Austin Business Journal - by Sandra Zaragoza

Among the questions remaining as downtown's most anticipated new residential projects are nearly ready for their well-heeled occupants to move in: What retail will occupy the ground-floor of Austin's ritzy new residential towers?

Last week, The Austonian offered the first to answer the question, albeit a partial answer. Austonian developers announced two independent restaurants by Austin-based La Corsha Restaurant Partners will open later this year, occupying about 5,800 square feet of the roughly 11,000 square feet of retail fronting Congress Avenue and Second Street. The Four Seasons, which also has about 11,000 square feet of ground-floor retail space fronting Cesar Chavez Street, is expected to make several tenant announcements of its own soon.

The developers of Block 21, which will be home to W Hotel and Residences and Austin City Limits in the Second Street District, said they have quietly begun marketing roughly 25,000 square feet of retail. Block 21 hopes to start announcing the project's retail lineup this summer.

Whether these projects will be able to attract the A+ tenants they want in an unfavorable retail climate remains to be seen. Still, people involved in leasing these projects - The Austonian, Four Seasons and Block 21 - are upbeat about downtown retail, especially as more residents move in.

Mixed-use projects in Austin have delivered varying degrees of success in a soft retail market, real estate experts said.

But the downtown location, newness and name recognition give these projects a sharp edge, they said.

Besides being in the tony 78701 ZIP code, these projects will give retailers access to a growing downtown residential population, steady daytime traffic, and convention and tourism business.

Even in a down economy, property owners are being selective about the retail they choose for these projects.

"There's definitely synergy between the ground floors and what's above. The ground floor really reflects the image of the building, but it also provides services for the [residents] above," said Eric DeJernett, a senior vice president at CB Richard Ellis. DeJernett is representing the Austonian, Four Season and various downtown buildings, including The Littlefield Building.

Retailers at Austonian are paying in the mid-$30s per square foot. By comparison, the average for general retail space in Austin is $20 to $30 per square foot, DeJernett said.

In general, retail in the Austin downtown core has experienced some turnover because of the down economy.

"I would say in the past six to nine months that we are seeing an increase in the spaces becoming available," DeJernett said." But at the same time, we are still seeing a strong demand for backfilling those spaces - more so than what we are seeing in the suburban markets."

The typical tenant mix for a high-end, mixed-use property includes restaurants, a salon, a spa - tenants that will serve residents and draw outside traffic, DeJernett said.

Beau Armstrong, CEO of Stratus Properties, said the retail strategy for Block 21 is to get a good balance of service-oriented retailers to lure daytime traffic and more entertainment-focused retailers for night-time action.

While upscale projects aren't immune to the economy and some downtown merchants have faltered, Armstrong believes Block 21's strength lies in the 250-room W Hotel.

"Because we have a hotel, there will be a transient base, and that's really good for retail," Armstrong said. "Once we get this open and going, it's really going to make the Second Street District work better."

While there is more interest in downtown mixed-use than there was three years ago, retailers are also showing more caution in a soft economy, DeJernett said.

Michele Gary, of the Weitzman Group's Austin office, agreed, saying interest in downtown mixed-use development continues to be strong, but there are challenges facing these projects related to higher finishing-out costs, parking and access.

There is a "need to familiarize prospective tenants with these differences compared to, say, leasing at an HEB shopping center," Gary said "It's an educational process, but once understood, it's agreed the benefits can far outweigh the initial challenges or unfamiliarity."

Gary said that while some retail components have struggled with gaining occupancy, "The unified goal is to create the perfect tenant mix, and sometimes you have to decline offers in order to do so. Several of my clients have made the decision to let certain spaces remain vacant, rather than lease to prospects that may not create the right mix."