Rising tide of retail rent drowns mom and pop shops Competition from online, chain retailers and fees burden Northwest Austin businesses

Having 17 years of experience owning an aquarium store, Fishy Business owner Shane Book said anyone setting up a saltwater aquarium in Austin is a fool to consult anyone but him.

“You may not care for my attitude all the time,” he said. “I guarantee what I’m telling you is going to be true.”

He chalks up some of his loss of business in recent years to his “take-it-or-leave-it” attitude. But, he said, his profits are down mostly because he was priced out of a high-traffic storefront on Burnet Road after enduring months of construction that kept customers away.

“My business went from about $15,000 [in profits] a month down to about $5,000. And that [doesn’t] cut it,” he said.

Next door to Fishy Business, David Abraham, owner of Abraham’s Shoe Repair, said he is fortunate his customers followed him from downtown Austin to Burnet and now to Rutland Drive. He said he hopes he will not have to move again as rents continue to rise.

“The cost of doing business has gone up,” Abraham said. “I’d love to own my own place, but commercial property is very expensive.”

Lynne Reneau, co-owner of Just Between Us, a consignment boutique on Pond Springs Road, said her store has been in the same location since 1988.

“The rent has almost tripled in that period of 28 years,” she said.

The value of space

According to online commercial real estate resource LoopNet, the average sale price of retail space in Austin was $306.52 per square foot as of November. That puts the cost of a 3,000-square-foot property at nearly $1 million.

The average rental rate for retail properties in Austin is $22.43 per square foot compared with less than $20 per square foot in 2013, according to LoopNet.

Karen Judson is vice president of marketing and research for Transwestern, which calculated data for retail spaces larger than 25,000 square feet.

Judson said many landlords recently purchased properties and paid market sales prices, which are higher than previous years. To make a decent return on their investment they significantly increase rental rates, she said.

And competition for space is steep. Judson said the retail market in Austin is at more than 95 percent occupancy. If one tenant cannot pay the higher rental rate, the landlord will likely have no trouble finding a new tenant.

“Location can make or break retail,” Judson said.

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Higher taxes affect tenant fees

Abraham said base rent is only part of what he pays every month. He said he moved the business from its downtown location at 120 W. Fifth St. in 2001 because property taxes increased an average of 40 percent per year in the last few years he rented there.

“There was just no end in sight,” Abraham said.

At subsequent locations on Burnet and Rutland, Abraham said he has also had to pay common-area maintenance fees, similar to condominium fees, which cover upkeep such as mowing the grass and keeping the parking lot clean. Insurance costs also add to his monthly expenses, he said.

Reneau said besides rent, the cost of utilities, advertising, banking and salaries have also gone up.

David Simmonds, founder and principal of Retail Solutions, an Austin commercial real estate agency, said the city and county are at fault for the rising cost of commercial rent.

He said the city of Austin construction and permitting processes make development costly and time-consuming.

“This artificially suppresses the supply of new retail centers coming online into the market, which translates into soaring occupancy rates, which translates into soaring rents that landlords can charge their tenants,” he said.

Simmonds also said county taxes on commercial properties get passed on to tenants.

“So the tenants can thank the city and the counties for their woes,” he said.

Rates increase on Burnet

Book moved Fishy Business to Austin from the Gulf Coast in 2009 after hurricanes Rita and Ike nearly put him out of business. He said he found a location for his business in Kramer Center, now called Edge Eleven, at 11005 Burnet Road.

“I couldn’t think of a better spot to get [than] right across from The Domain here,” he said.

Heather Fenske is the director of property and asset management for Danly Properties, which owns Edge Eleven. She said the firm decided to renovate the center’s facade and rename it in 2013 to better fit in with improvements along the North Burnet corridor.

Fenske would not reveal how much the cost of leases went up because of the improvements, but said that rents were competitive for the area, and the firm negotiated fees with existing tenants for one year after the remodel was complete.

Book said Danly Properties informed him rent would increase 35-40 percent. In February 2014 he moved out of Edge Eleven and into his current location.

Book said Danly Properties is suing him for $13,000 in back rent, which he refused to pay for two to three months because he said the renovation caused $50,000 in damages to his business.

“We worked in very good faith with Shane to come up with a strategy for him to satisfy his lease obligations. However, he did not follow through on his end of the deal,” Fenske said.

Online, chain competition

Book said his new location on Rutland is not as busy as Burnet. He also said monthly fees at his new location are starting to creep up, and his base rent is set to increase in March.

“I don’t know if my nerves can take much more,” he said.

Judson said heavy competition from chain stores with cheaper merchandise prices as well as online vendors such as Amazon, which can fulfill orders sometimes within a day, have made it extremely difficult for mom and pop shops to survive.

“Add a huge rent increase on top of that, and some of them just can’t compete,” she said.

Abraham said both large and small businesses have unique sets of problems.

“The advantage that a small business has [is that] it’s easier to tighten up our belt in hard times,” he said. “The thing is, we’re already a little thinner.”

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