Luxury brands become landlords to take control in coveted retail destinations
High-end brands are spending hundreds of millions of dollars on properties in popular corridors that house their flagship stores or could in the future.
In December, Prada agreed to buy the home of its boutique in New York’s Midtown and an office building next door for $835 million, Bloomberg reported. Also on Fifth Avenue, Gucci owner Kering dropped $963 million on a property where it could open a store in the future, and both LMVH (which owns Louis Vuitton and Christian Dior) and Chanel have reportedly been in talks to buy a building housing the Bergdorf Goodman department store. In San Francisco’s Union Square in late 2021, Chanel bought a building housing Williams-Sonoma for $63 million. That was after the luxury brand had already paid $152 million in 2015 for the property that is now its new, larger Los Angeles flagship.
The deals may give luxury retailers more control and certainty over their physical presence — a key component of their brand. They would typically rent space from other property companies such as Jeff Sutton’s Wharton Properties, a prominent New York landlord and the reported seller of some of the properties along Fifth Avenue. They also let these retailers choose who their co-tenants are and decide on renovations beyond just their own space.
LVMH purchased about $2.66 billion of real estate globally last year including several sites in London and Paris, according to Bloomberg. In January, LVMH CEO Bernard Arnault told investors on an earnings call, “we’re trying to secure and to buy the best possible locations for our companies,” noting specifically that the company has several of the best corners on Fifth Avenue. The company has also heavily invested in retail centers in cities like Miami and Paris, shaping the communities around its stores.
“That’s quite an interesting vote of confidence for the downtown areas,” Richard Barkham, global chief economist for commercial real estate firm CBRE, told journalists in June at the National Association of Real Estate Editors’ conference in Austin, Texas. “We haven’t seen this sort of thing for ages.”
Limiting competition
The purchases are generally limited to the world’s most prominent retail districts like Fifth Avenue in New York, Los Angeles’ Rodeo Drive in Beverly Hills and Union Square in San Francisco.
Barrie Scardina, retail leader for the Americas at Cushman & Wakefield, said she doesn’t expect it to become a very large trend because the practice is limited to the “high streets” that only have so much real estate to sell. “There is limited availability of exceptional properties, and there is a desire of these luxury retailers to really solidify their location in the best spaces,” she said.
For other retailers looking for space in these prime districts, the other companies’ purchases could mean an even tougher time finding spots. The luxury brands, generally, dedicate spaces they buy to their own stores. Fifth Avenue is already a tight market for retail leasing as it sees demand from a wider variety of retailers. Only eight ground-floor retail spaces were directly available on Fifth from 49th to 59th streets in the first quarter of 2024, according to CBRE research.
“If one group is buying up the real estate, that is going to preclude that space from ever being rented to a different luxury brand,” said Andrew Goldberg, a vice chairman at CBRE known for negotiating deals such as Gucci’s lease for its flagship store in Trump Tower. He said it is becoming difficult to find space on Fifth Avenue not owned or leased by companies like Gucci or LVMH. “If you wanted to be right there, the supply is just dwindling down.”
Rents along Fifth Avenue have dropped over the last year, though it still costs thousands per square foot. But Goldberg doesn’t see that as the top consideration of these brands when making these decisions. “Rents don’t matter if there’s no space available to take,” he said. “The biggest thing is controlling it, knowing that you’ll be able to have one of your brands there, and that the competitors won’t be able to take it off the market.”
Using luxury boom to fuel investments
When people stopped traveling and received more government stimulus after the pandemic began, they had more to spend, growing luxury brands in 2021 and 2022, according to Brad Jashinsky, a director analyst at Gartner who tracks luxury retailers and other companies. LVMH had about $14.6 billion in extra cash after expenses in 2021 and $10.9 billion in 2022, per financial documents. Though that growth has since slowed, Jashinsky said that influx generated extra cash for these luxury brands that led to more real estate purchases because their revenue largely comes from in-person shopping.
“Although digital has grown, it’s still a relatively small part of their business,” Jashinsky said. “Even a lot of the advertising and digital marketing that they run is designed to bring consumers in store.”
Luxury brands have been focused on building larger, grander stores, since around 2018 or 2019. Tiffany & Co. began transforming its New York flagship in 2019 and opened it in 2023. Some have been focusing on experiences like suites for private shopping or attached cafes or restaurants. These are investments they may want to protect in the long run.
Luxury brands like Kering or Prada making significant investments in their properties may not want to renew a lease in 10 years, said Scardina of Cushman & Wakefield. “You also want to have some control from a perspective of what happens to your building.”
Jashinsky said the building purchases make sense for these luxury brands as they tend to make long-term decisions, such as LVMH cultivating the Miami Design Center for more than a decade. “They know their brands are built over not even just years, but decades, and in some cases, centuries too.”