Pop Up Retail Rising

MIAMI—Anyone who has seen a Halloween costume store or a Christmas decoration store is familiar with “pop up” retail. Eric Rapkin, a shareholder in Akerman Senterfitt's Fort Lauderdale office says it's not just for Halloween and Christmas anymore.

“Prior to the Great Recession, when retail real estate was white hot, landlords had waiting lists of tenants willing to sign long-term leases for vacant space, and did not have much incentive to sign leases for temporary stores,” Rapkin tells GlobeSt.com. “But with the high vacancy rates, landlords became much more willing to sign temporary retail leases in order to create operating income from space that would otherwise have sat fallow.

From the point of view of the retailer, he says, pop ups became attractive because of the limited time and expense that would need to be committed in order to negotiate a lease and then fixture, open, and operate a temporary store, as compared to a “regular” store. And pop ups are not just for local “mom and pop” retailers without the financial wherewithal to operate a regular retail store.

“Many national retailers began to utilize pop ups when they realized that a temporary store can be a great way to try out a new geographic market or a new retail concept without committing a large amount of resources,” Rapkin says. “A quick Internet search reveals a number of national retailers that have embraced the temporary store concept in one form or another, including Best Buy, Target, American Eagle, Walmart, Gap, J.C. Penney, Macy's, Gucci, and Ann Taylor.”

As Rapkin sees it, for both landlords and tenants, the hope is often that a temporary store will be successful and will turn into a “regular” long-term lease for the project. And for landlords and retail tenants accustomed to the weeks  or even months long process involved in negotiating a long term lease agreement, a tremendous benefit to temporary retail stores is that, although legal issues still must be considered and addressed, the lease agreements (or license agreements) for pop ups are typically on much shorter forms and much simpler to negotiate and finalize.

Rapkin offers an example: Temporary retail stores typically will have a fixed "gross" rent payment and will not involve the pass through of operating expenses. That by itself saves a tremendous amount of time and energy that is normally required in order to finalize the operating expense provisions of a long-term lease, he says. Another benefit is that a temporary store will have a minimum amount of construction, fit and finish, and so the time and expense of a build out is very limited compared to regular stores.

“An interesting but related twist on pop up retail involves pop up restaurants,” Rapkin says. “Pop up restaurants have become a way for restaurateurs and up and coming chefs to move into vacated but still fixtured restaurant space with very limited investment and begin to operate almost immediately.”

While pop ups are most often thought of for retail stores and to a lesser extent for restaurants, he says even office and industrial owners hard hit by the economic downturn and with limited prospects for long term tenants saw the benefit of signing temporary tenants to maximize cash flow during periods of high vacancy. Although the availability of pop up locations will decrease as the economy recovers and competition increases for space, he concludes, the benefits of temporary stores and lessons learned during the Great Recession show that this concept has a place in the retail real estate landscape.