Local business owner shares reasons behind high rent

By CASSIE MCKEE
Four Points News

Commercial rents in Four Points are among the highest in the Austin area making it hard for some business owners to stay in business.

“When we opened in Steiner, this was the first and only retail shopping in the area,” Alica Harrison said. She and her husband Tom are co-owners of Wild Basin Fitness, located in the Vista Ridge Shopping Center in Steiner Ranch. They have been in business for 10 years and are going strong and steady, but they have seen the area change a lot over the last decade.

Alica Harrison said most of the retail in the Steiner area rents for $25-$30 per square foot plus triple net (taxes, insurance, expenses), which can add another $11-$15/foot.

“At that rate, we would be paying $253,000 to $317,000 a year in rent, which is completely unsustainable,” Harrison said. “This is one reason you see such high turnover in local retail developments. The rent and expenses are simply too high for most businesses to survive.”

Gail Whitfield, owner of The Whitfield Company and a commercial realtor with more than 30 years of experience, said Four Points is the third most expensive area of the city for business, coming in behind the Domain and the Arboretum areas.

“For a typical suburban-urban shopping center, the rates are the highest in the city,” Whitfield said.

She estimated the average commercial rent in the Four Points area to be $28-$34 per square foot. Part of the reason for the high cost is the high rate of property taxes. She said business owners in Austin also pay approximately $12/square foot in property taxes, compared to other areas around the state which pay an average of $6-7/square foot.

“Part of the problem is the property taxes are going up astronomically,” Whitfield said. “Our high taxes and development regulations that cause such an expense to build in the city are causing high rents, which are putting people out of business.”

Hue Salon in Steiner closed at the beginning of the month in the Shops at Steiner after being open five years. Koko FitClub closed several months ago in Quinlan Crossing, one of Four Points’ largest shopping centers.

Quinlan Crossing has encountered several businesses leaving including Resolute Fitness.

Sara-Mai Conway opened Resolute, a cycling and yoga studio, in late 2012.

Conway said Whitestone REIT, the management company that purchased Quinlan Crossing in 2015, has pending legal action against her company so she could only provide the following statement.

“After having served the Steiner community for almost four years, we were locked out of our space in July of this year by Whitestone due to our inability to pay the rent and make ends meet,” Conway said.

“We loved the Steiner community and deeply regret that we were unable to negotiate a way to remain in the space through the end of our lease,” Conway said.

Last year, 4 Hip Chicks boutique, Millie and Mox Children’s Boutique and Millie & Mox Schoolhouse all pulled out of retail spaces. The two store owners opened in Quinlan Crossing in 2012.

Four Points News reached out to Whitestone REIT as well as Carr Development, which manages the Trails at 620, but neither company responded to a request for comment.

Wild Basin’s Harrison said the cost of building in Austin has skyrocketed in the past 10 years, driven by the cost of raw land, construction costs, and land restrictions for developers. One example of the land restrictions is that commercial builders have an impervious coverage allowance of only 35 percent.

“That means that a developer can only actually develop one-third of their property, which means they’re paying for an additional two-thirds and have to recoup that investment,” Harrison said.

She said the tax rates and property values in Travis County also have a huge impacts on triple net.

“We were hit especially hard because there is no cap on the valuation, as you see with residential homesteaded properties,” Harrison said. “Our property taxes can increase dramatically year to year – and have – which makes it very difficult to manage expenses.”

A recent business column in the Houston Chronicle said that Texas ranks 37th highest in the nation when it comes to property taxes.

“Though levied by local authorities, the taxes are extremely high compared to other states because Texas has no income tax to pay for schools or local services,” said the columnist, Chris Tomlinson.

Businesses already pay 64 percent of the taxes collected in Texas, compared with the 45 percent national average, Tomlinson added. He said Texas’ effective tax rate on business is 5 percent, higher than the national average of 4.7 percent.

Despite her rent increasing every year, Harrison said she is happy with the amount of customer traffic they see at Wild Basin and they have no plans to leave Steiner.

“We have built a pretty solid community of clients and families and have been able to build upon that,” Harrison said. “We always need new people and we are somewhat limited to the Steiner Ranch population, so we have to be very careful to cultivate long-lasting relationships.”