Manhattan Pop-Up Shops Might Be Here to Stay
These days, with the softening real estate industry in Manhattan, stable long-term retail tenants are a scarcity. To compensate, the real estate industry is adapting to short-term tenancies, named licensing deals. Licensing deals allow tenants to use a space rather than own it for a specified time period. The method is being used to rent to pop-up shops in the city. A pop-up tenancy can last from a day up to a year. Both landlord and tenant can benefit because it avoids lengthy legal processes, and bypasses the usual 80- to 100-page lease for a curt version.
It appeals to tenants because it allows them to test the market before tying themselves down and committing for the long run. The owner makes money on the property while it remains on the market for a long-term lease. The tenant gets visibility in the prestigious New York market with very limited risk. The landlord benefits in averting an empty store front, and as a bonus many pop-ups come with celebrity back-up, such as Gwyneth Paltrow and Kanye West, which help endorse the properties.
As per The Real Deal, popups were traditionally seen as short term improvising that landlords and brokers used while waiting for permanent tenants. But some experts say these transactions will become increasingly sought after, as building owners struggle to minimize vacancies in the ongoing battle between brick-andmortar stores and e-commerce. Currently, less than 15 percent of all retail sales in the U.S. are made online. By 2025, however, it is estimated that one out of every four purchases will be made online, as per a November 2016 report from FTI Consulting. These odds create a daunting reality in which retail stores are increasingly guarded when it comes to signing long term leases.
“Things change so drastically these days, it’s harder for retailers to consider a long-term deal,” says Kelly Gedinsky, Winick Realty Group broker. “Unlike five years ago, landlords are more open to pop-ups because so many [potential tenants] are coming to them and their brokers saying, ‘Look, we want to test this market for a year. If it works, we’d be happy to look
“Things change so drastically these days, it’s harder for retailers to consider a long-term deal,” says Kelly Gedinsky, Winick Realty Group broker
into a longer-term deal.’”
Manhattan Borough President Gale Brewer’s office counted 200 vacant store fronts along Broadway this June. She places the blame on high rents, and e-commerce augmented by Manhattan’s pricey commercial rent tax. Between 2010 and 2014, average asking rents in 16 Manhattan strips, as tracked by CBRE, jumped 89.1 percent. It is “an unsustainable situation for some tenants as rents surpassed what their sales growth could support,” says the brokerage firm. Manhattan vacancies have been on the rise since, from a low of 2.5 percent in 2012, to 3.7 percent in 2016, and now 4.2 percent in the first quarter of 2017, according to Okada & Company.
A San Francisco-based website entitled Storefront, lists vacant storefronts allowing potential pop-ups to browse through available spots on a map, by price and square footage, similar to Airbnb or StreetEasy. The site charges a 20 percent fee, and a company rep walks a renter through the process. “We don’t see ourselves as a competitor to the traditional retail market … We just see that space is space,” said Joy Fan, Storefront’s national director. “Vacancies are unfortunate, but the shift needs to happen, so we’re really architecting the next layer of retail for the future.”
A pop-up tenancy can last from a day up to a year. Both landlord and tenant can benefit because it avoids lengthy legal processes, and bypasses the usual 80- to 100-page lease for a curt version