Urban retail: the rising star of post-pandemic real estate investment

CHICAGO, Nov. 7, 2024 – The surge in office occupancy, strong consumer demand and the return of foreign tourists across major U.S. cities is fueling a renaissance in urban retail. Luxury brands and savvy investors are rushing to secure prime locations in revitalized city centers, underscoring the exceptional investment potential of urban retail properties as they emerge as standout performers in the post-pandemic real estate landscape. Urban retail's share of multi-tenant, single-asset transaction volume reached a five-year peak for YTD Q3 in 2024, comprising 14% of the total. This surge is attributed to significant prime urban deals, notably 717 Fifth and 680 Madison Avenue. Our recent JLL Luxury Retail Report highlights a trend of luxury conglomerates increasingly acquiring prime urban properties. These companies are willing to pay substantial premiums for locations in the most coveted corridors, effectively limiting market entry for new competitors and solidifying their brand presence.

Urban retail markets are showing signs of recovery and growth as city centers bounce back from the pandemic. According to the 10-city Back to Work Barometer, weekly average office occupancy has stabilized at 61%, indicating a gradual return to the urban core. This trend is particularly evident in Los Angeles, which recently experienced its highest single day of occupancy since the pandemic began, with 69% on a Wednesday. While office occupancy patterns vary throughout the week, peak days suggest a significant influx of workers into urban areas on certain days.

“The ‘High Streets’ are still riding high,” said Matthew Fainchtein, Managing Director with JLL Retail Advisory. “The BH Triangle especially Rodeo, Beverly and Brighton Way are still some of the most coveted streets in LA. On Melrose and Robertson in West Hollywood there is virtually no vacancy as the newer cooler brands see it as the area in the city to launch their brands. Abbot Kinney is still a hot street with very little inventory available. Property in these areas will continue to thrive as there is no sign of rents declining any time soon. Furthermore, there is no new space coming online as development continues to be difficult from both a zoning perspective as well as the constraints due to financing.”

The urban retail sector is poised for a strong rebound as foot traffic in city centers increases. Luxury brands like Chanel, Gucci and Louis Vuitton are leading this resurgence by expanding their brick-and-mortar presence in top U.S. cities. This renewed interest is driving leasing activity in prime urban corridors, particularly in evolving neighborhoods such as Miami's Design District and New York's Meatpacking District. Miami and New York’s return to office recovery rate are at an impressive 87% and 77% respectively. With retail fundamentals solidifying and rents potentially bottoming out in some areas, urban retail properties are well-positioned to capitalize on the continued recovery of city centers. As of year-to-date September 2024, most prime urban corridors saw an increase in foot traffic year-over-year. With Miami, Boston and Chicago observing full recovery of foot traffic compared to 2019 driven by rising popularity of corridors including Miami’s Design District, Boston’s Newbury Street and Seaport and Chicago’s Fulton Market and Wicker Park. As a result, they are becoming an increasingly attractive and appreciating asset class for investors in the coming years.