Pop-up Leasing: A Developing Trend In Retail And Real Estate

Most of us have heard of, if not experienced, one of the most popular new retail trends – pop-up shops.  A pop-up shop is a small, temporary retail or restaurant location that, as the name implies, suddenly appears, or “pops up”, stays for a short time and then moves on.  It allows smaller or less known companies to enter markets that are otherwise out of reach.  Pop-up shops can last for as little as a few hours to several months.

The term “pop-up retail” has been in use since about 2004, but the concept of pop-up shops began decades ago as a way for small, independent retailers or restauranteurs that could not afford or secure traditional retail leases, access to a venue to offer their wares to a broader audience.  In the US, one of the first pop-up retail outlets was the Ritual Expo in Los Angeles in 1977.  It consisted primarily of musicians, fashion designers, and artists who wanted to bring their products to the urban markets that served as their inspiration.

One of the most recognized catalysts for the evolution of the modern pop-up shop was the temporary store that entrepreneur Ross Bailey created in London in 2012 to sell merchandise commemorating Queen Elizabeth’s diamond jubilee celebration.  The store was wildly successful and inspired Mr. Bailey to establish a company that seeks to pair landlords with space suitable for pop-up shops with tenants looking for temporary locations.  The trend has been steadily spreading since and now pop-up shops can be found in virtually every market.  Now major retail players, like Simon Properties, are incorporating pop-ups into their major malls in places like New York and South Florida.  Aventura Mall in Florida has integrated pop-up spaces into its retail mix.

Pop-up shops are attractive to both property owners and tenants.  Retailers like Macy’s or Nordstrom often lease temporary space for an online retailer, like a specialty cosmetic company, to open a pop-up shop in their store.  This allows the online retailer to reach a wider customer base, including those who want to physically see the product that was previously only available online and brings in more foot traffic to the department store.  It’s a win-win for the landlord and tenant.  You don’t have to be a retail giant like Simon to capitalize on the pop-up trend.  Smaller strip malls or warehouses, especially in trendy, developing areas, are popular with pop-up vendors because of the buzz and increased foot traffic generated by the neighborhood.

There are several factors that must be analyzed to determine whether your business or property is suitable for a pop-up lease.  The business owner must decide whether they want to lease a temporary space that they will only occupy temporarily or if they want to establish a long-term location with a traditional lease.  Property owners need to consider the feasibility of their particular property for pop-up leasing.  Certain local ordinances or restrictions may not permit a property owner from leasing on a short-term basis.  Landlords may also run afoul of their current long-term tenants if they allow a short-term tenant to operate a business that competes with the long-term tenant.

Given the temporary nature and shortened timelines, short-term, pop-up leases present different challenges than traditional leases.  Common terms like providing notice and making repairs do not fit well in a pop-up lease.  Since the pop-up tenant is only occupying the space for a short time, they are more likely to violate rules, requirements for permits, or local ordinances because they will take a gamble that they will be gone before the authorities or landlord notices the violation.  The pop-up landlord may be less likely to make repairs to the premises for a short-term tenant that may be gone in a month. 

Although pop-up shops, by their nature, come and go, pop-up leasing is apparently here to stay.  If you are a business owner or property owner considering entering the pop-up leasing world, it is critical to retain competent counsel to analyze the relevant factors and ensure that the lease is flexible enough to function in the pop-up environment while providing adequate protection to the parties.

Real EstateMaria Moller