Real estate is a volatile market, especially when it comes to retail spaces. In popular retail locations, high rents historically have kept smaller retailers from being able to support extended leases with confidence, and landlords often refused to budge on their rent demands. But that situation has changed, as building owners find themselves with empty storefronts and no renters. Accordingly, many of them are agreeing to more flexible lease agreements, in which retailers can agree to take up the space for perhaps two or five years, rather than being committed to a decades-long contract. For the landlords, the deal means that they have an appealing, attractive destination that brings consumers to their locations, enabling them to justify high rents. For consumers, these options increase the chances that they will encounter a fun little shop on the corner near where they live or work. Perhaps most important though, for retailers, the flexible deals allow for experimentation and market testing. They can review a location carefully, determine that it is likely a good location candidate, but still remain in test mode. Some of them engage in what are essentially pop-up shops, running them for just a month or two. But even with a five-year lease, a small retailer still can ensure it has sufficient resources to support the store in the short term, then use this opportunity to discover what its sales and revenue would be if it stayed there. The short-term leases also give these retailers—many of which started as online operations—greater visibility, allowing them to increase brand awareness among consumers in the area.

 

Source:  Keiko Morris, The Wall Street Journal, September 1, 2018.