PARIS — Could the tony shopping avenues of the French capital, home to sprawling luxury flagships, soon become the scene of a fresh crop of pop-up stores? Temporary set-ups could suit property owners looking to avoid getting locked into low rental agreements, as well as brands testing new ideas without being saddled with a long-term commitment in a choppy business environment.
The pandemic has delivered a blow to the key luxury shopping districts in Paris, depriving them of the deep-pocketed tourists that fueled a frenzy of flag-planting activity in recent years — with the likes of Dior and Chanel facing off on the Rue Saint Honoré, also the site of Saint Laurent and recent-arrival Loewe. The Avenue des Champs-Elysées has also seen a flurry of activity in recent years, with both strips rising to prominence as digital consumption spurred brands to build more and more spectacular physical locations to project their image.
With the arrival of the coronavirus crisis — and the disappearance of visitors from abroad — new real estate transactions have ground to a halt, leaving investors scratching their heads over the value of such properties. “We are living in a year that is quite unusual because there were very few transactions on both the Rue Saint Honoré and the Avenue des Champs-Elysées,” said Christian Dubois, head of retail services in France for Cushman & Wakefield.
With traffic on the streets dependent on tourism — from within the country as well as from abroad — retailers have experienced a deep drop in sales, he said, noting that for the Avenue des Champs-Elysées, for example, international visitors had accounted for as much as 67 percent of revenue before the crisis hit. As for the 12 percent of local shoppers, fed by offices nearby, those, too, have dwindled, with a majority of people working from home.
In normal times, rental values are simply based on recent transactions. But last year there were only two.
Considering store openings offers clues to such values, suggested Dubois. The new Moncler store at the upper end of the Avenue des Champs Elysées, for example, offers a sign that luxury brands have maintained an interest in the area. “Luxury groups are quite determined to maintain this section as a place where high-end labels can be situated one after another,” he said. Even if the transaction was set up in 2019, rather than last year, “It’s an opening that illustrates the notion that the Avenue des Champs-Elysées remains a prime destination for higher-end brands,” said Dubois. Still, the offer of commercial space on the avenue has increased considerably, with around 20 to 30 percent — mostly large spaces — expected to be offered up in the next three to four years. This large amount means the market could be restructured, he suggested.
On the Rue Saint Honoré, there is a historically high number of stores available, with a small number of leases signed last year — notably the upcoming David Yurman store as part of the Mandarin hotel property. While business on these main streets may have dropped by as much as half — or more, according to figures cited by Dubois — rent values do not decline at the same pace.
In this context, with little visibility, some property owners are turning to the pop-up market, which means renting at around 50 percent lower than the regular rate. “That way, they have the freedom when the market returns without having to pay to push out a renter in order to return to a normal levels of rent,” said Dubois. Many are banking on a progressive return to more normal levels of business when tourism resumes, but that may not be before 2024, according to estimates of global air traffic, according to tourism and air transport associations. Global air traffic not projected to return to 2019 levels the U.N. World Tourism Organization and the International Air Transport Association.
As for the return of tourism in France, Cushman & Wakefield projections are a bit more optimistic, noted Dubois, who expects a progressive return to normal business in 2023.