San Francisco International Airport has finally given notice that will be receiving final bids for its new 14-year International Terminal Duty Free and Luxury Stores Leases on September 15, 2017, having set its minimum annual guarantee at $42m.

Total duty free and luxury stores’ sales in the International Terminal reached $107,730,414 in 2016, compared with 110,932,626 in 2015.

This unusually long lease relates to the management and operation of 11 Duty Free and Luxury Stores locations in the International Terminal and one in Terminal 1, with concepts sought including both duty free ‘core category shops’ as well as ‘high-end luxury boutiques’.

14-YEAR RETAIL LEASE ON OFFER

Interestingly, airport management has decided to offer a 14-year contract for this business alongside its proposed minimum annual guarantee is $42,000,000 and a Minimum Acceptable Percentage Rent Offer of 30% of gross revenues. At the same time it is looking to encourage the participation of small, local and disadvantaged businesses.

DFS Group’s beauty offering at San Francisco International Airport.

STORE INVESTMENT IS A HUGE FACTOR

The base term for the lease is approximately fourteen years, plus a period of up to 365 days for the construction of tenant improvements. SFO management adds that an automatic extension period will be available to the tenant ‘if necessary’ to ensure that the majority of premises in a new central retail plaza (if constructed) are operational for a full five years.

In addition, the Minimum Initial Investment Amount has been set at $1,000 per square foot of the premises, effectively equal to $45,943,000, ‘or an amount sufficient to meet the standards of the Airport’s Design Review Committee’.

DFS has completely remodelled and hugely improved the range and quality of its wine offer at San Francisco during the life of this existing concession.

In addition, if SFO decides to construct a central, post-security retail plaza during the lease term that includes duty free and/or luxury boutiques to be operated by the tenant then the appointed retailer will also be required to build out those spaces with a minimum investment amount of $1,000 per square foot.

Only companies who can demonstrate minimum gross sales of $60m at a single airport will qualify to bid for this concession and the airport intends to create a short list of three final contenders to attend and participate in the oral interviews where ‘standard questions will be put to proposers.

NINE CHINESE FLIGHTS – MORE THAN ANY US AIRPORT

SFO said: “Following the oral interview, the oral interview score will be added to the written proposal score to derive a final cumulative score for those proposers invited to the oral interview. The airport shall have the right not to conduct oral interviews if it so chooses”

Describing the airport and the opportunity, SFO states: “The airport is a major centre for both domestic and international traffic. San Francisco is the largest airport in the San Francisco Bay Area and is the second busiest airport in the State of California after Los Angeles International Airport. San Francisco International Airport (SFO) offers non-stop flights to more than 45 international cities on 39 international carriers.

“SFO is the Bay Area’s largest airport offering non-stop service to 79 cities in the US on 13 domestic airlines. In 2015, with more than 50m passengers, SFO ranked 7th busiest airport in the US and 21st busiest in the world. Included in that mix, SFO offers nine non-stop destinations to China; more than any other airport in the Americas.

“For 2017, two new international carriers have so far announced they will begin operation, four new international destinations will be offered by new and existing carriers, and many existing carriers are adding capacity to existing international routes.”

FIVE YEAR RETAIL SALES AT SAN FRANCISCO INTERNATIONAL AIRPORT AND TRAFFIC RESULTS: 2012 TO 2016