Permanent shop closures were already a familiar sight in the UK before the pandemic but forced lockdowns, social distancing, stock availability and staff absences have compounded the problem. Understandably, retailers are now reviewing their business strategy to cope with, and re-focus on, the demand from online sales. As such, there are more empty shops on the high street than ever before.
Another growing pre-pandemic trend was the increase in pop-up shops, but now with so much empty space, landlords are becoming even more open to allowing short term occupation and it has created more opportunities for retailers to use pop-ups.
This is the first of two articles; the first will explain the benefits of pop-up shops for both landlords and tenants and the second will examine the legal issues that tenants need to bear in mind when considering taking a lease of a pop-up shop.
Why are pop-ups good for retailers?
- A tenant can test a new location, market area or experiment with a new format. Pop-ups allow tenants to extend a brand into the offline world and to help to put a face to an online brand name.
- A pop up allows a retailer to benefit from a particular opportunity such as a festival, seasonal event or to launch a new brand. Pop-ups can be a great way to attract publicity and raise brand awareness. They do not have to be about just selling products; they can just have an advertising or PR purpose, for example, some brands have used retail space as media space like Hunter Boots, which used space in Piccadilly Circus station to create an installation which then drove traffic to their store not too far away.
- Pop-ups are, by their nature, short term or seasonal and their limited nature can create a buzz around a new product. Some retailers use pop-ups to take advantage of the golden months either side of Christmas.
- Some landlords are likely to be more flexible in this tough market. A tenant might be able to negotiate a lower or inclusive rent if the unit has been vacant for some time. At the same time, the flexible nature of a pop-up means that the tenant is not left with an expensive liability if the venture is not a success (if it is documented properly).
- A retailer can gauge the market in a particular area before committing to a longer-term lease. Understandably, with the current economic uncertainty, retailers may be unable or unwilling to commit to traditional occupancy patterns. A pop-up is a great way to test the market.
Why are pop-ups good for landlords?
Pop-up shops are not a one-way street and they also hold some advantages for landlords:
- After the abolition of empty rates relief, a landlord now foots the bill if a unit is empty for more than 3 months. This could result in potentially a huge liability for a landlord who is already reeling from a loss of rental income. Depending on the terms of the pop-up arrangement, a landlord will be able to pass this rates liability to the tenant.
- If a unit is vacant, it will become the responsibility of the landlord to repair and insure without having the ability to pass on these costs. By having a tenant in the unit, albeit on a short-term basis, it is a good way to mitigate some of that loss.
- It is better for the landlord and for the surrounding area if a property is occupied. It deters squatters and more occupancy will increase footfall. Pop-ups can create a real buzz which is good for other retailers in the area, who often occupy other properties owned by the same landlord.
- By allowing a tenant to occupy a property on a short-term basis, landlords can gauge how successful a tenant is likely to be before it commits to granting them a longer lease. Pop-ups can also fill in any gaps between tenants. For example, a number of national retailers, as a matter of policy, do not open new stores between November and February. A landlord can allow a pop-up tenant to occupy the store during this period so there is no loss of income.
- Generally speaking, the cost to landlords to document a pop-up lease should be lower than the costs of granting a longer-term lease, and the process should be more straightforward. Lease transactions seem to be taking much longer as tenants drive a harder bargain which can be frustrating for landlords who want to secure rental income as soon as possible.
It is clear that the retail landscape is in the process of considerable change, and pop-up shops may prove an invaluable mechanism for businesses and landlords to adapt to that change, provided that they are documented properly. In our next article, we will examine the legal issues that need to be considered in order to do this.
For more information on pop-up shops and an example of one in action, please visit this article by Westminster City Council regarding a new pop-up shop on Oxford Street at New Look’s former flagship store:
For further information about our commercial real estate services and specialist advice for retailers and landlords regarding pop-up shops, please speak to:
- Jamie Coulthard on +44 (0)20 7216 5599 or email@example.com