Pop-ups offer potential lifeline to luxury streets

Hesitancy on short-term leases fades for landlords filling vacancies

New York /
Nov.November 06, 2020 07:30 AM
Pop-ups have become increasingly popular in recent years. Consumer spending last year totaled $8.4 billion (Getty)

Pop-ups have become increasingly popular in recent years. Consumer spending last year totaled $8.4 billion (Getty)

Madison Avenue is known for high-end shops and advertising agencies, not pop-up retail.

But as the saying goes, any port in a pandemic.

The business improvement district for the famous corridor, which hosted a modest eight pop-ups last year, has now created a template for short-term licenses.

“The idea behind doing this is to try to make this process as simple as possible, especially given the pandemic,” said Matthew Bauer, president of Madison Avenue BID.

Although pop-ups have been a thing for a while in the city, some landlords — especially those partial to leases of 10 years or more and eight-figure dollar values — have historically been wary of short-term deals. But many have grown more willing as vacancies proliferate and a second wave of Covid threatens the market.

Pop-ups have become increasingly popular in recent years. Consumer spending in temporary Halloween stores alone last year totaled $8.4 billion, 70 percent more than 10 years earlier, according to a report by Cushman & Wakefield. Spirit Halloween opened more than 1,400 storefronts nationwide this year. But pop-ups are a year-round phenomenon.

For several reasons, pop-ups will never be a first choice for landlords. Although temporary users require less build-out than typical tenants, it can be uncertain whether they will graduate to a long-term lease or if their presence will deter another retailer from signing one. Landlords also worry that the arrangements might pose problems for their mortgage.

“There’s a concern that it’s going to be administratively more difficult on them. There’s concern that, of course, they would rather have a credit-worthy, long-term tenant in place because of how that impacts whatever their relationship is with their lender,” said attorney Laura Brandt, who drafted the Madison Avenue templates. “So that I think there is still that remaining hesitancy.”

But times are changing by necessity, said Brandt, head of an eponymous law practice.

“There’s going to need to be more flexibility if these property owners don’t want to have vacant spaces,” Brandt said.

Asking rents across Manhattan’s 16 main shopping corridors fell 12.8 percent from a year ago to $659 per square foot in the third quarter, according to CBRE. That is the lowest level since the back half of 2011.

Even before the coronavirus, the rise of online shopping and a decrease in shopping sprees by wealthy tourists led some major brands to rethink pricey leases for New York City flagships. The pandemic has accelerated decisions to shut down or declare bankruptcy and left landlords with faint hope of filling vacancies with similar tenants.

That’s where pop-ups come in.

“We need to keep calm and carry on,” said Harris Bulow, the principal of Flagship Era brokerage. “And the way to do that is to have some appearance of occupancy.”

Pop-ups have other advantages. They can allow retailers to try a store location to which they are not quite ready to commit, possibly leading to a permanent location. They also provide more flexibility in a market with an uncertain future.

Still, landlords accustomed to monster leases can struggle to accept that renting out their space for a few months would help them.

“In many ways, it’s good for both parties, and I think that’s kind of a hard pill sometimes to swallow,” said Robert Burke, the CEO of an eponymous retail consulting firm.





    Related Articles

    arrow_forward_ios
    Omni NY's  Maurice "Mo" Vaughn and 92-23 168th Street in Jamaica (Omni, Google Maps)
    Omni NY inks indoor playground chain to 33K sf lease in Jamaica
    Omni NY inks indoor playground chain to 33K sf lease in Jamaica
    400 West 219th Street (Google Maps)
    These were Manhattan’s largest retail leases of 2021
    These were Manhattan’s largest retail leases of 2021
    (iStock/Photo Illustration by Steven Dilakian for The Real Deal)
    Jobs in warehousing and storage above pre-pandemic levels; hospitality showing strong recovery
    Jobs in warehousing and storage above pre-pandemic levels; hospitality showing strong recovery
    The average business in a low-income community received about $276,000, compared to more than $590,000 for those elsewhere. (iStock)
    Federal relief favored restaurants in wealthy areas: study
    Federal relief favored restaurants in wealthy areas: study
    Parking lot at the Wood Village Walmart in Oregon. (Google)
    No Parking: Report says big box retail seeking less space for cars
    No Parking: Report says big box retail seeking less space for cars
    What to do with a closed Kmart? How about a restaurant?
    What to do with a closed Kmart? How about a restaurant?
    What to do with a closed Kmart? How about a restaurant?
    Luxury clothing company signs at Reuben Brothers’ 769 Madison Ave.
    Luxury clothing company signs at Reuben Brothers’ 769 Madison Ave.
    Luxury clothing company signs at Reuben Brothers’ 769 Madison Ave.
    The Apple store at 767 Fifth Avenue and Apple CEO Tim Cook (Getty)
    Apple shut its 12 New York City stores to in-store shopping
    Apple shut its 12 New York City stores to in-store shopping
    arrow_forward_ios

    The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

    Loading...