My Cookie Dealer had been pushing its treats online since 2019, hand delivering and shipping the goodies made at its Nesconset bakery.
This spring, the owners decided to venture into their first physical store, and opened a pop-up in Tanger Outlets Riverhead in April that sells warm cookies, said co-owner Karen Morel.
Sales have been so strong that the pop-up, open from 10 a.m. to 7 p.m. Friday through Sunday, might stay past the planned September date, she said, adding that the results could lead to a permanent store.
"We love the concept. We love the interaction," said Morel, who said the pop-up opened after a Tanger leasing agent contacted her about bringing My Cookie Dealer to the shopping center.
Hit with rising retail vacancy rates, due in part to the COVID-19 pandemic that led to months of store closures starting in March 2020, some retail landlords on Long Island and across the country are rolling out the red carpet to the temporary tenants that they used to shun, retail experts said.
Mall and shopping center landlords are offering incentives to pop-ups and other temporary tenants that include cheaper rent, or sometimes no rent, and more flexible lease terms, they said.
Pop-ups used to be primarily seasonal stores, but now one-year pop-ups are not unusual, said Gregg Carlin, senior vice president in the Melville office of Dallas-based real estate firm CBRE.
More foot traffic
For landlords, the benefits of filling space with temporary tenants is that they can draw more foot traffic to other tenants, improve the look of the property lineup, and bring in revenue, if only for a few months. Having the space occupied by a temporary tenant also allows potential permanent tenants to tour the space without the landlord constantly having to lock and unlock the doors to allow visits, Carlin said.
For startup or online-only retailers, temporary physical stores help them gauge the costs versus revenue of having brick-and-mortar spaces to determine whether permanent stores are an option.
"I think there’s a little bit of trepidation in terms of people wanting to come long term on a five-year lease, so they want to test the water so to speak," said Mike Kelleher, vice president of ancillary income at Federal Realty Investment Trust. The Maryland-based real estate firm owns about 100 shopping centers, including five on Long Island.
As part of Federal Realty’s push to fill more vacancies, in mid-May the company began offering two months of free rent for pop-up space in its East Coast properties "for entrepreneurs who present a unique retail business concept as determined by Federal."
A typical permanent lease at Federal Realty is five years with the option to renew for five years, Kelleher said. Before the pandemic, the company’s temporary leases typically were for a one-year term and the landlord had the right to terminate with 30 or 60 days’ notice, he said.
"Now, what’s happening is a lot of people are wanting to do three to six months, ‘and let’s see how it goes,’" he said.
Federal Realty’s total property revenue fell by $13.4 million, or 5.8%, to $218.2 million in the first quarter of the year, compared to the same period a year earlier, according to a quarterly earnings report in May.
"The most significant driver of the decrease in property revenues is the ongoing impact of COVID-19, as many of our tenants were forced to close temporarily or in some cases permanently," Federal Realty said in the report.
This year, 68 new pop-ups, including Peter Andrews Furniture in Hauppauge, have opened across Federal Realty’s portfolio, but most of the pop-ups are not on Long Island. The real estate company said it has signed leases with some women’s apparel and shoe retailers that will open pop-ups on Long Island this year, but Kelleher declined to name them.
Pop-ups at Tanger outlets
For Tanger Factory Outlet Centers Inc., a Greensboro, North Carolina-based company whose 36 retail properties include the Riverhead and Deer Park centers on Long Island, the share of short-term leases typically ranges between 4.5% and 5.5%, CEO Stephen Yalof said during a quarterly earnings call with analysts in February.
The rate rose to a record 8.6% as of March 31, he told analysts during a May call.
"We got unprecedented levels of space back last year due to the accelerated bankruptcies from COVID, a lot of brand-wide restructuring. And, again, our strategy has been to replace a lot of that space with short-term leases while we ride the market out," Yalof told analysts.
In March, Dick’s Sporting Goods’ pop-up, a warehouse-store concept, Dick’s Sporting Goods Warehouse Sale, opened at Tanger Outlets Deer Park. The first on Long Island and second in New York State, the 32,050-square-foot store will be open for a year.
The only brick-and-mortar stores that clothing retailer The Lud has are pop-ups in New Jersey and New York, owner Lenny Ogeturk said. Founded in 2015, the Manhattan-based retailer currently has three pop-ups, including a 2,500-square-foot store at Tanger Outlets Deer Park that opened in March and is set to close in January, he said.
Because of the pandemic, landlords have been heavily courting Ogeturk with better deals on rent and more flexible lease terms, he said.
"I get a lot of emails in my inbox from other malls around the state and country. And they’re offering us, "Oh, would you like to have a store in our mall?" he said.
Long Island’s retail vacancy rate has been rising for years as brick-and-mortar stores have struggled to compete with online and big-box retailers. But the area was hit with another record this year.
In the first quarter of 2021, the retail vacancy rate for Long Island shopping centers between 10,000 and 675,000 square feet was 9.5%, the highest for any quarter since at least 2000, said Thomas P. LaSalvia, a senior economist at Moody’s Analytics CRE, a Manhattan-based real estate information provider.
Of Long Island’s 24 million square feet of space at shopping centers that range in size between 10,000 and 675,000 square feet, 183,000 square feet became vacant last year, but the number was worse in 2019, when 297,000 became vacant, he said. "Through 2020, we didn’t see the huge, huge hit to retail based off of COVID alone. There’s so much tied in there. We do still expect … another almost 300,000 square feet to become vacant this year," he said.
As landlords offer more concessions to attract and retain retailers, the lease durations are getting shorter.
The average retail lease duration on Long Island now is 4.7 years, compared to 6.2 years in 2019, said Rachel Johnson, associate director of market analytics at the CoStar Group, a Washington, D.C.-based commercial real estate information provider.
$28 million mall renovation
Samanea New York, formerly called the Mall at the Source, a Westbury mall that has had a high vacancy rate for years, underwent a $28 million renovation that was completed in March. While some new tenants have signed leases, including a family entertainment center called Empire Adventure Park and grocery store 99 Ranch Market, the 750,000-square-foot mall is still only 60% leased.
So, temporary tenants are being offered lower rent and more flexible lease terms, said Matthew Kucker, managing director in real estate firm Colliers International’s Jericho office. Colliers is overseeing leasing for the mall.
"We have about 40 stores that are vacant inside as we are continuing the leasing. And that’s been the big strategy for that shopping center," he said.
The mall’s second-floor food court has been closed – traditional eateries are now going to be on a first-floor corridor called Restaurant Row – so pop-up fast-casual and temporary "ghost kitchens" are being sought to lease space for one to two years in the food court, Kucker said.
Food court and 'ghost kitchens'
Typically ghost kitchens are restaurants without dining areas or visible storefronts, and they usually fulfill online orders for delivery only.
One of the ghost kitchens at Samanea will be Roberto Chang, a startup "Latin and Asian urban street food" business that has signed a one-year lease at the mall, said the business' operations manager, Paul Cicchetti, whose wife, Linda, owns Roberto Chang.
The business will open in a 900-square-foot space by early August at the mall, where it will sell food only through delivery apps, such as Uber Eats or DoorDash, said Cicchetti, who added that the business plans to sell franchises.
"So, for me, this is going to become not only a first location. It’s going to be a place where we can do some training, a place where we can learn and where we have proof of concept," he said.
Average retail lease durations on LI
For retail overall: 4.7 years now compared to 6.2 years in 2019
For anchor tenants*: 6.9 years in the first quarter of 2021 compared to 8.6 years in the first quarter of 2019
For non-anchor tenants*: 3.2 years in the first quarter of 2021 compared to 3.6 years in the first quarter of 2019
*At shopping centers between 10,000 to 675,000 square feet
Sources: CoStar, Moody's Analytics CRE
Retail tenants’ average rent on LI
First quarter 2021: $25.59 (first year-over-year decline since 2010*)
First quarter 2020: $26.17 (record-high amount for any quarter)
First quarter 2019: $26.07
*Decline is partly due to landlords offering tenants more concessions, including free rent for a few months.
Source: Moody's Analytics CRE