As Omicron takes on retailers, owners get creative to fill the space
In the fall of last year, many retail owners heaved a sigh of relief. They had done everything to fill empty storefronts during the darker days of the pandemic, offering concessions to tenants and saying yes to pop-ups. This strategy seemed to be paying off.
In the third quarter of 2021, the storefront scene was recovering in many areas of the county. Thanks to vaccinations, the return of international travelers and pent-up consumer demand, shoppers were pouring into malls and downtown neighborhoods and potential tenants were signing leases. The asking rents, which had plunged in 2020, peaked and even rose in some places.
But the Omicron variant of the coronavirus may put the brakes on the recovery, and homeowners may have to extend temporary measures to fill in the blanks.
At the Oculus, the transit hub and shopping center of Lower Manhattan, pedestrian traffic has dropped sharply recently, said Diana Grasso, vice president of Westfield World Trade Center. âYou saw the impact almost immediately,â she said.
She and other commercial real estate managers had been through a similar roller coaster ride when the Delta variant interrupted ‘hot summer vax’ and prompted companies to postpone plans to return to the office, dealing a further blow to businesses. businesses that depend on commuters.
But the cases of the fast-spreading Omicron variant quickly overtook those of Delta. Already, visits to some businesses, like coffee shops, have declined, according to a new report from Coresight Research, which tracks the retail industry as people avoid public spaces. And while it’s too early to tell what the variant’s final impact on real estate will be, some homeowners are already adjusting their expectations.
After losing a few tenants during the pandemic, Ms Grasso appealed to a non-profit organization to bring minority and women-owned businesses to the Oculus during the holiday season. Now she is considering a longer-term place for businesses in one of the building’s vacant spaces.
âWe potentially want to have a full online space where we can continue to bring these types of businesses in,â she said.
But Omicron’s setback might not be as severe or prolonged as Delta’s, experts say, in part because more people are vaccinated and because the variant appears to cause milder illness.
âConsumer behavior will be less impacted than over the summer,â said Michael Baker, senior retail analyst at DA Davidson, a financial services company. “I think there will be a step back, but a smaller step back, a shorter step back.”
Of course, physical stores were already struggling before the pandemic, as consumers shopped online. This trend accelerated in 2020 as store closings closed stores and e-commerce sales soared.
According to real estate experts, the resulting wave of vacant in-store housing has taught landlords to be more flexible with retail tenants. Some have cut back on long-standing tenants, waiving rents or entering into revenue-sharing agreements. To attract new tenants, they lowered rates, offered free rent, and agreed to customize spaces.
The owners have also reduced the rental conditions. In 2016 and 2017, the average clothing store lease was 5.3 years, according to data from research firm CoStar Group; which fell to 4.8.
âFor many years it was ‘Either you sign a 10-year lease or we have nothing to say,’â said Ariel Schuster, vice president of Newmark, summing up the old attitude of many landlords. âEveryone needs to be more adaptable.
Then there are the interim measures – everything to keep the space occupied.
“It’s a game of desperation,” said Michael Brown, partner at Kearney consulting firm. “It’s the real estate agent who says,” I have nothing better to do with the space. “”
To generate income, some owners have ceded storefronts to digital advertising. Storefront occupants have long used flashy signs to draw attention to their own businesses. Now, businesses run interactive ads for movies, automakers, and sneaker brands in empty store windows, with owners receiving a percentage of the amount billed to advertisers.
Other homeowners allow their empty windows to be filled with artwork – efforts that generate goodwill and make vacant spaces less gloomy. In Philadelphia, a tourism and marketing agency commissioned artwork paying tribute to local black and brown-owned businesses.
John J. McCullough, Managing Director of Nightingale Properties, has agreed to have artwork from the program placed in the windows of three of its downtown buildings. âWe saw it as a win-win,â he said. âIt was an opportunity to help these small business owners. And we have more eyes on our space.
Some owners have hosted pop-up retailers, and not just during the typical holiday season. Retailers have embraced the trend as part of their marketing campaigns – luxury brands use them to launch collections, e-commerce businesses to introduce themselves, and businesses of all types love the opportunity to test a site. But landlords and their lenders, accustomed to the financial security of long-term leases, weren’t always on board.
During the pandemic, however, more homeowners have tried pop-ups, in hopes of bringing the languid downstairs spaces to life. They might not be making that much from the deals, but at least some income was coming in. And deals often involve quick licensing deals, rather than more complicated leases, and no spending on capital outlays. Additionally, there is always the possibility of a pop-up becoming a permanent tenant, a trend known as pop-to-perm.
âA lot of real estate groups want to have a relationship with the next Warby Parker, the next Casper,â said Melissa Gonzalez, founder and CEO of Lionesque Group, a retail consulting firm. “This is how you get these relationships.”
Storefront, a digital ads platform where owners advertise retail spaces suitable for pop-ups, has seen more owners listing spaces, said Nicholas Roberts-Moore, chief marketing officer for the company.
And ChaShaMa, a non-profit organization founded to organize a free space for New York artists, has started giving away some of its donated showcases to minority-owned businesses. This is how Daryl Wright, a bespoke tailor specializing in men’s suits, was able to open a store on the ground floor in a building in the garment district of Manhattan owned by GFP Real Estate.
âI have this giant building,â said Eric M. Gural, co-managing director and director of GFP. âI can do something with the storefront that makes sense for the neighborhood and doesn’t hurt me too much in the wallet. “
Elsewhere, downtown economic development organizations and suburban malls have encouraged pop-ups, said James Cook, director of retail research at JLL.
The Downtown Raleigh Alliance in North Carolina launched two pop-up programs to fill store vacancies – which had grown to 14% in 2020 from 10% before the pandemic – and to help budding local businesses. At the beginning of last year, the organization began to match owners with contractors.
And Brookfield Properties has filled a space at its Oakbrook Center near Chicago that Sears occupied before its bankruptcy with a traveling exhibit on the Sistine Chapel. Events like this âdraw people from miles away,â said Katie Kurtz, Brookfield’s senior vice president for retail development.
But at the end of the day, most landlords who engage in short-term activations hope to land long-term tenants. Sometimes it happens.
In the fall of 2020, the Downtown Raleigh Alliance helped place Johnny Hackett Jr. in a window of a major building owned by Empire Properties for three months at a reduced rate.
Mr Hackett paid $ 3,000 a month for the trial and used the space to open the Black Friday Market, carrying artwork, clothing and other items from dozens of black vendors. The store performed so well that Mr. Hackett signed a five-year lease for a monthly rent of $ 4,500. And one of her sales staff was so successful that she ended up take back the empty storefront next door.
âYou just need to roll around with a tenant who you think is strong and long term good for the community,â said Greg Hatem, Founder and Managing Partner of Empire.