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Rockefeller Center Offers 6-Month Leases for Retailers -- Will Other Buildings Follow?


Nov 30, 2020 by Deidre Woollard
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It has been a rough year for retailers, and many have sought to end leases, reduce their square footage, or sublease their space to other companies. This has been particularly prevalent in New York City where rents are high. Some of New York's most prestigious addresses have been selling at a discount or offering short-term leases. Retailers such as Ralph Lauren have found subleases for some of their expensive commitments.

Rockefeller Center landlord Tishman Speyer has come up with a unique solution for retailer woes, a new six-month lease program. RC Capsule may have been in the works for a while; a patent application was filed back in September. The turnkey spaces are pre-wired and ready for use. Two brands, Steven Alan and Jill Lindsey, were the first new tenants to sign up for the spaces and opened this month. The brands get a prestigious address, and the landlords get a new tenant without having to customize a space.

Pop-ups as an ongoing trend

Pop-ups have a long history in retail, but they've become a regular part of the retail landscape in recent years. From the Halloween costume pop-ups to boutiques that spring up around Christmas, pop-ups are a great way to test out new concepts or bring an online business into the physical world for a few months. Both individual small businesses and large companies take advantage of pop-ups to add extra firepower during the busiest shopping season of the year. Lululemon (NASDAQ: LULU), which already has a robust retail presence, expanded its holiday pop-ups this year from 50 to 70 to entice more shoppers as well as to build awareness for its Mirror fitness device.

Pop-ups allow landlords to at least temporarily fill up a space that is otherwise vacant. Most of the time these stores are generally active for one or two months. Now, with many malls facing vacancies, pop-ups hold new appeal. Earlier this year, Fortune ran a piece titled "Pop-up retail was made for the pandemic," a reflection of just how much temporary spaces have taken over.

Pop-ups have also been a longstanding tradition in the restaurant world as well. A pop-up can help a restaurateur test a new concept and build buzz. In today's world, a restaurant pop-up has an additional value; it can raise awareness for a cloud kitchen or a restaurant that mostly exists inside food delivery services.

Flexibility as a service

Finding a place to host a pop-up was once a matter of spotting an empty space or having good connections with a landlord. Now there are a variety of services to help. Appear Here, an international brand with listings around the globe, defines itself as an "Airbnb for retail" connecting potential tenants with property owners. Leases can be for less than a month or over a year. Toronto-based Pop-up Go lists pop-up locations throughout North America. Landlords can become members of these and other services and offer their spaces to a wide variety of tenants.

While the current trend for shorter leases is definitely pandemic-inspired, the future of retail may be less about stores that have been in the same place for decades and more about stores that come and go. Like food trucks, successful pop-up stores can rely on a robust social media presence to help keep them connected with their customers no matter where they roam.

One disadvantage of short-term leases for landlords may be lease structure. Many retail leases are traditionally triple net leases in which the tenant pays for property taxes, insurance, and maintenance in addition to the monthly rent. This makes sense when a tenant is planning to settle in for the long haul but isn't practical for short-term tenants. But like Airbnb or WeWork, pop-up services prioritize turnkey spaces over customization.

Like many trends of 2020, the rise of pop-ups and short-term leases was in the works long before the pandemic. The retail downturn only exacerbated the need for low-commitment options for tenants who may be wary of signing multi-year leases. While this isn't always the ideal situation for landlords, a short-term tenant is better than none at all.

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Deidre Woollard has no position in any of the stocks mentioned. The Motley Fool recommends Lululemon Athletica. The Motley Fool has a disclosure policy.