Summer Retail Leasing Trends
The retail sector has experienced headwinds but has found ways to thrive in a post-pandemic, supply and labor-constrained, and inflationary environment. The sector has shown continuous resiliency, and retail openings are accelerating. In the first six months of 2022, 4,238 store openings and 1,912 closures have been announced. All the while, the shopping experience is undergoing yet another transformation as the new normal meshes digital and physical experiences. Here are some summer leasing trends that are redefining the role of brick-and-mortar and paving the future of retail leasing.
When a retail space remains vacant for an extended period, landlords get creative and lease out the space for the short term as “pop-up shops.” Several companies can utilize temporary occupancies, like Halloween supply stores, for example. Ahead of the national event, stores dedicated to selling Halloween-themed merchandise, décor, and costumes will set up shop in high-traffic areas until the end of October. Other known tenants range from seasonal shops to mobile art exhibits and retailers with an overpour of merchandise.
In other instances, retailers that want to test new products or concepts can use short-term spaces to gauge their success in a specific market. This allows retailers to test ideas in multiple locations and gather valuable demographic data before planting roots long-term.
Pop-up shops typically require little to no space modification and only need furniture, displays, or shelving added. The leases are typically between six weeks to a year, and some tenants sign month-to-month leases that could ultimately lead to long-term tenancy. Rents are about 50 percent below the lease value as they are less expensive than those with traditional leases.
Tenants and landlords alike increasingly prefer the pop-up shop lease structure that websites, like thestorefront.com, utilize to cater those searching for these opportunities and become more present on the internet.
While COVID-19 is widely blamed for the closure of several thousand stores and restaurants, NewMark Merrill Companies believes that at least half of these tenants would have closed regardless. The silver lining is that landlords can now fill those vacant spaces with stronger tenants at higher rental rates.
Gone are the days of having an expansive footprint being necessary to increase sales. The skyrocketing costs for opening a new location have deterred or decelerated openings. The amount it costs to build a new store is 40 to 50 percent more than it was pre-pandemic. As a result, retailers are preserving the cash and leasing out existing spaces.
Using demographics and foot traffic, companies are now using this data to guide their leasing decisions, meaning they rely on targeted stores to cater to the area. Access to this data allows tenants to make more methodical decisions. In turn, this has resulted in the lowest levels of retail bankruptcies in the last five years.
Discount Retailers & Dining Reign
While some retail brands are pausing on expansion plans due to increased prices, others are pushing through. Dollar stores, discount retailers, quick-service restaurants, and fast-casual establishments are among the tenants who have continued planned openings. Shopping centers with discount retailers, like Burlington Coat Factory, TJ Maxx, or dollar stores, are seeing positive leasing trends. Quick-service restaurants are testing out new markets they haven’t already established their presence in and upping their focus on convenience.