San Marcos - Buda - Kyle Edition | March 2020

On top of a base rent cost, most tenants in possession of long-term leases, i.e. ve or 10 years, also pay what are called triple-net fees to the landlord. These costs apply to the property where a tenant is located and consist of real estate taxes, building insurance and maintenance. Some important facts about triple-net fees include: What are TRIPLENET FEES?

students are gone, which is a hard market to sur- vive in,” she said. Often, business owners will work together along with the city and ocials including Falletta to promote businesses. Trends in retail space Construction of new retail centers in San Marcos saw large growth in 2019, with 56,380 square feet bringing total inventory to 5,832,6333 square feet around the city. No new construction came in 2017, which brought vacancies to the lowest level since 2014 at 2.9 percent in 2018. Construction numbers are much slower across the country since the recession of 2008. “If this were 2006 or 2007, we would have seen double, maybe more, the construction than we’re seeing,” Tenenbaum said. Lenders have been restrained in giving loans, par- ticularly for speculative retail space, he said. Now, most new inventory is built with tenants committed. “We’re building far less retail then we have been,” Tenenbaum said. “When we do build, it’s typically well-leased. And that’s why as we build the new space, the vacancies continue to go down.” The future of retail The face of retail is changing. With the rise of e-commerce—the selling of products online—and home-delivery services, major retail centers are now focused on attracting service-based tenants: restaurants, tness studios, beauty salons, medical providers and entertainment. While Amazon has a distribution center in San Marcos, local retailers are ghting the convenience with the ability to stand out with unique items and

• Triple-net fees can sometimes result in lower base rent charges because the tenant assumes more of the ongoing property expenses. • Triple-net leases have become popular for investors seeking a steady income with relatively low risk . An example of triple-net costs at $9.36: With base rent at $25, the lessee would actually pay $34.36 per square foot. $9.36 $25 $34.36 TRIPLENET COSTS BASE RENT ACTUAL PRICE PER SQ. FT.

customer service. Allen, who also serves on the Main Street Board for San Marcos, which helps promote the city and work through the changing retail environment, said she showcases what makes her business unique. “If they stand out, then they aren’t necessarily competing with the big-box stores,” Allen said. “We do a lot of custom [work]. So we promote what is dif- ferent about our store.” Rent rates, while steadily increasing, are a draw to many businesses looking to expand fromAustin and other areas where rent is considered high. Falletta has been working with the city’s new Business and Economic Development Manager, Scott Hardwick, to help promote local businesses throughout downtown San Marcos. “We want everyone to do well in San Marcos,” Falletta said. “We have a lot of resources to help business owners navigate and compete in this mar- ket. Retail is becoming more experiential again. People want to knowwhere their products are com- ing from and want a face to connect with the busi- ness. Here, they get to see them every day.” Chase Karacostas contributed to this report.

MARKET RENT GROWTH Retail rent growth has been rising year over year in San Marcos from 2014-19

2% 1% 0% 3% 4% 5% 6%

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OVERALL RENT COSTS Base retail rent has risen year over year since 2014, with the smallest change coming in 2018, where it went up 9 cents per square foot from 2017.

RISING INVENTORY Despite a gloomy national retail landscape, new retail centers continue to be constructed in San Marcos, with a pause in 2017. Often, new buildings are preleased by retailers, contributing to falling vacancy rates overall. This graph shows the square footage under construction and the total square footage available in a given year.

Under construction

TOTAL

23,352 SQ. FT.

5,696,012 SQ. FT. 5,737,490 SQ. FT. 5,804,035 SQ. FT. 5,830,133 SQ. FT. 5,830,133 SQ. FT. 5,832,633 SQ. FT.

2014 2015 2016 2017 2018 2019

$25 $30 $20 $15 $10

31,098 SQ. FT.

16,898 SQ. FT.

$25.66

$21.89

+17.2%

0 SQ. FT.

$5 $0

34,500 SQ. FT.

56,380 SQ. FT.

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SAN MARCOS  BUDA  KYLE EDITION • MARCH 2020

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