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Short-term leases, the new normal to fill current vacancies

Every year, over a billion square feet of retail space meet the expiration date of the contract and need to find a retailer willing to occupy it. For instance, the US will have 1.5 billion square feet of retail space becoming available this year. Normally, most retailers would sign a new contract and shoppers would find the same familiar brands over the years. But this is no longer the case.

Adjusting to the unpredictable new conditions

As a consequence of the COVID-19 pandemic, business owners now deal with an unpredictable future that could imply an economical crisis and financial instability. Therefore, signing short-term deals for pop-up shops, kiosks, stands or advertising seems to be a safe strategy for both parties. This was already a rather popular strategy for this industry and it will become even more prominent in the future ahead.

Not only does this new real estate landscape bring promising opportunities, but also imply a challenge for retailers, who should direct all efforts towards increasing their turnover in smaller and shorter-term spaces, and for landlords, who should manage to fill their vacancies more frequently. Thus, digitization becomes more and more necessary for managing these critical processes. 

What are the advantages of this practice?

As every other evolution, this market trend also proves to be a good temporary opportunity for both ends. On the one hand, retailers can benefit from more flexible contracts and adapt consequently to the customers’ needs and preferences, without committing to long-term contracts and conditions. On the other hand, landlords can also take advantage of the exponential growth of this trend and secure occupancy when the stakes are low, while aiming at better conditions once the market strengthens .

Clearly, most shopping malls are increasing their short-term leasing rates, and this trend will probably continue this year and beyond. And even though these new circumstances seem more fragile, they could actually lead to long-term relationships between landlords and new tenants. In addition, be it just temporary or not, occupancy does attract more clients and tenants.

It is also true that almost every business was forced to evolve since 2020 —and CRE is no exception. Now it is up to both parties to negotiate logical terms and boost the economic recovery of retail and real estate. After all, they have a shared goal: being viable and productive.

A win-win situation

Even though the current situation is highly unpredictable regarding landlords’ and retailers’ impossibility to plan ahead, both parties can and should take advantage of it. The first can enjoy flexible terms and prioritize their customers’ desires, while the second can use their resources to expand their opportunities in the future and improve their relationship with tenants. 

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