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The current economic climate has created a glut of available retail space. Landlords, in an effort to reduce the loss of rent from vacant space, have begun renting to short-term businesses called pop-ups. Pop-up retailers enter into lease agreements running for a few days to a few months, but the idea is to give pop-up business owners a temporary space to display and sell their products. Previously, these cyclical business ventures have been seasonal or holiday-themed.

For example, a Halloween store may pop up from September to November or a large retail chain may rent a temporary space to a pop-up for a special Christmas express store. Recently pop-ups have become more common and more generalized as artists and smaller retailers are realizing the potential of short-term leases.

These short-term leases or rental agreements are advantageous for landlords as they provide temporary income for a space presently generating none. Simply having activity in a vacant space entices others to take notice of the space. Often times, the temporary lease functions as a cost-free open house for the landlord, and the temporary leases can lead to the pop-up retailer signing a long-term lease – or enticing other retailers to do so.

Alternatively, the foot traffic in the space is sufficient advertising for the landlord to be able to re-rent the space once the temporary lease has expired. The pop-up retailers are charged a pro-rated amount for rent, so the monthly per-square foot prices are comparable to long term leases.

Temporary leases taken out by pop-ups are also great for the surrounding neighborhoods. They eliminate the potential vandalism and trespassing associated with vacant property, bring life back to half-empty streets and are a hedge against urban blight.

first tuesday take: Pop-ups are gaining popularity and becoming increasingly viable in California. Landlords and property managers interested in the short-term leases with pop-up ventures should contact businesses in lower traffic areas and inquire about opening a branch store. This would allow the pop-up retailer to attract a customer base to their business while not being tied down to a full-term lease. The owner gets the advantages of having a tenant and rental income while the pop-up business can attract new clients.

With commercial real estate values 40% below their 2006 peak, a legion of adjustable rate mortgages (ARM) are about to reset upwards or become due. Vacancy rates are bludgeoning all California commercial property (except for communities with very high levels of retired populations), and these pop-ups provide a short-term fix. Like smiling with a mouthful of broken teeth, vacant units within a commercial property threaten the appeal of the remaining units and refinancing efforts.

California landlords of commercial properties take note: pop-up businesses could be the tourniquet which keeps commercial property alive until the economy fully rebounds. Beach cities have always known about pop-ups; here today, gone tomorrow, just like the beach goers.

Re: “Pop-Up Stores Become Popular for New York Landlords” from New York Times