Since 2011, the rapid development of international tourism and the rise in spending by visitors from emerging economies benefit the luxury market in Europe, thus boosting the opening of new luxury stores, says Cushman & Wakefield, the world’s largest privately owned commercial real-estate consultancy firm.
Actually, despite its international expansion, the luxury-goods industry also depends on spending by emerging-economy consumers abroad. Half of all international tourists in 2012 traveled to Europe, which consequently remains one of the sector’s principal markets.
“In 2012, Europe’s major luxury destinations witnessed numerous projects for new stores, expansion, and refurbishment. Examples are the new Tom Ford flagship store on Sloane Street in London, the opening of the Prada flagship store in the Galleria Vittorio Emanuele II in Milan, the redevelopment of the Cartier store on Via Montenapoleone in Milan, and the new Chanel store at the Piazza di Spagna in Rome,” explains Pierre Raynal, Head of Retail Agency at Cushman & Wakefield France.
Paris, still a top choice for luxury brands
As the birthplace of the most prestigious maisons de couture and the world’s leading tourist destination with London, Paris, where the number of high-end luxury hotels is skyrocketing, has also benefitted from this effervescence.
The expansion of major groups (LVMH, Richemont, etc.) and the ambitions of new players (Qela, etc.) sharpened the appetite of retailers for prime retail slots in France. According to Cushman & Wakefield, prime rental values naturally continued their ascent in 2012, even occasionally crossing the symbolic threshold of €10,000 / sq. m. / year (Zone A).
Despite such changes, the fundamentals of the luxury market remain unperturbed. “The luxury sector may be booming, but this euphoria has not led to a restructuring of the sector in Paris and the rest of France. There are very few thoroughfares that have the power to attract the most prestigious retailers,” states Pierre Raynal.
Temporary slowdown
However, the luxury market could slow in the coming months. “It is very likely that the excitement seen over the past two or three years will not persist, at least not in the short term, because numerous retailers have recently adopted a more moderate rhythm of development,” observes Pierre Raynal.
This change is not limited to the Paris market. Several groups recently reported their desire to slow down international expansion and, in some cases (Gucci, Chanel, Valentino), to focus more on the refurbishment and expansion of existing stores.
However, Cushman & Wakefield considers this slowdown should only be temporary. The continuing rise in the number of millionaires and the strong expansion of the middle class in emerging countries demonstrate the still-considerable consumption potential.
As the capital of the most visited country in the world, Paris will continue to occupy an important place in expansion strategies of major luxury groups, but this trend should confirm the highly targeted development with strict geographical limits of most luxury companies. “Despite the shortage of available space on Paris’s most prestigious thoroughfares, it is unlikely that new luxury districts will emerge, with the possible exception of Le Marais, which offers numerous advantages,” concludes Mr. Raynal.
