A few days ago, the global real estate service provider Savills released the latest global luxury retail outlook, saying that with the recovery of global travel and the return of a large number of international tourists, the recovery of luxury consumption is strong. The number of stores opened jumped 77%, compared with an increase of just 11% globally.
Rents fall, and offline luxury stores are booming.
In 2022, new luxury store openings in Europe will account for 23% of all such new stores in the world, second only to China and ahead of North America. Tourists are coming back, which definitely puts Europe back on the agenda of those expanding luxury brands."
The report noted that rent realignment and improved occupancy rates in some of Europe's leading luxury neighborhoods also boosted leasing activity. The report focused on the London market, where Anthony Selwyn, co-head of Savills' Prime Retail team, said London was one of the most active luxury markets in Europe, topping the continent in terms of new store openings last year.
To illustrate the above points, the report cited the example that indicative prime headline rents on Bond Street, London's luxury shopping district, fell by 27% between December 2019 and December 2021. Although rent growth has resumed now, as of the first quarter of 2023, rents are still 17% below their pre-pandemic peaks. However, while overall rents are down, demand and supply shortages are causing rents to rise, with the report predicting that rents in these central parts of Bond Street will be the highest on the block over the next 12–24 months.
At the same time, Savills said that the luxury business in the Middle East has also made progress. "In the face of a reduction in international travel, luxury brands are refocusing on relatively underserved affluent markets", and the Middle East market will therefore begin to show growth in mid-2021. Last year, the share of new stores opened in the Middle East doubled in the global new store openings to 6%, with most of the newly opened stores located in Dubai and Saudi Arabia.
China's new store opening growth rate is the first, but it is still slowing down.
However, the report pointed out that the development of the above regions all benefited from the "marginal softening" of new stores in China due to epidemic-related restrictions. Although luxury brands continue to pay attention to China's huge luxury market, the number of newly opened stores in China still accounts for 41% of the global total, ranking first. "However, in terms of quantity, the number of newly opened stores has indeed decreased. Considering China's accelerated openings in the previous year and weakening tenant confidence due to dynamic lockdowns in parts of China throughout 2022, this was not entirely unexpected."
The decline in new store openings in China has also driven the development of the luxury business in the wider Asian region (outside China), also affected by factors such as international travel, and the share of new stores in this region has risen to 12% of the global share. The strategy of luxury brands to focus on relatively underserved markets with a growing high-net-worth population, such as Vietnam, has also boosted luxury brand activity in the region.
Marie Hickey, director of commercial research at Savills, said: "While we have seen a large number of new store openings in the traditional luxury market, it is increasingly clear that brands are now expanding to a wider range of locations, and we expect this trend to continue. While major luxury destinations such as Milan, London, and New York are the most attractive for many luxury brands, and this trend will continue, vacancy rates in these markets are a challenge and will continue to Suppression of opening activity over the next 12 to 18 months means that new store activity outside the top markets will continue to increase."
At the same time, many luxury brands are also targeting their core customer base: Gucci, Saks, and other brands and retailers have taken cues from iconic brands such as Hermès to try to cater to their top customers. Last month, Gucci opened a new Gucci salon in Los Angeles exclusively for its VIP clients and Hollywood A-listers.
U.S. shop leasing demand is strong.
Across the ocean in the US, commercial real estate leasing is also booming. On May 2, American real estate developer and shopping center operator Simon Property Group said that although people's concerns about the U.S. economic recession have intensified, leasing demand after the end of the epidemic closure wave is strong. First quarter revenue was better than market expectations, with net rental income rising 3.3% to $1.25 billion, slightly above analysts' estimates of $1.24 billion.
"Tenant demand is very strong; Shoppers want to go to brick-and-mortar stores," Simon Property Chief Executive David Simon said on a post-earnings conference call. Occupancy was 94.4% in the first quarter, up from a year ago, the company said. In addition, the minimum basic rent per square foot (approximately 0.0929 square meters) increased by 3.1% to $55.84.
According to UBS, new store openings at these malls during the quarter included Steve Madden, Five Below, JCPenney, Starbucks, and Hollister, among others.
