Luxury brands are on the hunt for retail spaces in prime corridors and Class A malls, leasing over 360,000 SF in the period from July 2023 to July 2024. That means big business for CRE.
JLL's 2024 luxury report found that almost half of the new U.S. luxury stores (48.5%) opened in malls, while 41% preferred select street locations. Because luxury brands want to be where their clientele is, the streets they preferred were overwhelmingly (68%) prime corridors. Store sizes ranged from the modest to the very large. Some 40% leased were between 0-2,000 SF, 19.4% leased (2,001-3,000 SF), 8.3% leased (3,001-4,000 SF), 11% leased (4,001-5,000 SF), 14% leased (5,001-10,000 SF), and 7% leased (more than 10,000 SF).
"Moving forward, growth in the luxury retail category will normalize as the U.S. navigates this period of economic uncertainty, with luxury retail sales expected to see a compounded annual growth rate of 1.9% from 2024 to 2028, surpassing $82 billion by the end of 2028," JLL predicted. U.S. luxury retail sales in 2024 are expected to total $77.3 billion in 2024 – even though the U.S. share of the world market fell 4% in 2023 from 2022.
The report noted that New York and Los Angeles continue to be the most desired locations for luxury brands, whether established or just launching their U.S. operations. Combined, these two metros accounted for 37% of new luxury openings from July 2023 to July 2024, with New York luring the vast majority (34), especially to prime corridors like Madison Avenue, SoHo, Fifth Avenue, and the Meatpacking District. Taken together, however, three locations in the Los Angeles metro – Beverly Hills especially the Rodeo Drive area, Costa Mesa, and Los Angeles itself – attracted 48 luxury brands.
"In New York City, the resurgence of Madison Avenue is in full swing as luxury brands take the opportunity to snatch up ample retail space while they can. Whereas new luxury openings in the Los Angeles market reaffirm a key fact: luxury lives in Beverly Hills," JLL commented.
Atlanta saw 12 new luxury openings, while Boston, Las Vegas and Miami each counted seven and Dallas attracted five.
"Malls that strategically optimize their tenant mix to offer the best-in-class retail remain enticing to luxury brands who are seeking high-quality space, with the best malls including an array of luxury brands in their rosters. Since 2021, class A malls have seen a resurgence in leasing activity as expanding retailers have focused on high-quality mall space," the report noted, citing the examples of Phipps Plaza in Atlanta and South Coast Plaza in Costa Mesa.
Class A malls also have the lowest vacancies, averaging 5.8% in Q2 2024, it stated, thanks to solid demand and positive net absorption. It expected the trend to continue as sites in prime corridors become scarce.
Among the luxury brands using U.S. malls to enter new markets or expand existing ones, the report named Kering, the French multinational holding company that holds brands like Yves Saint Laurent and Gucci. Also, the report listed OTB, a global fashion and luxury group known for brands like Diesel and Jil Sander. Another is French luxury retailer LVMH, with subsidiaries like Dior and Louis Vuitton among many others. And lastly Capri Holdings, the parent of Versace, Jimmy Choo and Michael Kors.