How the Pandemic Pushed Landlords to Get Creative to Fill Retail Space – The New York Times

How the Pandemic Pushed Landlords to Get Creative to Fill Retail Space – The New York Times

“Consumer behavior will be less impacted than it was over the summer,” said Michael Baker, a senior retail analyst at D.A. Davidson, a financial services firm. “I do think there will be a step back, but a smaller step back, a shorter step back.”

Of course, brick-and-mortar stores were already struggling before the pandemic, as consumers shifted purchasing online. That trend accelerated in 2020 as lockdowns shuttered stores and e-commerce sales soared.

The resulting rash of storefront vacancies taught landlords to be more flexible with retail tenants, real estate experts say. Some cut longtime tenants slack, waiving rents or entering into revenue-sharing agreements. To entice new tenants, they reduced rates, offered free rent and agreed to customize spaces.

Landlords also scaled back lease terms. In 2016 and 2017, the average lease for apparel shops was 5.3 years, according to data from the research firm CoStar Group; that has fallen to 4.8.

“For many years, it was, ‘Either you sign a 10-year lease or we have nothing to talk about,’” said Ariel Schuster, a vice chairman at Newmark, summarizing the old attitude of many landlords. “Everyone has to be more adaptable.”

Then there are the stopgap measures — anything to keep the space occupied.

“That’s a desperation play,” said Michael Brown, a partner at the consulting firm Kearney. “That’s the Realtor saying, ‘I don’t have anything better to do with the space.’”

John J. McCullough, general manager of Nightingale Properties, agreed to have artworks from the program placed in the windows of three of his downtown buildings. “We saw it as a win-win,” he said. “It was an opportunity to help out these small-business owners. And we get more eyes on our space.”

Some landlords welcomed pop-up retailers, and not only during the typical holiday season. Retailers have embraced the trend as part of their marketing campaigns — luxury brands use them to kick off collections, e-commerce companies to introduce themselves, and companies of all types like the opportunity to test out a site. But landlords, and their lenders, accustomed to the financial security of long-term leases, have not always been on board.

During the pandemic, though, more landlords gave pop-ups a try, hoping to bring life to languishing ground-floor spaces. They might not earn as much from the arrangements, but at least some revenue was coming in. And the deals often involve quick licensing agreements, rather than more complicated leases, and no outlay for capital expenses. Plus there’s always the chance that a pop-up may become a permanent tenant, a trend known as pop-to-perm.

“A lot of real estate groups want to have a relationship with the next Warby Parker, the next Casper,” said Melissa Gonzalez, founder and chief executive of the Lionesque Group, a retail consultancy. “This is how you get those relationships.”

This content was originally published here.

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