Luxury brands are looking to Europe again.
Luxury store openings in Europe increased by 77 percent in 2022, according to international real estate agent Savills. The continent has regained its appeal with the return of international visitors willing to spend money on luxury brands.
According to the Savills Global Luxury Report, the European share of new store openings climbed to 23 percent, putting Europe second behind China and ahead of North America.
“A relatively rapid rebound in luxury spending in the region, helped in part by returning international visitors, has undoubtedly helped put Europe back on the agenda for expanding luxury brands,” said Anthony Selwyn, Co-Head of Prime Global Retail at Savills. “In addition, the adjustment of rents on some important luxury streets and the improved supply situation in some cases has further boosted rental activity.”
In London’s Bond Street, for example, indicative prime rents fell by 27 percent between December 2019 and December 2021. Although rental growth has returned, rents in the first quarter of 2023 are still 17 percent below their pre-pandemic peak. .
The Middle East is also seeing a rebound in luxury store openings in 2022
Not only Europe but also the Middle East saw a surge in luxury store openings. Compared to 2021, the number of openings increased by 125 percent, albeit from a relatively low base. According to Savills, this continues the trend observed during the pandemic of luxury brands focusing on relatively unserved, affluent markets, with Dubai remaining a key focus alongside emerging locations such as Doha, Qatar. As a result, the region’s market share of global new store openings has doubled to six percent.
Globally, there was an 11% increase in new luxury store openings in 2022 compared to the previous year, showing that the luxury goods segment continues to outperform the general retail sector. China continues to dominate with a share of 41 percent of all new openings. This is as brands continue to focus on this market, particularly in the first half of the year, as Chinese luxury spending remains largely domestic.
However, the total number of new openings in the luxury segment in China has declined compared to 2021, which Savills says is due to weak tenant confidence. In some parts of the country, new store openings are likely to be impacted due to ongoing lockdowns.
London remains one of the “most active luxury markets” in Europe
“While we’ve seen a large number of openings in traditional luxury markets, it’s becoming increasingly clear that brands are now open to a greater variety of locations – a trend we think will continue,” said Marie Hickey, Commercial Research Director at Savills. “While the major luxury destinations of Milan, London and New York will continue to be the main draws for many luxury brands looking to acquire, the lack of availability in those markets will slow activity over the next 12 to 18 months, meaning new business will be in markets beyond will continue to increase in this top group.”
Selwyn notes that London was one of the “most active luxury markets” in Europe last year, with the highest number of new store openings. Activity has been centered on Bond Street and Savills expects demand and limited rental supply to drive rent increases over the next 12 to 24 months. This is particularly true in the core of the street, where Italian luxury brand Gucci recently secured a new space.
What to do with the luxury shops?
As for luxury retail opportunities to keep an eye on, Savills says that in addition to the north stretch of Bond Street, where redevelopment projects are currently underway, brands should also keep an eye on large-scale urban projects in Vancouver and Montreal, Canada . These include the joint venture between real estate groups Westbank and QuadReal in Oakridge Park, Vancouver, whose retail space is expected to grow to 1.2 million square meters by 2024/25, and the Royalmount project by private equity firm L’Catterton, which is scheduled for completion in 2024. The project will accommodate more than 170 shops. Louis Vuitton, Gucci and Tiffany&Co have already committed to this project.
There are also interesting opportunities in Silicon Valley, near Stanford University, California. A $100 million development is set to become Los Angeles’ counterpart to Rodeo Drive and appeal to a very affluent audience. The first phase is planned for the end of 2023, brands such as Roger Dubuis and Bulgari have already signed up.
In the Middle East, Savills also highlighted Saudi Arabia as the country has a large young and affluent population. The country’s strategy to diversify its economy is bringing new developments and opportunities for expansive brands, Savills said. Operating stores directly has also become easier, but partnerships are still important in the region.
This translated post previously appeared on FashionUnited.com.