Mall specialty leasing programs have a reputation for raking in big bucks. So it is no wonder that lifestyle center owners are trying to get in on the action.
“Specialty leasing is extremely lucrative for enclosed shopping centers, so — weather permitting — it would make sense for lifestyle centers to operate some type of leasing program with outdoor carts and kiosks,” says Patricia Norins, group publisher of the Specialty Retail Report. The Hanover, Mass.-based company publishes a quarterly magazine and annual directory for cart and kiosk operators. Norins estimates that carts and kiosk generate $10 billion in retail sales each year.
But to cash in on those profits, lifestyle center owners first need to figure out how to make carts, kiosks and other retail merchandising units (RMUs) work in their open-air environments. “Lifestyle centers are doing temporary inline tenants on a seasonal basis, but the outdoor units are not taking off as well as some of us would have hoped,” says Caye Watts, a senior vice president and director of specialty leasing at Jones Lang LaSalle in Atlanta.
Two obstacles to overcome are bad weather and blending RMUs and the lifestyle center layout. But Mother Nature presents the biggest challenge. November and December are prime shopping months, but lifestyle centers in colder climates not surprisingly find it difficult to lease space then.
(Lifestyle centers themselves are being forced to come up with architectural elements that protect shoppers from the elements. See story on page 24.)
Incorporating carts and kiosks into the layout of the lifestyle center is tough because the centers lack the large common area spaces that have made specialty leasing so successful in malls. Specialty leasing takes advantage of key traffic areas without impeding traffic flow. The logistics are trickier because the lifestyle center layout is more spread out, and shoppers often drive to different stores rather than walk the entire property.
Lifestyle center owners have not given up on specialty leasing, and some, including Cleveland-based Forest City Enterprises, have achieved a measure of success. Forest City introduced carts at Short Pump Town Center in Richmond, Va., when the property opened in September. “We were trying this on a year-round basis to see how it went, and we were quite surprised and pleased at how we made it through the first holiday season,” says Teresa Webb, specialty leasing manager for Short Pump.
In April, Forest City plans to add six carts to the 12 already there. Webb says the company has received applications from 100 vendors to lease carts.
Two years ago, Birmingham, Ala.-based Bayer Properties Inc. introduced a total of four RMUs at two of its lifestyle centers — the Summit Birmingham in Birmingham, Ala., and The Summit Louisville in Louisville, Ky. Temporary tenants have sold items ranging from hot dogs to home décor.
“We have had mixed success based on climate conditions in the two areas,” says Curtis Furgason, senior vice president of property management at Bayer. Demand for the units is strongest during the warmer summer months and on Thursdays through Sundays when traffic is highest.
The RMUs are leased about 50 percent of the time. Yet even running at half occupancy the program has been profitable with net annual returns at 38 percent, Furgason says. “Is it knocking the doors down? No,” he says. “Is it a growing program? Absolutely.” Bayer plans to feature RMUs at centers underin Reno, Nev., and Fort Collins, Colo., and, if occupancy rates increase, expand the program at its Summit properties.
Owners are finding ways to conquer the challenges. They can now purchase specially designed outdoor RMUs that accommodate operators and customers rain or shine. “Features include exterior-grade materials, rolling shutters for security, awnings that offer shade from the sun and overhang roofs that provide protection from the elements,” says Erin Knoettgen-Nap,manager at TL Horton Design, which makes kiosks. Short Pump purchased 4-foot by 6-foot carts that feature small heaters.
Lease terms also can be structured to account for climate conditions. The carts at Short Pump operate year-round, but management gives operators flexibility for bad weather. For example, if there is a snowstorm and the carts can't open, operators get a break on the rent, Webb says.
What's more, owners can change their strategy and merchandising mix along with the season. “We have learned how to make adjustments for shopping habits during different weather conditions,” Webb says. Merchandise such as wireless products and leather handbags work regardless of weather conditions, but in the colder months some vendors switch to seasonal products such as scarves and gloves, she adds.
Other considerations include finding the right kinds of tenants and the right balance in the number of RMUs. “You don't want to clutter the hardscape; you want to add pizzazz to it,” Furgason says. Vendors must complement the upscale tenant mix of lifestyle centers.
Some developers are laying the groundwork now for specialty leasing programs that are likely to emerge in the future. “We want a program that enhances the center and brings more viability, energy and synergy,” says Terry McEwen, president of Poag & McEwen Lifestyle Centers LLC in Memphis, Tenn.
Poag & McEwen is studying how to incorporate specialty leasing into the lifestyle centers it has in various stages of. The firm has four centers under construction, including the Shops at Evergreen Walk in Hartford, Conn., set to open this year. “We're in the stage where we are designing and developing specialty leasing into those openings,” McEwen says.
Landlords hope to use specialty leasing to enhance the “urban marketplace” atmosphere they are trying to create at lifestyle centers. “It helps the synergy and could expand the offering, but we need to be careful in not duplicating existing businesses,” says Kevin Polston, vice president, director of development leasing at Atlanta-based Cousins Properties Inc. Cousins expects to initiate specialty leasing at one or more of its lifestyle centers in the next two years.
Cousins has made accommodations for specialty leasing, starting with its first lifestyle center, Avenue East Cobb in Atlanta, which opened in 1999. It installed underground conduits that let tenants plug into electricity andlines.
Although specialty leasing may never be the moneymaking machine it is at enclosed malls, carts and kiosks will become more prevalent. “Specialty leasing at lifestyle centers is relatively rare today, but it will be certainly less rare in the future as people figure out how to make money at it and meet the demand that is there,” Polston says.