Luxury Retailers Are Buying Out Their Landlords
3 min
Luxury retailers, flush with cash, are spending big on real estate in the world’s most expensive and exclusive shopping corridors.
In New York City, Prada recently agreed to buy the building that houses its Fifth Avenue store as well as the building next door for more than $800 million. Gucci’s parent company, Kering, is also paying nearly $1 billion for a 115,000-square-foot retail space a few blocks south.
Luxury behemoth LVMH Moët Hennessy Louis Vuitton , meanwhile, is in discussions to purchase the Fifth Avenue retail space occupied by Bergdorf Goodman’s men’s store, according to a person familiar with the matter.
This activity follows a flurry of purchases in Europe, where high-end retailers have snapped up real estate on high streets including Avenue Montaigne in Paris and London’s New Bond Street in recent years.
Luxury’s real-estate shopping spree shows that retailers are using their considerable cash to free themselves from the control of landlords and plant their flags on streets where they want a long-term presence.
“The rents that the luxury retailers were paying on Fifth and in other prime locations were simply astronomical,” said Eric Menkes , co-chair of leasing for the New York-based law firm Adler & Stachenfeld. “There comes a point in time when these retailers looked in the mirror and said, ‘Why am I making my landlord rich?’”
Retail rents on upper Fifth Avenue haven’t surpassed pre pandemic levels, but they averaged $2,000 a square foot over the past year, making the corridor the most expensive retail destination in the world, according to real-estate firm Cushman & Wakefield.
High-end retailers renewing their leases are often subject to the biggest rent increases, because they don’t want to leave well-known, successful addresses and pay for expensive build-outs at new stores.
“You don’t want to give up that location,” Menkes said. “And your landlord knows that.”
While the most recent eye-catching deals have been signed in New York and Europe, luxury companies are also buying buildings elsewhere. The French fashion house Chanel paid $63 million for a building on Post Street in San Francisco in 2021, the same year LVMH bought a hotel in Beverly Hills.
Chanel selectively acquires real estate “to protect its long-term presence in key cities around the world, and secure prime locations for luxury retail,” a spokesperson said.
While real-estate purchases so far appear concentrated in the most exclusive shopping corridors, luxury retailers are also signing leases in new markets and for bigger footprints to accommodate their swelling collections as well as new offerings such as restaurants and bars.
A surge in shopping for luxury goods powered the world’s largest luxury retailers to record profits in recent years. Sales growth has since slowed, but LVMH, which owns 75 brands including Dior and Hennessy, still reported nearly $94 billion in sales in 2023, beating analysts’ forecasts and sending the company’s stock price soaring in European trading .
“The premium luxury groups have so much cash on their balance sheet,” said Eric Le Goff , vice chairman and head of luxury for the brokerage Retail by Mona. For companies not contemplating acquisitions, “why not deploy the cash into real estate where you know you’re going to be there, hopefully for the next 100 years?”
In addition to cash, well-performing retailers have the option of floating corporate bonds to pay for their real-estate purchases at a lower rate than the traditional real-estate investor could get for a bank mortgage, according to Will Silverman , a managing director at Eastdil Secured, a real-estate investment-banking firm.
“The spread between where they can borrow and where a traditional real-estate investor can borrow, might be several percentage points apart,” Silverman said. That spread has never been wider in memory, he added.
This dynamic could mean luxury retailers are competing mainly against each other for real estate at the most desirable locations.
Luxury companies tend to cluster, so once one deal is signed, “usually that causes others to all jump in and want to be in the market, which then causes demand to increase and prices to rise,” said Andrew Goldberg , vice chairman at real-estate brokerage CBRE.
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Australia’s housing affordability crisis is being fuelled by chronic undersupply, planning delays and rising development costs, as politicians continue to focus on the wrong solutions.
3 min
Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.
Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.
Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.
“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.
“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”
Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.
Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.
“In the absence of stock, demand exceeds supply,” he said.
Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.
He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.
“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.
“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”
Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.
He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.
McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.
While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.
“People are looking for value for money,” she said.
She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.
“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.
The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.
“The viability of a development happens at the moment the site is bought,” he said.
He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.
While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.
“It is actually a business that requires a level of expertise,” he said.
Looking ahead, the panel agreed opportunities remained in the market despite current challenges.
Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.
McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.
Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.
“We can provide affordable housing in this country,” he said.
“But we’ve got to wrap that affordable housing with the things that people want.”
As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.
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