Institutionals Investment opportunities in retail real estate: Luxury is always possible

The search for lucrative investments occupies many investors - especially in view of a volatile and strongly divergent capital market environment. Recently, real estate has not only brought joy. This can change now, because we may be at the beginning of a new cycle. But where exactly is it worthwhile with all the uncertainties such as working from home or shopping online? To date, little attention has been paid to a segment that is currently chasing away stockholders and interested tenants: “Luxury Retail”. What exactly is behind it, and why should investors consider starting right now?

There is no doubt that retail is still undergoing a structural upheaval, mainly due to the growing e-commerce. In the absence of resilient concepts, there is a threat of vacancy in pedestrian zones and shopping malls. However, not all segments are equally affected by the upheavals, as not least demonstrated by the robust development of local utilities during the Covid pandemic. And another area that defies the challenges of retail with remarkable strength is “Luxury Retail”, i.e. the brick-and-mortar retail of luxury brands from the areas of fashion, accessories and jewellery.

In times of economic crises and stagnation, it has often been shown that the wealthy people’s enjoyment of consumption is more independent of the general economic situation. After the pandemic, the sector not only recovered, but also clearly outperformed the mass market in the following years. Only in the pandemic year 2020 was the sales development behind the overall market, as the luxury segment was more heavily burdened by store closures during the lockdowns.

Against the backdrop of geopolitical tensions and trade conflicts, some luxury corporations are also currently facing declining sales. This is particularly noticeable in Asia, also driven by a weakening Chinese economy. Sales in Europe, on the other hand, were more resilient, supported by the recovery of tourism flows, including in the luxury tourism sector. According to the European Travel Commission, international tourist arrivals in Europe increased by almost five per cent year-on-year at the beginning of 2025 after reaching the pre-coronavirus level again in 2024. In the long term, the luxury segment will benefit in particular from the number of high-net-worth individuals (HNWI), which is expected to continue to rise in the coming years.

One feature of luxury retail has already sounded good and is of particular interest to real estate investors: Indeed, a growing part of sales is also shifting to the Internet here. Nevertheless, luxury brands continue to deliberately focus on the physical location as part of their brand staging. Visibility in exclusive locations is and remains a central component of their strategy. The spaces serve as a showroom, experience space and image carrier at the same time. The flagship store on Maximilianstraße in Munich, on “Kö” in Düsseldorf or on Frankfurter Goethestraße cannot be replaced by an online presence. Instead, omnichannel strategies that integrate the brick-and-mortar with the digital shopping experience have become the standard.

Luxury locations are extremely rare even in larger cities. Not every city has a “luxury mile” at all, and if so, it is usually just a single street train with the prestigious address. As a result, vacancies in such 1A luxury locations are very rare, instead they have extremely attractive and continuing to rise rents. In the high-margin business of many luxury providers, the tolerance for rental amounts is relatively large; location and quality are more important. Rental relationships with high-quality, internationally active luxury brands are often also designed for the long term, and staff turnover is low. Once suitable space is available, this leads to intense competition in practice.

The demands on the area itself, but also on asset and property management, are high. Luxury brands focus on high-quality, architecturally sophisticated store concepts to make their brand identity tangible. They demand freedom of design and representation quality. The requirements for tenant expansion are also constantly changing, so corresponding flexibility is required. Currently, the areas are becoming ever larger in order to create different recreational and experience areas, such as cafes. The quality of asset management is therefore also crucial from an investor’s point of view in order to make the best possible use of the potential of the property and rental space.

However, access to corresponding properties is severely limited for investors in normal market phases, as the owners are often very long-term investors who rarely divest from these luxury trophy assets. But in the current market phase, where other real estate segments are less liquid, there are certainly occasional opportunities. Even in such cases, the selection and purchase should involve an experienced and competent asset manager in this segment, who knows the users and their requirements and can identify and implement the rental and value-added potential.

Luxury retail offers more than just stable cash flows - it opens up access to a segment characterised by a combination of experience, exclusivity and economic resilience. For institutional investors with a focus on substance, selectivity and long-term partnerships, this segment is therefore a strategically valuable building block.