Luxury Retailers Are Buying Out Their Landlords

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.

Australia’s housing debate is often dominated by affordability and supply, but a new collaboration between Brickworks and acclaimed architecture firm Kennedy Nolan argues the conversation should also focus on the quality and longevity of the homes being built.

The project, titled Our Next Neighbourhood, examines how suburban housing could evolve in response to shrinking block sizes, rising energy costs, increasing density and changing family structures.

Rather than proposing luxury dream homes, the initiative focuses on what its creators describe as achievable suburban housing models that are more flexible, sustainable, and better suited to modern Australian life.

Brickworks commissioned Kennedy Nolan to investigate what suburban housing might look like if “design, long-term liveability and enduring materials were placed at the centre of the conversation”.

The result is two housing concepts, known as the Street Terrace and Canopy Terrace, which explore higher-density living while maintaining access to green space, natural light and privacy.

The designs incorporate adaptable floorplans that can evolve as family needs change, along with passive design principles intended to reduce reliance on mechanical heating and cooling.

Brett Ward, General Manager of Marketing at Brickworks, said the company wanted to broaden the discussion around housing beyond simply increasing supply.

“Much of the housing conversation today is understandably focused on supply and affordability, but there is an equally important discussion to be had about the quality and longevity of the homes we build,” he said.

“We wanted to explore how thoughtful design, combined with durable, resilient materials, could create homes that not only function well today, but continue to support Australian families and communities long into the future.”

Kennedy Nolan said the project was partly inspired by concerns that contemporary housing often struggles to adapt to changing household structures and environmental pressures.

The architects said innovation in suburban housing was “essential” to address changing family groupings, energy use, urban heat island effects and growing disconnection from place.

According to the design team, the concepts draw on lessons from some of Australia’s most influential housing projects while seeking to create neighbourhoods with stronger links to landscape, community and local identity.

Rachel Nolan, founder of Kennedy Nolan, said the practice saw an opportunity to reimagine suburban housing as something “more connected to our climate, our landscape, our communities and our Australian identity”.

The project comes as policymakers, developers and planners continue searching for ways to deliver more housing without sacrificing liveability, neighbourhood character or long-term sustainability.

Luxury Retailers Are Buying Out Their Landlords

Brickworks has enlisted acclaimed architecture studio Kennedy Nolan to explore how homes could become more adaptable, energy-efficient and connected to community.