.
” It is too early to hypothesize on whether or not the retail market in Alberta is oversaturated with marijuana dispensaries, but what is known is that there has been a greater concentration of known statements compared with the provincial government-run design in Ontario,” said van Dijk. “Now with the opening of dispensaries to the private operators, expect a more speculative method to leasing area.”
Faruk Gafic, a Toronto-based legal representative with Aird Berlis, stated marijuana could produce some challenges for property owners around legal concerns like usage classes.
” Some leases typically specify an allowed use fairly narrowly or contain constraints or list particular uses as restricted,” he stated in a position paper on the topic that also cautioned property owners to pay particular focus on covenants with personal leases.
Behar does not dispute the covenant of a private business can’t compare to that of the government-run LCBO, which is most likely even much better than a bank. But he welcomes the relief for the battered retail sector.
” If there is one industry aside from alcohol or maybe coffee that can provide an assurance, it is cannabis,” stated Behar. “There is no doubt, like any classification in any service, you’ll have one-third top of the marketplace, one third in the center then another third that decreases at the bottom. In general, retail has actually taken a hit. Big boxes are becoming little boxes. All over the streets, there are lease check in significant cities in North America and Toronto.”
Garry Marr, Toronto Market Reporter CoStar Group.