For Luxury Retail Real Estate, Paris Retains Its Je Ne Sais Quoi

By Isobel Lee

One of the few bright spots in retail real estate these days is on the so-called "high streets" of major cities, where luxury brands are still willing to pay stratospheric rents to promote their designer clothes, accessories, shoes and other goods.

Nowhere is the luxury high street stronger today than in Paris.

The French capital saw more luxury store openings than any other city in the world last year, accounting for 5.6% of total global designer store launches, according to real-estate firm Savills.

In October, Louis Vuitton opened its new flagship on Place Vendôme, in a historic property near the Ritz hotel that was originally built by the architect behind Versailles. Designed by Peter Marino, the store is a maze of art-lined rooms, with space for private appointments as well as for Instagrammers looking to snap the latest products from creative director Nicolas Ghesquière.

Nearby, luxury rival Chanel has slowly been acquiring smaller premises around its historic home at 31 Rue Cambon over the past decade, with plans to create the brand's largest store in Paris, if not Europe. Set to open later this year, the revamped flagship will include offices, showrooms and museum spaces, as well as workshops for customizing goods.

The decision by both Vuitton and Chanel to buy property instead of renting reflects a long-term commitment to physical stores, said Faustine Godbert, an associate in Savills' retail real-estate unit in Paris. "Luxury brands are ready to pay huge amounts to own the building, because they know that they will stay there for a long time," she said.

The investments reflect the diverging paths of retail brands, with luxury labels buoyed by Chinese consumers even as the sector overall remains under siege from online competition. While sales at some high-end stores may not be enough to justify their high real-estate costs, retailers still consider the locations invaluable for marketing and branding purposes.

For Paris, a position atop the high-street heap underscores the city's re-emergence as a fashion and tourist mecca nearly three years after terrorist attacks caused visitor numbers to plummet, decimating retail turnover.

"When the hotels are full, so are the boutiques," said Ms. Godbert. "International tourism is a more important driver of luxury retail sales now than ever before. And the fashion houses are ready to welcome them in a big way."

Asian shoppers, in particular, have been helping the city's retailers. "Paris welcomes more Chinese overnight visitors than any other European city," says Marie Hickley, director of Savills European retail research. They come for cheaper prices than they can find in their home markets, and to be certain they're not acquiring fake goods, she said.

Landlords are reaping the benefits. Prime high-street Paris rents grew about 9% a year between 2013 and 2017, according to Rob Wilkinson, chief executive of AEW Europe SA, a unit of asset manager AEW Global. "But it's very much bifurcated between high-end luxury and the more basic retail that's been impacted by e-commerce," he added.

Some investors have been taking advantage of the high prices to put properties up for sale. New York-based Thor Equities LLC, which has accumulated a half-dozen Paris properties in recent years, sold two flagship spaces on Rue de Rennes last week. It also recently sold a designer arcade on the Croisette in Cannes, leased to Burberry, Bottega Veneta and Saint Laurent, among others.

Not all high streets are experiencing the same boom. In New York, rents along the toniest section of Fifth Avenue fell to $3,700 a square foot in the first quarter of 2018, down 0.5% from the same period a year earlier, according to CBRE Group Inc.

And while luxury brands have proved more resistant to online competition than their peers, that could change. By 2025, as much as 25% of luxury goods could be sold online, according to a report from Bain & Co.

Paris, or course, has been a fashion and retail hub for centuries. Louis XIV's finance minister, Jean-Baptiste Colbert, famously quipped in 1665 that "fashion is to France what the gold mines of Peru are to Spain." But in the past quarter-century, the look of and feel of luxury shopping in the French capital has changed.

Luxury brands have colonized new arrondissements -- perhaps most successfully in the Marais, says Veronique Nocquet, head of retail services JLL France. And famed shopping streets have been updated, with Hermès converting a 1930s swimming pool into a cavernous store in Saint-Germain-des-Prés seven years ago, and Kering's Balenciaga and LVMH Moët Hennessy Louis Vuitton's Dior recently opening new stores on Avenue Montaigne.

"The look of the new flagships has become almost as important as the product," says Ms. Godbert, of Savills. "And they're an essential part of a multichannel strategy."

(END) Dow Jones Newswires

July 02, 2018 07:14 ET (11:14 GMT)

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