While visiting Vancouver, BC recently, I noticed that many of the rental spaces for small businesses on the drabbish Denman Street, the glamorous Robson Street, and the worldly Granville Street were empty. This wasn't the case two years ago when I visited the city on New Year's Day. Then, everything appeared to be business as usual. What had happened during my time away? Was Vancouver going through a recession that we in Seattle were completely unaware of? Did it have something to do with the collapse of the Canadian dollar? Or the crash in oil prices? A crash that played an important role in the recent electoral implosion of the Conservative Party?
A business owner on Denman Street (I had duck wings at his place, Verve Bistro) and a taxi driver on Granville Street (he drove me to Havana on Commercial Drive) told me it was one thing: Rents are too damn high. Medium- and small-scale entrepreneurs can no longer afford to run businesses in these locations. The landlords have become unrealistic about how much they can squeeze from tenants. And to make matters worse, they do not appear to care about the bad business mood that emanates from their empty storefronts. They have very deep pockets and would rather sit and wait for as long as it takes to get what they want. So much for the sacred laissez-faire laws of supply and demand.
So, that was the word on the street. To get a more professional reading of the matter, I asked one of Vancouver's most distinguished and active architect critics and urban commentators, Trevor Boddy, for his opinion. He said much the same thing as the business owner and taxi driver: Rent is just too high. But why? Because the kind of capital that's dominating the city is not local but global.
What is happening in Vancouver is we have the most overpriced real estate in the world. Our average house price is 11 times the average annual income. Hong Kong, where much of the capital originates, it is 12. Your city, Seattle, is 6. Paris is 5. So, we are overpriced, and that applies to retail rents as well. That's why Vancouver has become a really tough place to make a go of it if you are a shop owner. A lot of the money that came from overseas raised rents expecting the returns you get in Hong Kong. But that has only killed a lot of businesses. As a consequence, we have priced ourselves out of reality. For example, there is no book store here anymore. None. Zero. We have become all about global money, and it has little to do with the rest of the city and what it needs.
As to why global capital prefers empty spaces to a reduction of rent, Boddy said:
They are not there to get rent. They are there for the rising value of the real estate. That's happening with our houses. If you go to the west part of town, or any of the nicer neighborhoods, you will find that 15 to 20 percent of the houses are empty. They are ghost houses because what matters is value not rent. This is a different kind of money. It knows little about the local economy. It's operating on another scale. But you can't kill business activity forever. They will have to come to their senses and reduce values by about 15 percent.
Boddy is much more optimistic than I am. I do think global capital, of which there is not a dearth but an enormous surplus (a surplus, furthermore, that is now spilling over into Seattle in a very big way), can survive without any real business activity. This is, after all, what it aspires to do—break with the real economy, whose opportunities for profits are limited by, exactly, reality. What matters is that asset values remain high, and that is likely to be the case in Vancouver in the near and distant future.