Retail landlords are increasingly turning to short-term leases as a way to test the market and give stores a chance to try out locations.
Lease agreements that last two to three years, rather than the traditional five- to 10-year longer-term leases allow retailers to test how much they can afford at a location, Crain’s reported. These deals also provide landlords with rent in the short term and the possibility of landing a tenant for an extended period of time.
For example, Gucci recently signed a two-year lease for 11,000 square feet at Pearlmark Real Estate Partners’ 375 West Broadway. The deal includes an option to extend the lease for eight years. A Chicago furniture store is leasing 138 Greene Street in Soho for nine months. The landlord was initially seeking a tenant for five or more years.
“These deals are arming retailers with a range of data that allow them to reliably budget what a given location can support in rent,” said Michael Glanzberg, a principal at retail-leasing brokerage Sinvin Real Estate.
According to CBRE, the number of vacant ground-floor stores in Manhattan has swelled from 99 to 200 since 2014. Average asking rents along the borough’s prime corridors fell 30 percent from the fourth quarter of 2014 from $1,020 a square foot to this year’s $711, according to CBRE.
Some landlords are also accepting significant price cuts to rents. Fashion brand AllSaints inked a one-year lease for 20,000 square feet at Tishman Speyer’s 635 Fifth Avenue for a “fraction” of the $18 million the developer was asking, sources told Crain’s.
Last month, an analysis by The Real Deal found that retail spaces in nearly $1 billion worth of recently-purchased Soho property sat vacant. [Crain’s] — Kathryn Brenzel