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A change of venue for luxury retail

December 31, 2014

Luxury retailers across the country are lining up to lease space in ritzy, open-air shopping centers or at freestanding storefronts in exclusive new shopping districts. The trend is well worth following, given that the affluent — the top 20 percent of Americans, those earning upwards of $100,000 annually — account for at least 40 percent of all consumer spending, according to JLL research.

One important consideration here is that the high-end brands these wealthy shoppers tend to frequent are in expansion mode. Then, too, a few savvy developers are taking advantage of this growing tendency among high-end retailers to look beyond regional malls in favor of a little outdoor exposure. But site selection criteria for posh brands like Dior and Jimmy Choo go beyond a mere sunny sidewalk. The neighbors and neighborhood play a huge role.

At the CityCenterDC, a mixed-use project taking shape in downtown Washington, one mile east of the White House, luxury stores that have opened as of November include Allen Edmonds, Burberry, Kate Spade New York, Longchamp and Tumi. The project’s developers — Houston-based Hines and Qatar-based Qatari Diar — report that additional leases are signed with CH Carolina Herrera, David Yurman, Dior, Loro Piana and Salvatore Ferragamo, among others. “We’ve put together a project that’s very consistent with the brand imaging that a lot of these tenants are trying to create,” said Howard Riker, a Hines managing director. “The quality of the buildings matches what they’re trying to do.”

The 191,000 square feet of retail space in the project’s first phase offers extensive frontage onto the pedestrian-oriented streets. Street-level storefronts give tenants greater ability to establish brand identity, Riker says. Convenient access and co-location with compatible stores are at once additional imperatives for luxury retailers and a strong marketing point for landlords. Perhaps the greatest draw for luxury retailers, however, may be the busy urban environment in and around CityCenterDC, which brings tourists, shoppers, office workers and residents from nearby past the retailers’ doors through the day and the evening. That kind of mix is pushing retailers to busy urban cores and transit-oriented mixed-use -developments, Riker says. “That was originally characterized as lifestyle development, but it has more to do with live-work-play and integrating the retail into the fabric of daily life,” Riker said. “In the case of CityCenterDC, what’s been a huge attraction is downtown Washington, which enjoys a cross-demographic that keeps busy seven days a week and, arguably, 15 hours a day.”


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Luxury retailers care not so much about the format, contends Howard Davidowitz, chairman of Davidowitz & Associates, a New York City retail consulting and investment banking firm. The pervading emphasis is on accessing wealthy consumers, he says, and many of them have gravitated to vibrant urban areas. “If you speak to luxury retailers, their number-one priority by far is going to be downtown,” he said. “Take Manhattan [or] Florida — these are areas which are selling $10 million and $20 million condos and have very expensive restaurants, so that’s where the rich people are. That’s the same in France, Tokyo or China. This issue of convenience is very important.”

But Davidowitz refutes any notion that luxury retail is forsaking malls. In many markets a pedestrian-oriented, outdoor shopping center near an enclosed mall will typically offer mainstream or even discount stores as opposed to luxury goods, he argues. 

Landlords ought not get the idea that luxury retailers are locked into a single shopping center format, asserts tenant representative Michael Hirschfeld, a senior vice president who heads the JLL luxury practice group. Top brands will resort to enclosed malls, urban storefronts and even outlet centers to reach customers, depending on the product they want to sell. “The luxury retailers use every available type of real estate to reach their audience, but maybe not with the same product lines,” Hirschfeld said. “The flagship stores are trying to create an experience; it’s more of a brand immersion. Then the branch stores will key into some of the elements of the flagship store. They’re exploring all of their opportunities.”

But there is a decided appeal for retailers and shoppers alike in open-air, pedestrian-oriented retail venues, whether on a downtown street or in a carefully planned mixed-use development, observes Billy Osherow, a retail leasing principal at Austin, Texas–based Endeavor Real Estate Group. This firm developed and leases The Domain, a high-end mixed-use project it continues to expand in partnership with Simon. “Look at The Grove, in Los Angeles, Melrose Avenue in West L.A. and various streets in Los Angeles that are really where the emerging brands, the very hot retailers, are seeking to open stores,” Osherow said. “It fits the lifestyle of how people live their lives today. They’re looking for a more authentic experience that has some personality and soul.”

“The retail environment itself is what’s driving the higher rents of the apartment units and the office space”

To Davidowitz, the meaningful trend at play among luxury retailers is the push to reach the small percentile of consumers with the highest disposable incomes, whether that is in a luxury mall, a popular downtown district or, increasingly, in mixed-use developments that re-create the live-work-play appeal of a strong downtown. “That mixed-use [trend] I expect to be very prevalent as we go forward, where a developer comes in and builds a very exclusive condo, maybe an office tower [or] a hotel, and surrounds that with very exclusive shopping,” Davidowitz said. “Time Warner Center, in New York, is an example of that.”

A few developers are creating exclusive open-air shopping centers positioned to meet pent-up demand from luxury retailers in proximity to established, landlocked upscale malls, Davidowitz observes. “If you’ve got an upscale mall and you can’t expand it, some competitor might come and do an outdoor iteration that might attract people,” he said. “That’s what Manhasset is, and what’s happening in Houston right next to the Galleria.”

Americana Manhasset is a luxury mall on Long Island’s Gold Coast that has spurred additional retail development nearby. And in Houston the luxury River Oaks District is set to open its first stores in September, near Simon’s high-end Galleria mall. River Oaks District, which takes its name from one of Houston’s oldest and wealthiest residential neighborhoods, is a 15-acre OliverMcMillan development that will provide some 250,000 square feet of luxury retail and dining intermixed with office space and high-dollar residences. Some of the brands set to open stores there are former tenants of the Galleria, including Dior and Cartier.

Stores in a street grid like River Oaks District provide convenient access for shoppers and eliminate much of the shared cost associated with malls, says Nick Hernandez, managing director of retail services at Houston-based commercial real estate firm Transwestern. Hernandez oversees tenant and landlord representation for the firm, including the team that is leasing River Oaks District. But the real magic of River Oaks and similar luxury venues around the country is the combination of exclusive retailers with top-tier apartments, condominiums and choice office space, Hernandez says.

“If you’ve got a quality retail environment, the rents you can achieve for multifamily or office are much higher than you can achieve a block away with no retail environment,” he said. “The retail environment itself is what’s driving the higher rents of the apartment units and the office space.”