CHICAGO – The continued rise in physical office occupancy, ongoing strong consumer demand and spending and the return of foreign tourists across major U.S. cities is fueling a renaissance in urban retail, according to JLL.
Luxury brands and savvy investors are looking to secure prime locations in revitalized city centers, underscoring the investment potential of urban retail properties as they emerge as strong performers in the post-pandemic real estate landscape.
Urban retail’s share of multi-tenant, single-asset transaction volume recovered to a five-year high for YTD Q3 in 2024, comprising 14% of the total and a 180% increase YOY. This increase is attributed to significant prime urban deals, notably the sale of 717 Fifth and 680 Madison Avenue. JLL’s recent Luxury Retail Report highlights a trend of luxury conglomerates increasingly acquiring prime urban properties. These companies are strategically seeking locations in the most coveted corridors, whereby they can limit market entry for new competitors and solidify 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 notched 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.
“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 sought-after 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 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 October 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 for investors.
“The Miami market continues to see strong demand throughout the urban core, specifically in areas such as Brickell and the Miami Design District,” commented Zach Winkler, Senior Managing Director with JLL. “Ongoing development across multiple sectors has fueled robust tenant demand, from both existing local entities and international, new-to-market players. Miami is unique in that we never saw much of a downplay in our urban areas, which are a mix of office, hotels and residential. While there may have been a lack of people in office towers, the urban areas stayed active and busy. This resilience during and post-COVID is part of the reason why Miami has attracted so much interest over the past few years, showcasing its strength as a diverse and dynamic market.”
“Retailer demand and sales productivity remains strong in New York City,” said Patrick A. Smith, Vice Chairman & Metro New York Market Lead with JLL Retail Brokerage. “Historically low vacancy in the prime retail sub-markets have led to rent stabilization and even rental growth in a number of sub-markets. We believe those trends and retailer optimism will continue through the remainder of 2024, 2025 and beyond”
“In Chicago, we’re seeing a clear uptick in demand for urban retail, particularly in high-traffic areas where return-to-office trends are driving daytime foot traffic,” added Peter Caruso, Managing Director with JLL Retail Brokerage. “Rents are still in recovery, but we anticipate continued interest as investors look for strong urban assets with long-term growth potential.”
Urban retail is recovering across major U.S. cities. Rising office occupancy, robust consumer spending and returning tourists are fueling this revival. Luxury brands and savvy investors are pouncing on prime spots in bustling city centers. As foot traffic nears pre-pandemic levels and rents firm up, urban retail properties are becoming hot commodities. This dramatic comeback showcases the sector’s resilience and signals promising long-term growth in the evolving real estate market.
