[+] Hey Big Spender: Luxury Retail Hunts for CBD Space

High-end fashion and jewellery brands are hunting in packs, desperately seeking CBD retail space and providing asset owners with a recession-proof tenant. The market is hot on both sides for luxury brand tenancies, according to industry players, with the category defying Covid-19 lockdowns and reduced footfalls. Despite negative economic indicators, luxury brands such as Louis Vuitton, Ortega, and Chanel, are moving in packs as they search desperately for significant CBD sites. And landlords are just as desperate to accommodate them, seeing haute couture boutiques, watchmakers and jewellers as a hedge against future Covid-19 waves or the threat of recession. Cartier is the latest brand to spotlight the trend, recently opening a 783sqm two-storey flagship ‘maison’ at 388 George Street, Sydney. The jeweller anchors a new-build five-storey freestanding complex with other luxury retail and F&amp;B at one of Australia’s busiest pedestrian intersections. Co-owners of the freshly redeveloped site, Brookfield and Investa Gateway Offices, said that the area already hosts a number of luxury brands, and is ripe for more. Brookfield properties co-head Danny Poljak told The Urban Developer that the Cartier store is “leveraging the pedestrianisation of George Street” and “anchors the surrounding luxury precinct”. Pandemic blessings for luxury set to continue Bizarre monetary, fiscal, and social conditions in the pandemic years have been fruitful for the top-shelf retailers. The more expensive their wares, the more they have benefitted from a case of coronavirus. ▲ The Cartier flagship store on George Street in Sydney. JLL head of leasing, Queensland, Cameron Taudevin said that “The Australian luxury market has matured significantly in the past 10 years”. “Most interestingly, the market has seen the most significant growth during and post the pandemic lockdowns that began in 2020,” he says. Head of retail tenant advisory at CBRE Tim Starling agrees. “The growth of these brands through Covid has been phenomenal”, Starling says. “You’ve had people sat at home, plenty of discretionary spending, and wanting luxury. “The luxury brands are now doing one or two stores a year, each…I would never call anything recession-proof, but in this market, everyone’s been blown away by how much spend and appetite there’s been, despite the economic conditions.” Starling works with retail brands to optimise their property strategy, and says that tourism numbers are hugely important to luxury brands. But from a property perspective, there’s not much correlation between ailing airport retail and the flashy CBD flagships. And while there’s massive potential upside once tourists start returning in big numbers, the luxury brands have already proven that they can thrive without them. “There’s about $60 billion that leaves Australia each year, against $30 billion in inbound tourism spend. So when the borders are shut, there’s a lot more onshore spending in this sector,” Starling says. ▲ The luxury retail market is eagerly anticipating the return of customers for mainland China. “By the end of 2024, we’re expecting tourism figures to normalise. We don’t have mainland Chinese coming back yet, and they spend three times more than other tourists. We’re also watching the Middle East and Africa, and North America; these are important markets for luxury tourism. “But if you look at the current revenue figures, [luxury] has got an incredibly strong business off a low footfall base. So you’ve got to work off the basis that this is the new normal, and there’s plenty more to come.” Landlords ‘future-proofing’ further expansion Understanding the unique characteristics of the market, and how it’s evolving, is crucial to capturing the continued expansion of the luxury brands. Taudevin says that the majority of interest in “super prime central CBD [sites]” on the east coast is coming from luxury. Many brands are still looking to place a flagship onto the east coast, while others are growing their footprints. ▲ Inside the George Street Cartier store. “This market is very active at the moment, and in most cases, established brands across the country are looking at expanding their in-store footprint to offer more stock off the back of increased sales,” Taudevin says. “We don’t have enough suitable space to house the entry of new luxury brands into Brisbane City. These brands have very specific requirements around ceiling heights, exposure and neighbouring tenants, and as a result, it’s very hard to get the right formula.” “Some landlords are at capacity with luxury occupants, and existing expiries in other locations are yet to be reached, which will continue to further drive demand for this type of retail property.” According to Starling, luxury brands will follow each other if the conditions are right. Location is crucial, but landing the right tenant can crack a precinct open for others. “In Sydney and Melbourne, it’s very defined where luxury goes. In Perth they’ve moved because landlords couldn’t accommodate them,” Starling explained. “In Adelaide there’s no single owner who could accommodate them, so they’re now looking at Burnside Shopping Centre.” “In Brisbane, Queen’s Plaza redeveloped and got them. [Other sites nearby] are about to redevelop to capture the remaining demand.” ▲ Inside the Chanel Maison store on George Street, Sydney. Starling says landlords looking to play in the luxury space would be wise to plan their developments around the timing and space requirements for luxury expansion. As the market has matured, stores in the Sydney CBD have moved around in the hunt for square metres. In Melbourne’s Chadstone, luxury footprints began at 200sq m and have upsized several times, now in the range of 600sq m over a duplex. “Louis Vuitton wants 1000sq m or more at the moment, Gucci wants 800-1000sq m. Dior wants 6-800sq m. Everyone else is in the range of 400sq metres,” Starling said. A canny landlord might plan for a luxury tenant to expand upwards or downwards into a duplex configuration when a contract is renewed. “Assets are currently not future-proofed for these guys to grow,” Starling said. “Everyone’s having to reconfigure space every three to five years. In Hong Kong and Singapore, retail leases are down to three years. Whereas a luxury brand in a CBD, they want a ten-year contract with two 10-year extension options.” “You would be very wise to place those tenancies, knowing that they’re probably going to grow in size over the next 10 years. Retrofitting existing assets can be quite expensive, but if you’ve got the ability to do that, I think you probably would.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Hey Big Spender: Luxury Retail Hunts for CBD Space

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[+] Hey Big Spender: Luxury Retail Hunts for CBD Space

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