The retail property market was hit especially hard by the pandemic. While vaccines have enabled the U.S. market to turn the corner on COVID, supply chain disruptions and worker shortages continue to hamper the retail sector. As landlords await the return of long-term tenants, some are entering into short-term leases rather than letting the space sit empty. And by short-term, we mean leases for a few days, weeks or even a few hours.
“Pop-up” shops have increased in popularity in recent years. Pop-ups are spaces leased for a short-term to promote or sell a product or service, e.g., jewelry, cosmetics and tattoos, and experiences such as dining, art expositions, fundraisers, complimentary services, product demos, etc. According to research from IBISWorld, the U.S. pop-up shop market was valued at $14 billion in 2021, with more than 43,000 businesses. Pop-ups are not limited to vacant retail space.
High-visibility office space is also a good candidate for pop-up shops. We project the Chicago office market is 18 to 27 months from returning to pre-pandemic occupancy. In the past 12 months, we’ve facilitated pop-up space leases in office buildings for an entertainment “experience,” open on weekends only with changing themes, and a space for the cast and crew of a movie filmed in Chicago to stay comfortable between takes.
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Overcoming owner hesitancy
Some property owners are hesitant to jump into this market, preferring to wait for a long-term tenant. Our clients were not initially enthusiastic about our proposal to market to pop-up tenants. As property managers, we addressed owner concerns by educating them on the many advantages of pop-up leases, including:
- No TI (tenant improvement) expense. While the rent rates are typically lower with pop-ups, no modifications or improvements are required as the space is generally leased “as is.” The leasing process for a pop-up is generally more straightforward and less costly than a long-term lease.
- Fill a gap. Pop-ups can occupy vacant space between long-term leases, reducing the loss of income. Retailers typically don’t open a new outlet around the holiday season. Alternatively, a holiday-themed pop-up may be the perfect short-term tenant.
- Deter unwelcome “guests.” An unoccupied space can attract problems such as squatters or pests (rodents, bugs, etc.). Neighboring businesses are generally happy with pop-ups as they increase foot traffic and generate “buzz” for the area.
- Tenant try-out. While many pop-up tenants want a firm end date, others may be testing a concept or product and will be happy to sign a longer-term lease if successful. Landlords can use this time to determine the desirability of a tenant without making a long-term commitment.
- Generate interest in the space. A successful pop-up experience can generate interest and confidence in the location’s viability by would-be tenants. For example, other restaurateurs will take note if a food experience pop-up thrives.
- Brand promotion. Depending on the property owner, increased traffic to the area is good for overall marketing and branding. For example, if “ABC Inc.” leases space to a non-competing pop-up, crowds drawn by the pop-up are exposed to the “ABC” brand.
There are no real downsides to inviting a pop-up into your vacant space. Few long-term tenants will demand immediate occupancy. Leases can be structured to ensure adequate time to accommodate a long-term lease or include an early termination payout by the landlord. Talk to your property manager about concerns or limitations, e.g., no food preparation, to ensure a good-fit pop-up tenant.
GNP Realty Partners takes pride in our outside-the-box thinking to help our retail and office building owners maximize profits through short-term leases coinciding with an aggressive marketing plan to attract long-term tenants. Reach out to one of our team members if we can assist you with marketing your vacant space.