An Expanding Specialty
The emergence of creative new opportunities in specialty leasing is opening up new streams of revenue.
It is clear now that when The Rouse Company opened Faneuil Hall Marketplace in Boston in 1976, the Columbia, Maryland-based developer was contributing to the foundation of an entirely new—and in many ways transformative—retail phenomenon.
Within a year or two, shopping centers around the country were emulating this successful example, and the practice known as specialty leasing was off and running. Specialty leasing has evolved and expanded in important ways over the years, becoming what is today a multi-billion dollar industry encompassing some of the most diverse and dynamic retail opportunities at malls and shopping centers around the world.
But it is not where specialty leasing has been that is so interesting; but where it is going. For all of its growth over the past four decades, what has happened in the last five years alone has been eye-opening for developers and retailers alike. Kiosks and RMUs remain an important part of any specialty leasing program, but they have been joined by a host of new and exciting opportunities. In some ways, the very definition of specialty leasing is changing, expanding to include creative new ways to engage with brands and visitors. The result of that engagement, of course, is a boost to ancillary revenue.
A blank canvas
Local entrepreneurs opening pop-up shops and other temporary leasing opportunities are part of a growing and highly visible trend, and other sources of ancillary revenue—such as vending machines and special promotions—have increased in prevalence and popularity. But the biggest game-changer for the shopping center industry with regard to specialty leasing is that it is not just about transactional retail anymore. Malls are becoming a viable and visible sponsorship and advertising option: a kind of blank canvas where products, programs, brands, spaces and places can be displayed and engaged with in new and creative ways.
From static advertising signs and banners, to a wide range of sponsorship opportunities for races and other community events, the possibilities are almost endless. For example, Celebration Pointe, a transit-oriented development project containing a variety of uses, currently under development in Gainesville, Florida, is exploring opportunities to secure sponsorship for its miles of integrated bike paths. The paved trails, which will wind around and through 400,000 square feet of retail, restaurants and entertainment, 300,000 square feet of class-A office, more than 1,000 multifamily residential units and the project’s large nature preserve will be an especially good “branding play” for companies or retailers focused on the outdoors, health or the environment. Bass Pro Shops Sportsman’s Center will be the primary anchor for the project.
Special events such as concerts and outdoor performances have become much more common in recent years, and tree lightings, caroling and other seasonal/holiday highlights have helped transform some regional destinations into not just commercial, but also social centers of the surrounding community. These events also have potentially significant sponsorship potential: Coca Cola and PNC co-sponsor the Movies in Central Park program at Atlantic Station in Atlanta, Georgia, for example.
In this brave new world of specialty leasing and enhanced revenue generation, it pays (literally) to be creative and to leave no stone unturned. Celebration Pointe plans to capitalize on any number of opportunities to enhance revenue and provide special services to consumers. Some centers are hosting automotive test drives and other special promotional events such as product sampling sessions. Even filming opportunities can generate significant revenue. Atlantic Station established productive working relationships with location scouts, producers and other motion picture and television professionals, and consequently drove $75,000 in filming revenue in just the first year of the specialty leasing program.
The growing importance of specialty leasing and sponsorship opportunities means that developers need to be thinking proactively about how to include these concepts in their projects. It is not enough to talk about something being experiential, you have to take the steps needed to create or promote that experience.
One common mistake is to think that a specialty leasing program can be tacked on after a project is built as a kind of afterthought. The reality is, however, that it will likely cost significantly more than if you established the infrastructure and engaged in the planning process ahead of time. Carts and kiosks need power lines, and conduits and data lines should also be run beforehand. Backlit digital signage should be in place, and even little details such as special brackets on lampposts for hanging banners should be planned and executed ahead of time.
Back to the future
At the moment, some general managers are being held responsible for overseeing specialty leasing, especially in the smaller malls and developers. There is so much untapped revenue potential out there that it makes more sense to look to a specialty leasing professional to manage the specialty leasing/sponsorship program: establishing, managing and maintaining relationships with experiential marketing firms, agencies, brand managers and retailers; and developing new revenue-generating promotions, events, sponsorships and temporary retail concepts for the center. Although there are always variables that can change the number, the goal for any specialty leasing program should be to generate at least 10 percent of Net Operating Income (NOI).
The big developers have been integrating these ideas—or at least moving in this direction—for some time, but now even the smaller players are catching on. There is a growing awareness that specialty leasing should not just be about selling products, but selling the property itself. Today there is widespread recognition that specialty leasing is not only an outstanding way to fill vacancies, but a way to bring a distinctive sense of energy and dynamism to the project. This is an exciting time for specialty leasing and, by extension, the commercial and mixed-use developments that are benefitting from the enhanced ability to drive traffic and boost revenue for the property.