The start of this year was marked by buzz about a pair of blockbuster deals in which some luxury retailers traded in their leases for deeds — a growing trend among a very niche group of high-end companies that could continue into 2025.
Just days into 2024, the fashion firm Kering, which owns brands such as Gucci and Balenciaga, purchased 717 Fifth Ave. for a whopping $963 million, which a top real estate analyst said at the time was more than triple the property’s estimated value. That transaction followed Prada’s move weeks earlier to buy the building housing its own flagship store on the same shopping corridor — one of the world’s best — for $835 million.
The shift from leasing to ownership comes amid a confluence of factors that have challenged the market in recent years, such as rising retail rents and limited vacancy, making it more appealing for those with enough capital to claim their stake indefinitely, especially on a street as highly valued as Fifth Avenue.
“These are successful brands,” said Patrick Smith, vice chairman of JLL’s New York retail brokerage. “They believe this would be the way to control their occupancy costs. I don’t think it’s something that everybody’s doing everywhere; it’s those unique corridors that, long term, a retailer believes that they’re going to be there forever, and they want to really make a brand statement, invest some capital.”
Although access to that kind of capital is rare, Smith acknowledged, real estate acquisitions by retailers are happening more than they did years ago.
It’s not just the world’s most luxurious brands that are buying their own real estate. Some smaller but still well-known companies are also hopping on the acquisition train, but for less.
French skin care company Caudalie, for example, purchased a SoHo retail property at 130 Greene St. for $9.7 million, Crain’s reported in September. The European brand, which is growing in sales, appears to be expanding its presence in the city after also having signed a 10-year lease for 14,000 square feet of office space at 381 Park Ave. South, where the asking rent was $69 per square foot.
Similarly, fashion retailer ONS — which stands for One Nice Shirt — made a purchase in the fall. Brian Chung, the founder of the company, bought 201 Mulberry St. in Nolita for $7.8 million, Crain’s reported. Chung founded the company in 2016 with his first store in Hong Kong and began leasing his Nolita storefront about five years ago after expanding to the U.S. It’s unclear how much Chung had been paying in rent for the past several years before deciding to buy the property instead of lease, but nearby retail space is listed for between $190 and $300 per square foot, according to commercial real estate database LoopNet.
Like Fifth Avenue in the Plaza District, SoHo and Nolita are both home to popular shopping corridors where brands are looking to claim their stake.
Smith noted, however, that most retailers are not in the market to purchase their own real estate and are still struggling to find adequate retail space at all. Although some high-end names will certainly look to make a big splash in the new year, he said.
“It’s really about getting their brand out there, moving fast, making sure that they’re at the beginning of whatever the trend is for 2025 — not necessarily about owning the real estate,” said Smith. “I think our big challenge, at least in New York, is going to be supply for next year.”
