What can the vicissitudes of a very nichey (and spooky) industry teach us about the economic recovery?
A hearty "congrats" to the Halloween real estate agents out there, who—after nearly a year of scrambling—are hopefully on their well-deserved vacations. It's boom time for the Halloween Industrial Complex, which, according to the National Retail Federation, will generate $7.4 billion this year. And some of that money will surely be spent inside Halloween pop-ups, those temporary Halloween stores that materialize in your local strip mall around September and vanish by sometime in mid-November. (Like ghosts, some might say.) But for the real estate agents who hammer out the deals that create such stores, this is downtime. Happy Holidays, indeed.
How, exactly, do those Halloween superstores end up where they are? And what can they tell us about the inside workings of the nation's recovering economy? A lot, it turns out.
First, a bit about the timeline of Halloween real estate. The scramble can begin, as the hangovers do, as early as November 1st. "The minute our door is closed, we are—or actually even before our doors close—we are prepping for the next season," Frank Pacera, the senior director of real estate for the temporary holiday giant Spirit Halloween, told the Kimco Realty blog in 2012. (There are over 1,100 pop-up Spirit Halloween locations in North America this year, according to the company.) Assuming a particular temporary Halloween store did pretty well, the goal is simple: Get back into that space the next year. The more consistent Halloween pop-ups are with their locations, the more return visitors they'll get. Other priorities: "Ideally, we look at traffic counts, visibility from the road, we look at our retail neighbors, who's in the vicinity of the empty spot," says Randy Koziatek, who handles real estate for Halloween Express, another major holiday outlet.
The season for Halloween real estate gets really hot just as you're schlepping your dried-out Christmas tree to the curb—around February. That's when real estate managers start putting in calls to their favorite big-time commercial real-estate portfolio holders, mostly those who handle leases for large shopping centers. "It's a personal relationship—I speak to them regularly," says another real estate coordinator at Halloween Express, who spoke on the condition of anonymity.
Then it's conference season. The International Council of Shopping Centers holds a big event annual event in Las Vegas in May. SPREE, the "world's largest event for the cart, kiosk, and temporary retail industry," also takes place in the spring. (It's combining forces with the ICSC for the first time in 2015.) While there, real estate agents put out their feelers: Whose properties might be empty come Labor Day?
What few deals are signed this early usually contain a kick-out clause, according to Halloween Express' agents. Landlords, who typically angle for permanent five to 10 year leases, get spooked about signing temporary holiday leases for just a few months. But the property owners warm up to the idea by mid-summer, as it becomes increasingly clear that they can choose between an empty store or a temporary lease, for which Halloween retailers generally pay top dollar. ("Halloween store typically pay more rent than any other concept," says the Halloween Express agent). Most leases, for six to eight weeks, are signed between June 15th and August 1st. (Though one real estate agent told me he squeaked in, securing a lease this year in early October.) Halloween Express hopes to get in and out of stores, including set-up and disassembly, in less than 90 days, leaving the store an empty shell by November 15th at the latest.
The stores themselves are varied, to say the least. Halloween Express, for example, has taken up residence in ex-car dealerships, bookstores, restaurants, and electronics stores. Both Halloween Spirit and Halloween Express have leased out parking lots for tents, the most elaborate of which might be in Racine, Wisconsin. Behold, the pumpkin tent.
Which gets us, improbably, to the recession. Way back in 2009, mall owners were panicked. The typical shopping center residents—Sears, Macy's, J.C. Penney—had plummeting sales and plummeting stock prices. Sears closed 23 stores in the late spring of 2009 alone; Circuit City, the electronics retailer, filed for bankruptcy in 2008; Borders Books was out of the game by 2011. That year, strip-mall vacancy rates rose to a high of 11.1 percent, according to the real estate analytic company Reis (see below).
It was a bad spate of luck for the retail industry, to be sure, but holiday real estate agents licked their chops. The fewer successful big box stores, the fewer permanent leases—and the more cheap, hangar-like spaces ready for temporary rent. "During the crash, I would get calls before this Halloween to ask if wanted space for next Halloween," says the Halloween Express agent.
Just five years later, the game has changed dramatically. Mall vacancy rates are inching downwards, hitting 10.3 percent this summer. "We're over 95 percent leased in our total portfolio," John Kite, chief executive of Kite Realty Group, which handles 130 shopping centers across the U.S., told the Wall Street Journal in June. "That's as good as it's been in the past 10-plus years."
Meanwhile, mall construction is still lagging. According to Reis, the second quarter of 2014 saw only 1.4 million square feet of mall space completed, compared to a recent high of nearly 14 million square feet in 2007, just before the crash. Those 2014 figures, however, are still a rebound: The nation only saw 405,000 square feet of completed mall space in the first quarter of 2011.
Predictably, that dearth of space means rents are rising. Asking rents in strip centers hit $40.51 per square foot this year, according to Reis data, up 4.6 percent from the depths of the recession.
That mall-market tightness is improving slowly, but not fast enough for the 2014 season. "We'll see a moderate increase in the coming quarters in construction," Suzanne Mulvee, a director of retail research at CoStar, told the Wall Street Journal. "But it's going to be a couple of years before we see construction getting back to even half the pace of what it was in 2007."
These are all positive signals for the retail industry, and the economy as a whole. But for Halloween real estate agents, it's been a tough few months. "It was a lot easier two years back to find spaces that were, say, 10,000 square feet and above," said Randy Koziatek with Halloween Express. "Now we're working on a smaller footprint of 5,000 to 8,000 square feet." Others say they've completed fewer deals with national real estate portfolio-holders this year than they did in the 10 years previous.
Which brings us back to Racine, Wisconsin, and their pumpkin tent. Where do you go when the neighborhood mall doesn't have any room—or is charging too much to use it? The parking lot, of course. "Most of the large [mall] developers, if they control the parking lot instead of the anchor store, do a tent deal with us," says the Halloween Express agent.
That Halloween pumpkin tent might look silly. (I would say "delightful.") But more of them could be a telltale heart—no, sign—of a slow but steady economic rebound. And what could be less scary than a robust national retail sector?