How Landlords Can Profit From Pop-Up Space

In the past, some commercial property owners were lukewarm about pop-up stores, thinking it wasn't worth the hassle of preparing a space for a tenant who wouldn't be there long.

But gradually, many landlords are starting to take a more receptive view of pop-ups, realizing that even a short-term tenant is preferable to maintaining an empty space that isn't bringing in any rental income.

This is especially appealing in the current retail property landscape, where even well-established brands like Sears suddenly hit hard times and began closing stores with little warning, leaving landlords with numerous vacancies.

Empty space equals lost income, so smart property owners realize they might need to be more open-minded about ways to fill that space—even for a little while—to bring in some revenue.

Pop-Up Store Basics

Pop-up stores (sometimes also referred to as “short-term placements") are temporary retail operations that set up shop in a location for a limited time, sometimes for a period as short as a few weeks. The retailer gets to show off their products to the public and garner sales without investing in a permanent space or signing a long-term lease. Many retailers create a big buzz around their new pop-up store, positioning it as a special, exclusive opportunity that will only be accessible for a limited time.

Some retailers operate pop-ups on a recurring basis, tied to a specific cycle of seasonal activity—such as costume stores only open for a month or so leading up to Halloween, or tax preparation chains with locations that disappear after April 15.

The pop-up trend has become popular with all sorts of business entities, from start-ups and entrepreneurs to established brands seeking to test new product lines or store concepts.

Pop-Up Stores That Stood Out

Successful pop-up stores usually go above and beyond the average retail setup, creating an experience that makes an impression.

• BarkShop.com is a web-based pet store and subscription box service that usually conducts its business online. They created a pop-up store in Manhattan where dogs were welcome to accompany their owners. High-tech vests placed on the dogs let employees track which toys captivated the dogs' attention, making it easy to generate a shopping list for their owners. The company also gathered valuable data about its product offerings by using the dogs as a four-legged focus group.

• Luxury fashion brand Hermes created a pop-up store experience called the Hermesmatic, where guests could customize their vintage scarves using dip-dye stations and special washing machines.

• Wired magazine doesn't actually sell products, but used a pop-up store to bring some of its content to life, letting visitors immerse themselves in the type of smart home they would read about in the company's publications. Sponsors provided smart gadgets and other tech toys that shoppers could try out.

Things to Consider Before Renting to a Pop-Up

A few things to think about when debating a pop-up tenant:

• Will modifications or renovations be required? It may not be worth investing significant time and money into customizing a space for a tenant who won't be there long.

• Are other potential tenants also considering the space? If you have one or more contenders who would be long-term tenants, it may be smart to focus on trying to make a deal with them.

• Does this retailer offer the potential for a long-term lease in the future? If the retailer might consider a more permanent arrangement based on the outcome of this test run, that could make it worth the trouble, as you would see a positive ROI over the long term.

The Plus Side of Pop-Ups

All types of commercial properties have pop-up potential that can generate revenue in a wide variety of commercial settings. Some property owners view pop-up stores as a source of potential long-term tenants down the road. Retailers often use pop-ups as a way to test the waters, gauging public response to a particular concept or geographic location. If things go well in the trial run, the company may decide to make a more permanent commitment for that space.

A pop-up store that creates an interesting and memorable experience for customers is even better, as the interest and activity generated from it benefits not only the retailer, but the space itself. People who flock to the site may decide to explore the neighborhood and other nearby businesses, and may be more likely to return to check out future businesses there.

A successful pop-up experience can have a positive impact on the property long after the pop-up has packed up and left. Other would-be tenants will be watching with interest to see if that retailer was able to attract crowds, and if the location garnered good feedback from shoppers. This information can be useful to perspective tenants (both short-term and permanent) who are weighing whether to rent space in that same location. If a pop-up store was a hit in that location, it builds confidence among both consumers and retailers that this is a viable location where businesses can thrive.