Today’s retail environment is changing, which means it’s often challenging for commercial real estate investors to find sustainable long-term tenants to occupy their rental space. If you’re finding it difficult to fill your retail space, several creative solutions can help you maximize your return on investment.
While the environment for retail real estate is undoubtedly challenged, savvy investors can still make the most of their properties. If you’re struggling to monetize your underutilized space, consider thinking outside the box to maximize your returns. Even in light of today’s digital economy, brick and mortar retail still needs a space to set up shop!
Introducing retail pop-up shops
Retail pop-up shops are becoming an increasingly viable option for commercial real estate investors, particularly during the busy holiday and summer months.
By offering up your space as a locale for temporary operations, you can take advantage of e-commerce retailers’ desire for increased physical visibility. More importantly, due to the temporary nature of pop-up shops, you can charge a premium for your space.
Demonstrating a thriving, active scene at your investment property allows you to reap rental revenue and elevate the value of the property itself. An active retail environment could also serve to activate surrounding properties and improve real estate values throughout the neighborhood.
Monetizing vacant retail space
While monetizing retail real estate is more challenging than ever before, savvy investors are recouping returns through creative means. Here’s how investors are using temporary demand to derive long-term value from what may otherwise be underutilized assets:
•Pop-up stores: Over the past decade, e-commerce has come to dominate the world’s retail scene. This doesn’t mean in-person transactions are dead, though. In fact, many online sellers are realizing the benefits of having a brick-and-mortar presence. Because of this, many online retailers are investing in short-term retail pop-ups, that familiarize people with their product lines. Leasing your property as a pop-up can allow you to take advantage of the new retail marketplace.
•Retail event rentals: Some companies may want to establish a physical presence without going through the steps and expenses necessary to set-up and staff a pop-up shop. They may opt instead to host a one-time or limited-time retail event. You could rent out your retail space for one-time events that allow brands to showcase new products, or connect with prospective consumers on a more personal level.
•Gallery space: Your retail space doesn’t have to be used to sell things. In fact, it’s becoming common for underutilized retail space to host art. If you’re looking for a unique way to generate foot traffic toward your building, consider partnering with a local arts organization. If you have existing tenants in another storefront, they’re likely to benefit from the presence of a gallery.
•Subdividing the space: Subdividing your retail space into smaller micro-storefronts is another creative way to generate income from your commercial real estate. Many small businesses may not be comfortable taking on the responsibility to cover the rent necessary to cover an entire storefront. But, if you subdivide the space, you may attract first-time entrepreneurial tenants who are looking for a small, intimate space in which to launch their brand.
How to lease to pop-up shops
If you’re considering leasing your retail space out to a pop-up shop creator, there are a few things you should be aware of in regard to the lease structure and terms. Unlike traditional commercial real estate leases, most pop-up shops rely on short-term site licenses.
Here are some of the important things you should keep in mind when inviting pop-up shops to set-up in your vacant retail space:
•License vs. lease: If you’re considering opening up your space to pop-up tenants, be aware of the difference between a lease and a license. Unlike a lease, which is an extensive document covering a long period of time, a license is a limited agreement that allows a tenant to temporarily use your space. Under a license, utilities and other services are maintained by the property owner, rather than the lessee.
•Examine existing loans and leases: Because you’re issuing a license, rather than a lease, examine your mortgage documents before entering into negotiations with a pop-up shop owner. Some mortgages may explicitly prevent you from licensing out your property on a short-term basis. If you’re unsure of any provisions in your mortgage, consult with a real estate attorney. Additionally, you’ll need to look at any existing leases at your property. You may be prevented from licensing space to a competing business, for example.
•Correctly maintain systems: Pop-up shops need to open rapidly, which means they don’t have time to perform due diligence tasks, like analyzing the health of your electrical, ventilation and plumbing systems. This means the license agreement requires them to accept the property “as-is.” Because of this, they’re relying on you to ensure your property is well-maintained, and they won’t encounter any avoidable problems during the duration of their license.
Take another look at retail
In today’s retail world, it’s impossible to ignore the power and importance of pop-up retail shops. If you’re looking for a way to monetize underutilized space and begin reaping returns on your commercial real estate investment, licensing some or all of your available space to a pop-up shop may be the way to go.
Before you begin leasing your property on a temporary basis, ensure you’re observing all relevant laws and restrictions, as well as honoring the wishes of any long-term tenants you may be hosting. Staying in compliance with your mortgage and any zoning laws will ensure you don’t get slapped with fines and fees. And, keeping existing tenants happy means continuing to reap the rental revenue they provide.
If your property mortgage and existing lease agreements are in the clear, catering to the pop-up shop segment of retail is a great niche option for filling commercial space. Licensing your space as a pop-up shop can be an excellent way to generate passive income and activate the surrounding retail environment.