Small local businesses in Austin's 2nd Street District face cost crunch

Business districts in Austin are aiming to keep their local flavor amid affordability issues.

Business districts in Austin are aiming to keep their local flavor amid affordability issues.

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2nd Street District
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Why buy local?
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How to build a district
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The 2nd Street District
The city of Austin owns two-thirds of the city blocks in downtown’s 2nd Street District—an indicator of the city’s vested interest in the district’s vitality. But many local business owners say Austin’s growth, with its rising property values and national spotlight, is creating a difficult environment for small, locally owned businesses.

The 2nd Street District is one of many commercial hubs in Austin that has received city support to help local businesses survive amid rising costs, national competition and infrastructural issues. Despite this investment, turnover remains higher than AMLI, the district’s retail developer, would like, according to Executive Vice President Taylor Bowen.

In October, children’s clothing store Wee announced it would shutter its Second Street location after 10 years in business. Stephanie Coultress O’Neill, the owner of women’s boutique Estilo, was one of the first local tenants in the newly developed district when she opened in 2005. But after 11 years downtown, she relocated Estilo to a shopping center in Tarrytown.

Meanwhile the corner storefront at Third and Colorado streets has been vacant since July 2016 when national chain Cantina Laredo closed because of high overhead costs and an oversaturation of competitors.

Chris Hurley and Jennifer Costello, the husband-and-wife team behind 2nd Street District restaurant The Bonneville were attracted to downtown because they knew “it was going to build up around [them] quickly,” Hurley said.

Since the restaurant opened in 2012, however, the area has grown less hospitable to local business owners, they said, because of increasing taxes, licensing backlogs and increased competition.

“It feels like it’s hitting a saturation point to me,” Hurley said.

Local struggles

At the opposite end of the district, another corner spot is vacant. After Austin-based salad spot Leaf relocated from the corner of Second and San Antonio streets to West Sixth Street in July 2015, Denver-based salad chain Mad Greens announced it would move into the space. It has yet to open.

Being a part of the district’s development in 2002 was a selling point to some local business owners.

Craig Staley opened the first Royal Blue Grocery in 2006 when much of the 2nd Street District remained undeveloped and Third Street, where the store is located, was still what Staley called a “back alley.”

Today the brand has six stores downtown, but the original location remains the busiest.

“Something is driving traffic morning, noon and night,” Staley said, whether it is office workers, residents, hotel and restaurant staff, or nightlife.

The explosive growth of downtown, however, has also caused some problems for local business owners.

Parking is the “number one” issue at The Bonneville, according to Costello.

“It’s a barrier to the district being healthier and more popular,” she said.

This is in addition to rising rent and other operating costs that affect businesses citywide. The compounding
challenges are becoming “overwhelming,” Costello said.

But Musa Ato, the founder of custom menswear store League of Rebels on Second Street, feels his status as a local business owner in the district provides more advantages than disadvantages, especially given the changing nature of the retail industry today.

“We have the opportunity as small businesses to be more aggressive, more dynamic and faster because we can make decisions quickly,” he said. “At big companies it takes forever to get through the bureaucracy.”

City investment

As recently as the early 2000s, Second Street in downtown Austin looked more like the red-light district it once was, dotted with single-story warehouses, empty lots and industrial facilities that generated little revenue for the city.

It can be hard to square that past with the 2nd Street District today, which has 175,000 square feet of retail space, 616 residential units and an appraised value of more than $663 million.

But it is unique in that the city owns four of the six city blocks that comprise it.

One of the blocks, in the northeast corner of the district, is owned by AMLI, a private real estate firm.

The city contracted with AMLI to develop and manage the district’s first-floor retail spaces, mandating that at least 30 percent of the tenants be local businesses.

“What made it possible was that the city owned a lot of the land,” Economic Redevelopment Program Manager for the city of Austin Margaret Shaw said.

Today more than 60 percent of the tenants are local, meaning the business is headquartered in Austin or the owner resides here.

“Our strong belief is that vibrant, local retailers are really going to be what set us apart from other developments,” AMLI Executive Vice President Taylor Bowen said.

Banding together

Where the 2nd Street District was formed by city decree, local businesses elsewhere in the city have taken it upon themselves to organize.

In East Austin the Manor Road Merchants Association claims about two-thirds of the local businesses as members.

Director Joshua Blaine, then the manager at In.gredients, had the idea for MRMA after attending a meeting of the local neighborhood association in 2014.

Similarly in 2011 the Austin Independent Business Alliance reached out to local business owners on Burnet Road about its IBIZ Districts program. To qualify, at least 75 percent of the businesses in the area must be local.

The result, called the Lo-Burn IBIZ District, runs from 44th Street to North Loop Boulevard and has since received financial and administrative support from the AIBA in marketing and coordinating events such as an upcoming holiday shopping tour.

“All these new businesses and condos and apartments are being built, but the streets aren’t any wider and there’s no additional parking,” said Jennifer Felker, director of the Austin School of Classical Ballet director on Burnet Road.

The Lo-Burn IBIZ District, she said, is at risk of becoming overpopulated and straining its relationship with the surrounding community.

“The irony is that with [Souly Austin] and MRMA bringing more business to this corridor, it’s bringing more value,” Blaine said. “When we get more public art on the streets and we get better sidewalks and we bring in new businesses, that raises our very own property taxes and our very own rent.”

Rising costs for business owners translate into rising prices for customers, but Eve Richter, director of AIBA’s IBIZ Districts program, said it is still worth it.

“If you want [local businesses] to survive ... you have to support us, or we won’t be able to stay and be here for you.”


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