Credit Vs. Cool
Todd Caruso and Melina Cordero discuss how landlords are taking greater credit risk to deliver “cool” concepts to shoppers.
Retail properties in the US have historically been occupied by national brands that boast established customer bases and a solid track record of driving traffic. With a shift in consumer behavior comes a shift in the types of retailers they’re looking to visit in bricks and mortar shops, and retail owners and investors are responding by taking more risks with new and untested brands. As the trend continues, retail owners will have to continue to find the balance between credit versus cool.
Offense Versus Defense
Pop-up shops, while trendy, aren’t new—malls and lifestyle centers have frequently filled vacancies with temporary tenants. However, pop-ups frequently were considered a defensive move—fill the space by whatever means necessary—and were left out of underwriting efforts. Today, owners and investors are starting to recognize the benefits of pop-up stores and short term occupants: they can generate buzz and create interest that drive traffic to the entire development. Consider a new development in the Pacific Northwest that is allocating 20,000 square feet to maker space that will be a mix of pop-up shops, temporary tenants and alternative use retail. Taking a proactive approach to churn ensures consumer interest and intrigue—customers will want to frequently check to see the latest brands represented in the space.
Changing Lease Structures
In the United States, typical lease terms often span five to 10 years. This is not the case in the rest of the world. In Europe and Asia, one- to three-year leases are much more common, which may represent a future change in the Americas. Because of shifts in consumer sentiment, shorter lease terms may not just mean less risk for a retailer, but more opportunity for the owner. Be on the lookout for a shift in lease structures and terms as the consumer experience in shopping districts evolves.
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