LEASE LANGUAGE: Turning temporary tenants
Oct 1, 2001 12:00 PM, Deirdre Moore
While the first priority is to sign leases with permanent tenants, it is a good practice to design a temporary tenant program allowing merchants to “test the waters” before committing to a long-term lease. The risk factor is significantly lower for the store, while the mall can present its customers with an ever-changing diet of new retailing concepts. It is a positive situation for all parties involved.
Embracing temporary tenants
In addition to increasing occupancy and broadening the merchandising mix of the mall, temporary in-line merchants are predominantly local retailers that have a unique position in the market. Because they live and work in the community, they can quickly respond to the local trends.
By adding local, temporary retailers to a strong national tenant line-up, the center provides shoppers with an increased breadth and depth of merchandise to meet the ever-changing needs and expectations of consumers. Ultimately, this results in stronger sales performances, long-term tenancy and increased center value.
Because today's shopper is bombarded by a myriad of new shopping choices and venues, local malls and strip centers need to do all they can to compete. The addition of temporary tenants helps maintain a shopping environment that's fresh and ever-changing. This, in turn, is one way to keep shoppers coming back.
Sears is one of Baltimore's Security Square Mall's original long-term-lease anchor stores, opening its doors nearly the same day the 1.1 million-sq.-ft. regional mall did, in 1972. Super Kids started doing business in the mall with a short-term lease in 1995 and now occupies more than 10,000-sq.-ft. as a permanent tenant. Although each of these retailers took different paths, they both became integral, long-term components of the shopping environment. However, with a different tack, Super Kids might not have been a tenant at all.
The merchant's breadth of inventory required the larger store size, and it didn't make economic sense for the store to settle for something smaller on a long-term basis. Management gave the retailer an opportunity to operate at the mall as a short-term tenant for approximately 5,000 sq. ft. of space. The ideal store size — 10,000 sq. ft. — wasn't available until much later.
Providing a chance to succeed
“Tenant improvement allowance” is not typically a phrase associated with temporary tenants. However, assisting select temporary tenants with specific expenses associated with properly opening and merchandising a store can be the key to their viability and subsequently committing to a long-term lease.
A tenant improvement allowance in the form of free or abated rent can provide a temporary tenant with the proper capitalization to get lighted store signage, professional merchandising and a grand opening marketing campaign. These components are paramount in determining a retailer's chances of success in the shopping center.
Also, creating a look of permanence instills consumer confidence in the store and the mall. Neighboring merchants are positively affected by a storefront that can generate some “buzz” thanks to a professional look, and thus, in turn, increase traffic to a short-term lessor.
Signing on the dotted line
During the past two years, Security Square Mall converted eight temporary tenants — totaling more than 25,000-sq.-ft. — to long-term status.
It is important to recognize that many temporary situations can be win-win. By demonstrating flexibility with tenants, a center can be rewarded with many permanent merchants that are true long-term success stories.
Deirdre Moore is vice president and general manager of Security Square Mall, a privately owned 1.1 million-sq.-ft. regional mall in Baltimore.
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