The luxury real estate market, particularly for retail purposes, seems unfazed by high interest rates. Despite the average commercial building experiencing a 20% decrease in value since 2022, luxury retail properties have remained resilient to the higher cost of money in the US and Europe. This is evident in the fierce competition in this market, with investors willing to pay premium prices for prime retail space on the most expensive streets in the world.
One example is Cartier Compagnie Financiere Richemont’s recent purchase of a property on Bond Street in London at a rental yield of 2.2%, twice the current rates set by the Bank of England. This trend is also seen in other major luxury shopping districts around the world, where demand for prime retail space remains high. Luxury brands view their flagship stores as marketing tools and are willing to invest heavily in acquiring prominent properties in top shopping districts.
This shift in ownership from sovereign wealth funds and aristocratic families to luxury brands underscores the growing importance of physical retail locations in an age of e-commerce. Brands like LVMH are leading the charge, acquiring multiple properties on prestigious shopping streets like Rodeo Drive in Los Angeles and Bond Street in London. Overall, despite high interest rates, luxury retail real estate remains a lucrative investment opportunity for those willing to take calculated risks and invest long-term.
