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Luxury Retail Booms Across the U.S. with $75B in Sales

The luxury retail market in the U.S. reached $75 billion in 2023, driven by post-pandemic growth, though inflation is cooling demand.

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Good morning. The luxury retail market in the U.S. reached $75 billion in 2023, driven by post-pandemic growth, though inflation is cooling demand.

Today's issue is sponsored by RSN Property Group.

🎙️ New Episode: On this episode of No Cap by CRE Daily, Alex and Jack chat with Michael Santora, CEO of Logic. They discuss his robotics platform, which automates supply chains and optimizes warehousing.

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RETAIL REVIVAL

Luxury Retail Booms Across the U.S. with $75B in Sales

The luxury retail market in the U.S. reached $75 billion in 2023, driven by post-pandemic growth, though inflation is cooling demand.

In-store shopping: After two years of post-pandemic growth, luxury retail hit $75 billion in 2023, with an 8.6% annual growth rate from 2020 to 2023. The U.S. and Europe led the global luxury market, each accounting for 28% of sales. However, U.S. market share fell 4% in 2023 as inflation cooled demand.

Brick-and-Mortar: Nearly 50% of new luxury stores opened last year were in malls, contributing to Class A malls having the lowest vacancy rate at just 5.8%. Leap’s Amish Tolia notes that brands prefer physical stores, especially in high-end locations like Madison Avenue in NYC and Rodeo Drive in Beverly Hills, as e-commerce has proven less profitable due to complex customer returns.

Expanding to new markets: While prime urban areas remain popular, luxury retailers are increasingly expanding into secondary markets like Texas and North Carolina to reduce operational costs. Alvarez & Marsal’s Matthew Krell emphasizes that profitability, not just sales volume, is driving this push into more affordable locations.

➥ THE TAKEAWAY

Looking ahead: While luxury retail growth will slow amid economic uncertainty, JLL says the sector is still on track to surpass $82 billion in sales by 2028. The in-store experience and strategic expansion into both top-tier and emerging markets will keep the momentum going, even as growth normalizes at a 1.9% annual rate.


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✍️ Editor’s Picks

  • Waiting game: Most investors plan to stay on the sidelines until 2025, expecting flat CRE values and transaction volumes for the rest of 2024.

  • Longevity clubs: Sam Nazarian and Tony Robbins are launching "The Estate," a luxury hotel and longevity center venture targeting the $5.6 trillion global wellness industry

  • Trending down: U.S. foreclosures dropped by 5.3% in August 2024, but housing instability persists, with New Jersey having the highest rate of filings at one in every 3,277 housing units.

  • Neom’s troubled future: Saudi Arabia’s $500B Neom project faces mounting criticism over executive misconduct, financial improprieties, and workplace controversies, casting doubts on its viability.

  • Already priced in: Gary Cohn says expected Fed rate cuts are already priced into mortgage rates, offering little relief to homebuyers.'

  • Winners and losers: A few large firms are pulling ahead in the private credit industry with massive fundraisings and expanded influence.

🏘️ MULTIFAMILY

  • What might happen: Despite an expected rate cut, multifamily investors are split between jumping on opportunities or staying cautious, as oversupply and high vacancies temper enthusiasm.

  • Fulton Market condos? Sulo Development proposes a 243-unit, three-tower condo project in Chicago's Fulton Market, the area's largest condo development to date.

  • Rescue capital: Reap Capital launches rescue capital fund for multifamily owners and bails out investors on 854-unit portfolio in Dallas. Schedule a call to discuss your rescue capital scenario. (sponsored)

  • Renter strain: Nearly 50% of U.S. renter households are cost-burdened, spending over 30% of their income on rent despite rising household incomes.

  • Fannie and Freddie: Trump allies, including Larry Kudlow, are reportedly exploring privatizing Fannie Mae and Freddie Mac. The move aims to reduce the U.S. deficit, though critics argue it could increase taxpayer risk.

  • Strategic location: The Village of Chandler, a 109-unit luxury apartment complex in Arizona, sold for $39.24 million, benefiting from a strong buyer-lender relationship and 97% occupancy.

  • Hospitality to housing: Tramell Webb Partners is seeking to convert a hospitality project near UCF into 475 student housing beds, continuing its focus on mixed-use.

🏭 Industrial

  • Buying spree: Alterra IOS purchased four industrial outdoor storage assets totaling 17 acres in Greater Houston, continuing its expansion with investments in properties near key transportation hubs.

  • Securing the note: Billingsley Co. refinanced its 900,000-square-foot Denton Distribution Center with a $62.4M loan from Allianz Life Insurance, covering the project's construction debt.

🏬 RETAIL

  • Major deal: MCB Real Estate acquired the 273,425-square-foot Falcon Ridge Town Center in Fontana, CA, for $64.7 million, marking the Inland Empire's largest retail transaction of 2024.

  • Say goodbye: Nordstrom Rack will close its Empire Outlets on Staten Island store by December 4, another setback for the struggling mall.

  • Lease auction: Big Lots is auctioning nearly 300 store leases as part of its Chapter 11 bankruptcy, aiming to downsize while being sold to Nexus Capital Management.

🏢 OFFICE

  • Sold: Kaiser sold its 21-story Oakland office tower and adjacent parking garage to Behring Companies for $14.35M, with plans to redevelop the nearly vacant space into a mixed-use urban campus.

🏨 HOSPITALITY

  • Swift’s boost: Taylor Swift’s Eras Tour has had a bigger economic impact on Hyatt Hotels than the Paris Olympics, driving significant revenue as fans traveled globally for her concerts.

  • Approved: Baywood Hotels secured approval for a 124-key Hyatt House in Doral, adding to the surge in hospitality projects across South Florida.

📈 CHART OF THE DAY

Private Credit's Fundraising Boom is Slowing

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