Contributor
May 8, 2023
Luxury brands have refurbished their stores on Fifth Avenue in New York.
Recently, in one of the world's "most expensive neighborhoods" and New York's famous luxury shopping district, the commercial recovery momentum along Fifth Avenue has been very significant. Tiffany & Co., Rolex, Bulgari, and Saks Fifth Avenue, among other brands, have chosen to renovate stores in this area.
According to data from the real estate company CBRE, in the first quarter of 2023, the remaining occupancy rate of retail stores along the street from 49th Street to 59th Street (the core midtown area of Fifth Avenue in New York, where luxury brands gather) dropped to 3.8%, while the figure for the first quarter of 2019 was 13.8%.
The above phenomenon reflects the global trend of retail real estate and also marks the return of tourism in New York after the epidemic gradually ended. Luxury retailers are betting on the trend again, updating their flagship stores to capture interest and drive traffic.
Tiffany & Co.'s renovated flagship store, "The Landmark," on the corner of Fifth Avenue and East 57th Street, held an opening event for special guests on the evening of April 27th and officially opened to the public on April 28th. In 2019, the 10-story store accounted for 10% of Tiffany & Co.'s total global sales before it closed for renovation. The renovation was designed by architect Peter Marino. LVMH officials did not disclose the specific renovation cost but said that this is the largest retail project ever invested in by the group, surpassing the Dior Avenue Montaigne flagship store that opened after renovation last year.
In 2021, LVMH, the world's number one luxury products group, acquired Tiffany & Co. for US$15.8 billion. Since then, LVMH has pushed its efforts higher up the market, making Tiffany & Co. no longer just synonymous with engagement rings. HSBC analysts said brand sales rose from 3 billion euros in 2020 to 5.1 billion euros in 2022 and are expected to reach 7.4 billion euros by 2025.
In addition to Tiffany & Co., LVMH Group has also invested heavily in the flagship stores of its other brands, such as Bulgari's New York store across the street from Tiffany & Co.
In addition, luxury department store Saks is undergoing a $250 million to $270 million renovation of its Fifth Avenue flagship store, including a renovation of the men's department on the seventh floor, starting January 27. Rolex is also renovating its Fifth Avenue headquarters, which will include a retail store on the ground floor and the remaining 25 floors for offices.
Brands such as Esprit and Glossier are also looking to open stores on Fifth Avenue, according to Richard Hodos, vice chairman of the New York retail team at global professional real estate services and investment management firm Jones Lang LaSalle (JLL). Prior to 2022, Hermès also opened a new four-story flagship store on Madison Avenue near the Fifth Avenue block.
In other real estate news, development company SHVO said it will invest at least $135 million to transform 685 Fifth Avenue into luxury residences, which will be managed by Mandarin Oriental Hotel Group. In addition, industry insiders revealed that American commercial real estate company Brookfield Properties also spent $400 million to renovate a 39-story office building at 660 Fifth Avenue.
Richard Hodos said many retailers were struggling before and during the pandemic. Since 2017, before the epidemic, many brands such as Ralph Lauren, Calvin Klein, and Gap have said that they will close their Fifth Avenue flagship stores and leave this block. Things are looking up now, though, and "Fifth Avenue is in the midst of this renaissance."
Gene Spiegelman, vice chairman of Ripco Real Estate, analyzed that the reason why the brand left at that time was the high rent in this area and the rise of e-commerce, which reduced the profitability of large flagship stores. Brick-and-mortar stores pay a premium."
That’s no longer the case today. While rents for ground-floor retail space on Fifth Avenue are still high, they’re down to around $2,000 from 2015, when rents per square foot dropped, according to Spiegelman and Hodos. In 2015, Bulgari renewed its lease for as much as $5,000 per square foot.
Tourism in New York is also recovering. According to the New York City Tourism and Conventions Bureau, in 2022, the number of domestic tourists to New York will be 47.3 million and the number of international tourists will be 9.4 million, which is relatively close to the data in 2019: In 2019, the number of tourists from the United States was 53.1 million, and the number of international tourists was 13.5 million.
Still, the Chinese tourist group, the main driver of luxury purchases, is returning at a slower rate than other tourist groups, according to JLL estimates, creating some uncertainty for New York retail. Plus, New York's office attendance rate was 52% on most workdays, compared with about 83% before the pandemic.
