Leasing a Retail Space in Downtown Austin, TX

Originally posted on https://learn.tenavox.com/leasing-a-retail-space-in-downtown-austin-2019

Everything you NEED to know if you want to lease a retail space in the heart of Austin.

Before we dive into the city guide, we want you to know why we created it. Our principle at Tenavox is to do what you love—and we make leasing commercial real estate easy. So, that’s why we’ve created this amazing guide: for you.

Our goal is that you use this guide as a framework for the retail leasing process–taking into account the myriad differences one might find. We’re still real people! If you need our help, don’t hesitate to reach out. You can chat with us anytime by clicking on the orange button. We’re here to help you make a fantastic lease decision.

Before you begin, make sure you know your space needs!

Know Your Space Needs

Retail is a vastly unique side of the commercial real estate industry. In terms of retail type properties, your location is a huge factor in the potential success of your business. You may host clients, but it’s essentially a place for professionals to work. Industrial is akin to retail in the sense that you may physically manufacture, ship or store a product there (don’t worry we have a guide for that, too). However, retail is the only property type in which your business can be made or broken on a location-by-location basis. It’s essential to frame a retail location as a revenue producer for you, so that’s where we will start. We will take a look at three factors that affect the location selection process. These factors are: location, demographics, and traffic.

The old way of thinking about retail locations still holds truth–somewhat. Locations can be broken down into a system of “P.O.T.S.”, or “potential locations” which is a handy way to bucket predefined and preferred demographic factors that are relevant to retailers. However, these factors are based on data that is hard to find, and often outdated. So how do the big agents stoke the fire to make sure their locations are going to hit sales targets? We can argue until the cows go home on whether “big” retail is bad, but that’s not what we’re here to do.

What’s not arguable is the success of their approach, and the reason why is simple: they plan.

Chain and larger retail entities spend a lot of time breaking down what demographic factors, traffic dynamics and other retailers do to impact their bottom line. Why do they spend so much time on this? It’s learning about their customers! You probably already do this, but it’s essential to know where your current or ideal prospective customers live, work, and interact with the real estate around them. Shopping habits, income, housing, traffic…all of these can (and should) be broken down and compared to your personal customer profile. Make it easy for your customers to find you by positioning yourself in an area in which they regularly congregate. It isn’t rocket science, but you’d be shocked at how many tenants skip this.

So how can a small business level the playing field? Let’s start with demographics.

Demographics are only aggregated once every ten years through the US Census. The census tracks population growth and allows interested parties to start predicting trends, forecasting, and making assessments for their home or business. Such individuals conduct this analysis in relation to how people are living, moving and doing economically in a given area. The data is freely available. Here are some good sources:

Premium Sources:

• STDB: (STDB = “Site to do business”) This is a retail-focused mapping product that many large brokerages use, fairly effective, reasonable costs.
• Esri Demographics: (Esri retail data) Everyone in retail knows Esri, it’s finally leveraging its massive data. Somewhat costly, but advanced and user-friendly tools here.
• Sites USA: Another competitor in the space, very retail-focused, middle of the road cost-wise with extra tools for users that can be useful (radius mapping, etc.)

Free Sources

• US Census: (An obvious one here) all that data takes time to mine your way through, but it’s free and helpful. Can be outdated, as discussed.
• US Small Business Administration: Another government source, but packaged in a way that is friendlier to small businesses.
• DataUSA: A visual tool for interpreting demographics, quite friendly, and created by major tax accounting and business consulting firms.

Data overload…help!

All of these sources can help you find out what the demographics of a given area are…but what about how those factors impact your industry? Well, doing a breakdown of your own sales by zip code is incredibly helpful with this. By pulling out your own sales data, you’ll be able to use this to make predictions in other areas. Find the same type of consumer in a different area, build a profile, and search the above sources.

Need help breaking down your industry further? We recommend BizMiner as a resource. They track business reporting across 400+ industries and can help you find out what standards and metrics in your industry are applicable to you. True, that’s a lot of data, but large retail chains are using this level of scrutiny and planning to make real estate decisions. So should you!

Traffic has become a key indicator across retail industries in deciding whether one center is “better” than another. Now, there are several issues with traffic. One, traffic does not indicate FOOT traffic, e.g. people actually stopping and using the stores. It only indicates number of cars. That’s it. It’s a useful metric for city-planning, civil engineering and maybe even construction or land speculation, but is it really an effective retail decision metric? Regardless, if you must look at traffic, here are our favorite sources:

If you really want the best data, INRIX is the premium solution of choice, they supply many of the premium consumers in the space.

For free, traffic data is usually available using your local department of transportation, economic board, or chambers of commerce. Ask your local chamber for their latest analysis. County planning boards are incredibly helpful sources for this data, as well. These are dependable, albeit a bit old-school.

Let’s talk about a more contemporary 2019 way of looking at traffic.

For retailers, knowing where people are shopping or “checking in” socially is a far more powerful tool than knowing how many cars drive by a potential location. I’m talking about social data. There are aggregators of massive data that track us everywhere we go–shopping, to eating, to driving, and back again. The smart retailers are leveraging this data.

Want to know how many people are visiting a center on a monthly basis? What their consumer behaviors are like in the region? What triggers an in-store visit versus an online sale? This data is already being collected by your competition, so you might as well start.

A great source for this is Facebook, which bought a little company called FourSquare some years ago. What made Foursquare interesting is that they track people by rewarding people for checking in with their location (AKA gamification). The system is obvious. They have collected over 1 billion check-ins in the United States just this year. From this, we can glean where the consumers are hanging out.

Even Uber has resources for tracking the number of pickups in various locations…smart retailers are finding ways to get creative with the value of data.

Another great source of location analytics is Google. Google tracks location through its Google Maps platform and Analytics dashboards. Not only that, they provide up-to-the-minute search trends for prediction-heavy retail needs.

It’s time for 21st century traffic. It is now more important than ever before to leverage this data in your real estate decisions.

Now it’s time to talk about the best locations. Weigh the needs of your people against the needs of your clients, and try to find a happy medium. Market rental rates will vary widely. Downtown Austin is one of the more expensive markets in Austin, with a super low vacancy rate (which means less available choices). If you pick a location with tight vacancies you can expect to see more difficult negotiations, less concessions and higher rental rates since conditions favor landlords (and oh boy, do they know it).

It’s where the bulk of the Class “A” top-tier office buildings are located in the city of Austin, outside of some nice developments to the north and northwest in areas like The Domain and the Arboretum. Access to the best amenities, restaurants, and major landmarks are a hallmark of the Downtown Austin metro area.

Rates here are the highest PSF/YR gross in the city, even for older buildings that are not considered top-tier. You can expect to pay at minimum $35-40 PSF/YR gross and more likely $50-60 PSF/YR gross (or more for the best buildings on higher floors). If this matches your budget, then the location, presence, and proximity to the heart of the city’s activities is absolutely worth it. Be aware that vacancy rates currently sit at less than 6 percent. This means conditions strongly favor landlords. There is less available space and landlords don’t negotiate much on their quoted rates or provide much in the way of concessions. Our recommendation? Find something you like and go for it. Securing a space is more important in conditions like this.

Learn more about Downtown Austin’s office market with Tenavox’s research.

What Tenants are saying about Downtown Austin:

500 W. 2nd Street: “Building speaks for itself. It’s a gorgeous glass skyscraper in the heart of the technology heartbeat in Austin, TX. Rents are appropriate for one of the few first-generation choices for office space in the city. Retail amenities on site and covered parking round out a stunning addition to the ATX skyline.”

Read more reviews about Downtown Austin.

With size, budget, and location identified, you have the core criteria for an office space search ready to go. Timing is also important, but start looking now. We recommend starting to THINK about your lease needs a year out, giving you time to make an informed decision that’s right for your business without feeling rushed.

Start your search with Tenavox. We have more office buildings than anyone in Downtown Austin. Match with the best buildings for your needs, fast.

Come touring time, you should have 5-7 buildings you like narrowed down.

You are rolling now. Time to tour, negotiate, and ultimately sign a lease (then occupy it successfully–there are a few more things to remember.)

Tour buildings like a pro! Use our Touring Checklist to ask the right questions and make your time spent touring buildings efficient and worthwhile.

If you’re already thinking, “It’s lease time,” we’ve got you covered here as well. From getting the right broker to narrowing in on the right budget and from nailing down the right size to negotiating the best lease, these four steps will help you come out ahead on the lease.

A good tenant rep is worth its weight in gold. Make sure to find a commercial, retail-focused tenant rep with experience in downtown Austin. They often know of deals coming up or sublease opportunities that are rarely marketed to the public.

We know the best: find pre-vetted tenant reps with VoxLink.

Once you figure out how much size you need and what it’s all going to look like, you need to know what you can afford. That means now and, more importantly, in the future. Using your own business plans combined with the space estimator, you should be able to come up with a monthly budget. But wait…

Landlords don’t quote spaces in monthly budget terms, they use “per square foot per year” and usually add a structural term like “NNN” or “Gross.” You need to understand your “gross” or base rent (NNN) PLUS expenses to estimate total annual costs, then it’s as easy as dividing by 12 to get the monthly budget. Consider using lease options to make the most of your dollars with less space commitment.

You can also head to Tenavox where we do that work for you. Everything on our building pages is in gross monthly budget terms. Check it out.

But there are other things to consider in your budget aside from simply just space–

If you glean nothing else from this guide, REMEMBER THIS: you need a commercial real estate attorney to review ANY lease document, yes even a renewal. It’s essential.

Need a recommendation? Hit us up! We know a few fantastic ones that focus on office leases.

You will also need insurance as part of the lease…usually at least $1M in general liability with the LL as named insured. Have it ready to roll at lease signing.

You know we’ve got your back there, too. Contact us for recommendations on a great local insurance professional that has experience with the right coverages for your lease.

Know your square footage. This is more important than location. Size has a huge impact on your budget, so getting this right is key. If you’ve never done this before, use our handy space estimator. It will tell you how much space to lease based on your people, growth and layout needs. This is the most impactful part of your budget. Get it right!

And unfortunately, most office spaces are not built perfectly for your needs. Unless you’re considering one of the newest office buildings, the spaces will likely be referred to as “second-generation”–meaning they have walls, offices, flooring and maybe even a kitchen or breakroom already built. Changing or building out these spaces is cheaper and faster than building from scratch on what we call “shell space”. Expect a minimum of 2-3 months to get your space built out, and 5-6 if it is from shell. Permitting takes 6 weeks+ on its own.

Note: After you have a space picked out, be sure to engage a telecom professional to assess your IT/Equipment and Technology plans for your new offices. Whether you have a phone and a laptop or 700 of each, you should have a plan that ensures you hit the ground running from day one of your lease.

Get your free assessment now! They’ll even compare your ISP options and costs across the locations you’re considering. It’s a $1,500 value provided ONLY to Tenavox members.

Come negotiation time, make sure you have your space plan ready (a landlord will usually provide one of these for free, and then at least 3 competitive bids on the pricing of your buildout).

Want your own? Contact us and we’ll hook you up with a great office interior designer.

Protip: Office furniture dealers will often complete a space plan for you for free…ask us how!

So we just told you how tough the market is for business owners in downtown Austin, so how do we recommend you negotiate? By being prepared.

Once you’re down to the best 2-3 buildings, it is time to negotiate.

Negotiate your space with strength. Be prepared to provide financials when asked.

• Minimum two years of tax returns
• Income Statement/Balance sheets
• References

Preparedness breeds credibility with landlords. In a tight market like Downtown Austin, this matters more than you think. We know your business rules, but the landlord might not. Be ready to impress in Austin…

If you haven’t signed a lease before, or have a newer business, you can expect personal credit profile checks and personal tax returns to be asked for along with a personal guarantee at lease signing.

Expect to receive a letter of intent from a landlord/leasing agent. It’s a non-binding outline of the business terms you can expect to see in your lease. This is what you will use to negotiate on. WAIT! Don’t negotiate anything until you understand the costs, timing, and responsibilities of any buildout or changes to the space you need.

If you’re taking the space “as-is” you can skip the next part. If you don’t require a change or two, make sure to ask for some free rent since almost every lease deal has $1-2 PSF/YR in Tenant Improvement Allowances baked in.

Get your value! Learn more about negotiating an office lease here and read our guide on the key terms, values and structures of commercial office leases to help you demonstrate your credibility and knowledge in the lease negotiations.

Avoid putting money into lease spaces. Negotiate longer terms with expansion options to get more tenant improvement dollars or even a “turnkey” buildout from the Landlord if you can.

In a turnkey scenario you get the space built exactly as you want it (per the space plan included in the rent). It’s essential to have your space plan dialed in, though, because any changes after the lease is signed will be 100% out of pocket costs on you.

How about term? Well, in Downtown Austin you can expect to sign a five year lease, minimum. Get the “must know” tips about building out space here.

Negotiation is a mix of credit, rent, and term for the Landlord. Know how they are looking at you, so you can make the strongest offer possible. If you’re following along, you’re already showing how prepared you are. This shows a landlord that you are a serious, creditworthy, and motivated potential tenant.

Landlords will often provide an allowance toward construction, as well; this is tied very closely to rent, credit, and term. Understand how all four of these work together so you can negotiate like a professional.