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[url=http://www.thestar.com/News/article/177995www.thestar.com/News/article/177995[/url[/url]]
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Why not shop the better way?
In the early ’90s, the hope was that revenues from retail spaces at subway stops could help pay for and maintain not-yet-built routes
mall dreams | Hong Kong is doing it big-time. Other cities are following suit. So why isn't the TTC using retail to bail itself out?
Feb 04, 2007 04:30 AM
Andrew Chung
It's one stop from the end of the line, and the subway station North York Centre kind of feels that way, too. After emerging from the platform, the rider arrives at a concourse that's been boarded up on each side, as if condemned.
Behind the boarding there were meant to be stores, all kinds of stores, to serve both riders and non-riders – you don't have to pay a fare to access the mall – and benefit both businesses and the Toronto Transit Commission.
But the TTC says there simply weren't enough passengers to make a go of it. Meanwhile, just outside the subway doors, Loblaws, Future Shop and myriad other establishments have sprung up in a separate glassy cathedral of shopping. With none of the money going to the TTC.
It's not much different elsewhere along the system. Few stations have retail components, and the ones that exist seem stranded: a newsstand or coffee shack is typical.
Why does it matter? Because, critics say, the eternally cash-strapped TTC, which faces at least a $100-million budget shortfall for each of the next five years, could be doing much more in the way of generating its own revenue to potentially avoid fare increases. There have been two in the past two years, for a total hike of 50 cents per adult ticket, to $2.75. "To not benefit from obtaining revenues that would subsidize your ticket prices sounds extremely short-sighted," says Richard Talbot, an international retail marketing consultant based in Markham.
"Every time they need more money, they just put fares up or ask the taxpayer for more. It's a totally non-entrepreneurial, revenue-driven model."
The TTC makes just over $8 million in rent from its retail components. Given its $1.1-billion annual budget, however, that rent is the equivalent of a housefly on the side of an elephant. Reduce fares it will not.
Around the world, mass transit systems are learning, as airports have done, that public dollars are finite, and that it's essential to find other ways to generate revenue. TTC general secretary Vince Rodo, who's in charge of the budget, understands this. Subways are terribly expensive, and so "you really have to do all these things to defray costs," he notes.
The new TTC chair, councillor Adam Giambrone, agrees. "We should be having more retail," he says. But Giambrone adds that transit retail is surprisingly hard to get right. "What I've learned is that the issues around this are not simple, and in some cases to get the retail it's very expensive."
For instance, he says, putting a Tim Hortons in a station without retail might require the installation of water facilities at a cost that far outweighs the value of a lease. Bathurst station is another example. There are empty retail spots that no one wants, because business people don't think they'd be profitable.
Rodo points out that many TTC stations are already adjacent to major shopping areas, such as the Eaton Centre in downtown Toronto. And while that retail provides no revenue to the TTC, he says the heavy traffic benefits transit and the city "largely in terms of riders and taxes."
Other cities, however, are moving toward integrating retail into their stations. Increasingly for transit systems from Tokyo to Shanghai to Bangkok to London, stores mean cash.
In London, an $800-million project will begin this summer to renovate the Cannon St. tube station, expanding retail on the concourse and underground levels, and topping it with an eight-storey office building.
Nowhere has the retail mindset been more successfully realized than in Hong Kong. Not only is retail central to this towering city's transit system, the MTR, but the system itself is also a major property developer.
It's not uncommon for MTR stations to have full-service banks, convenience stores, travel agents, medical clinics, dry cleaners, fast food outlets, coffee shops and the ubiquitous Maxim's bakeries.
The numbers compared to Toronto are telling. Even though the MTR has only 53 stations to the TTC's 69, station commercial rents brought in nearly $52 million in 2005 – nearly seven times more than in Toronto. The tally for last year is expected to be higher.
Yearly ridership in Hong Kong is about twice that of Toronto's subway, and the MTR makes about 30 per cent more than the TTC in fares. But when it comes to non-fare revenue, which includes station commercial rent as well as advertising, it's in a different league entirely. In 2005, the most recent year for which comparative data is available, non-fare revenue for the TTC was $46.7 million. For the MTR? It was $234 million, about 400 per cent more.
The TTC has had some modest success with a few stations – such as Eglinton, which counts nine stores inside the pay area of the complex, including a Second Cup, a Cinnabon, a bookstore and a place that sells purses.
Much of the Commission's attitude toward retail is coloured by experiences at sites like North York Centre and a belief that, in certain circumstances, the private sector is better suited for the job. "We don't take risks like the private sector does," says Charles Wheeler, the TTC's former manager of property development, who oversaw the building of the Sheppard line and is now in charge of doing the same for the Spadina subway extension.
"Could we do it better?" he asks. "Probably. But is there a huge amount of retail that we don't currently do? I don't think that's the case."
Some people believe the Sheppard line represents a wasted opportunity for the TTC to bring in a lot of extra cash. Back in 1990, when provincial money for the line seemed nowhere to be found, then-North York mayor Mel Lastman wondered if the private sector could find a way to help pay the costs.
A consortium of private interests stepped forward with a plan to chip in 25 per cent of the construction costs. At the same time, a plan was devised to build the new stops not as stations per se, but marketplaces.
"Our recommendation was to use the traffic flows through the subway station to generate retail revenues and develop essentially a strip mall all around," says retail consultant Talbot, who was tapped by the consortium to research the retail viability. "Over time the revenues could keep pace with inflation and traffic flows and the general demand of the area." Talbot's 148-page report looked at traffic volumes and potential revenues. It also proposed a distinct station design: accessible at all corners of the intersection, built as an atrium with a first level for drop-offs and car parking, and a deeper retail concourse centred around a subway entrance.
The retail would include conveniences such as a photo shop or grocery store to serve busy commuters, but also "destination" places – even a cinema – to attract non-passengers. The report pegged annual rental revenue in all the line's stations at $30 million. The model, Talbot thought, was viable since Toronto was already getting a taste for underground shopping with its downtown PATH system.
But before the subway doors could chime, the plan was dead. The TTC and Metro government delivered a resounding no to the consortium's proposal. "The concept was rejected as being financially unworkable," TTC executive Wheeler recalls.
For one thing, he explains, the consortium "wanted to be able to collect the property taxes to help pay for the Sheppard subway, which was not acceptable to Metro. But on the retail leasing side ... we didn't feel their numbers were even remotely obtainable."
If North York Centre station wasn't getting enough people to make retail work, "how can you do it on Bayview?" Wheeler says, referring to one of the stations on the Sheppard line, which today connects Yonge St. to Don Mills with five stops.
However, Talbot calls it "mind-boggling" that the TTC didn't try to "create value" at the stations.
For the Sheppard stations that went on to be built, a familiar maxim has become reality: the stores weren't built, and the customers didn't come. A few shops thrive at Don Mills station, to be sure. But take a look at the Leslie station's expansive mezzanine between the platform and the street. You'll find that even the sole, lonely newsstand has closed down.
Perhaps the thinking is best summed up by Al Leach, a former cabinet member in the government of Mike Harris and before that, the head of the TTC. "Nobody's going to spend a lot of time at Leslie and Sheppard," he says in an interview from Florida. "It's a commuting area, not a shopping area."
Leach doesn't buy the argument that subways could follow the path of airports and integrate retail wholeheartedly into their premises, thereby reducing – or at least stabilizing – passenger fares, just as airports reduced landing fees, and theoretically creating a pleasant space for riders.
"Airports are a different ball game," Leach contends. "You've got hundreds of thousands of people there. They're captive for hours and have all kinds of time to wander around and spend money. You're not in a subway station for more than 10 minutes!"
The question is, would that be the case if the station were built as a "destination" marketplace, as the private consortium envisioned it?
The TTC has come up with another potential way to make money. It recently announced that it's looking into selling off properties around subway stations, such as a parking lot at York Mills and the old bus terminal at Eglinton.
Apart from getting cash from the deals themselves, the TTC says that new developments – whether office or residential – would build up neighbourhoods around stations, adding riders and revenue. But it doesn't appear that developing these sites itself is in the cards for the TTC.
It's possible that the system could sell or lease the land above ground but retain ownership of the below-grade portion. But Wheeler says the developer would want control over the ground floor, and so the TTC would likely "give them the surface rights."
Why couldn't the TTC build and lease out its own retail on the ground floor? "Developers want that retail-leasing revenue. You might drive away development if you do that."
Wheeler argues that the TTC would still get substantial revenues because the retail potential would be reflected in either the land sale price or leasing payments. "But the private sector is in a better position to lease out to the Staples or Business Depots than the TTC is."
Hong Kong's MTR takes the opposite view. That system – which is run as a corporation and is traded on Hong Kong's stock exchange – is a major residential and commercial property developer and manager, both above existing stations and along new line extensions. Apartment dwellers stand a good chance their monthly payments will eventually make it back to the transit system.
Among the MTR's assets are six major malls – including one built to resemble ocean waves – housing hundreds of stores and services. In 2005 alone, the MTR's property rental and management revenue reached $200 million and its property development profit was a stunning $928 million.
The TTC's next expansion is expected to be into Vaughan, with six potential new stations on the horizon, including student-rich York University. Which retail path will the TTC choose?
All Giambrone will say is, "We'll be looking at having increased retail." He wants to assure riders who've grown tired of fare hikes that this hasn't escaped officials' minds. He cites a $30-million renovation this year at Victoria Park station, the design of which will increase retail possibilities. "But this doesn't mean we can't do more. And we're trying."
