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11/17/2021

Why Temporary and Short-Term Leases Are a Growing Retail Trend

One of the most intriguing trends that retail center owners and operators have noted during the last 18 months has been the accelerating popularity of temporary tenant spaces.
Josh Poag headshot
Josh Poag

That uptick in activity might seem counterintuitive, but, despite the challenges and uncertainties of the pandemic, the number of new businesses formed in the last year and a half has grown significantly. We are seeing large numbers of entrepreneurs starting businesses from home or using the current disruption as motivation to set out on a new professional journey.

Successfully leveraging temporary tenants to fill vacancies brought on by the pandemic begins with recognizing the benefits of short-term leases for small business incubation and brick-and-mortar trials. It also requires a familiarity with tips and best practices for optimizing temporary tenant opportunities, and in some cases, transitioning temporary tenants into long-term tenants.

Not-so-fringe benefits

One of the most appealing aspects of the expanding temporary tenant trend is that temp spaces represent a potential win/win scenario: a benefit for tenants, landlords and communities.

From the standpoint of retail owners and operators, the flexibility of temporary tenants can help boost occupancy and fill gaps in the tenant roster that may have been created during the pandemic. It also helps keep the tenant mix fresh for returning shoppers. Some retail and mixed-use centers have even created dedicated branded or themed areas as a “marketplace” or “innovation hub” designed specifically to rotate in new temporary tenants and provide a consolidated home for cool new concepts. R & M Co. Market Place at The Shops at Valley Square just north of Philadelphia is a great example. Temporary tenancy also affords opportunities to identify and try out complementary tenants that add new co-tenancy synergies: a pet groomer next door to a retailer that sells boutique pet goods, for example.

With the corporate freedom and creativity to try new marketing initiatives, many local owners and temporary tenant entrepreneurs are also generally more willing and enthusiastic participants in special on-site events and signature marketing initiatives.

On the tenant side, temporary opportunities can help entrepreneurs and smaller businesses (a group that these days includes a disproportionately high percentage of minority- and woman-owned businesses) by giving them a chance to launch their brand in a viable and sustainable manner. It allows both new retailers and established brands to test out new products or concepts and experiment with new space sizes or layouts. Temporary leases tend to be particularly appealing for tenants primarily selling only one product, for retailers looking to test new markets or audiences, previously online-only businesses looking to expand to brick-and-mortar, and for showroom opportunities for high-end or particularly expensive products. FIREDISC® at LaCenterra at Cinco Ranch in Katy, Texas, is a perfect example of the kind of retailer that can benefit from a temporary lease. For a brand where 40 percent of sales are from women, a brick-and-mortar presence in a lifestyle center is potentially advantageous compared to online-only or in traditional hardware stores. FIREDISC® is also using their store to introduce complementary products, accessories and even high-end meat products.

Temporary leasing also opens up a wider range of opportunities for unconventional spaces and layouts, and for concepts that simply don’t seem to fit in a traditional retail framework. Thrive Local at Avenue Viera in Viera, Florida is a pop-up concept that offers a curated mix of local goods “to help local businesses thrive this Holiday season.” These are the kind of flexible spaces that accommodate creativity and innovation, and make it possible to cater more precisely to local community or market dynamics. At the Roosevelt Collection Shops in Chicago, Illinois, 150 West is a flexible hybrid gallery/exhibition/pop-up space for temporary deals that is kept on reserve for unconventional or experiential concepts. The space is currently prepping to host a themed activation where people move through and experience a choose-your-own-adventure style story.

Tips and best practices

For owners and operators, maximizing temporary tenant opportunities and transitioning temporary tenants into long-term tenants on 5- or 10-year leases starts with fully supporting temporary tenants and treating them the same as larger, more established, and more traditional retail tenants. Temporary tenants can’t be an afterthought or an add-on, but need to be a fully functioning member of your tenant roster.

To make sure that happens, it’s a good idea to provide temporary tenants with marketing resources and promotional support, as well as strategic guidance when appropriate.   Make sure they have professional signage, support big events like grand openings, and make yourself available to assist with design and construction consultation or resources as needed. New brick-and-mortar tenants don’t always have the same experience or connections as a national chain, and that kind of logistical support can go a long way to helping them take full advantage of this new brick-and-mortar opportunity.

Evaluating long-term viability and the potential for a temporary tenant to sign a longer-term lease is based on standard criteria: operational professionalism, co-tenancy fit, and sales numbers. You can increase your chances of successfully transitioning promising temporary tenants to a long-term lease by maintaining an ongoing dialogue. Make sure their needs and expectations are being met and be willing and available to discuss plans for the future. When temporary tenants move to a longer-term lease, you often see their product or service offerings expand, and you can typically expect a bit more investment in the space—so be ready to advise or assist with that process as needed.

There are always challenges, of course. Owners and operators need to make sure that a temporary concept is a good fit for the space, the customer, and the community. Co-tenancy considerations are key, as is the ability to assess the varying experience levels of business owners. Some have extensive PR/marketing experience, and others may require more extensive and sustained support. Successful temporary leasing experiences can lead to new exposure, new referrals, a more vibrant and dynamic tenant roster, and, ultimately, a healthier bottom line.

Guest Contributor: Josh Poag is president and CEO at Memphis-based Poag Shopping Centers, a retail management company that operates 12 retail lifestyle centers in multiple U.S. markets.