A new report from CBRE suggests that the luxury segment of the European retail, hotel and living sectors will continue to outperform the mass market, driving the prices and rents of the underlying real estate.
In its inaugural Luxury Real Estate 2024 report, the firm examines the impact of the development of the luxury market on the real estate underpinning retail, hotels, and living across London, Paris, Milan and Amsterdam.
It found that the main driver of the luxury market in these four cities is the expected ‘significant growth’ of high net worth individuals (HNWIs) over the next five years, notably from Asia and specifically Taiwan and India.
Demand is set to be further fuelled by a ‘seismic’ transfer of wealth in Europe from the Baby Boomer generation to Gen X and Gen Y, the latter better known as Millennials, CBRE said. An estimated $20 bn (€18.5 bn) of wealth is set to be transferred from the Baby Boomer to these younger generations in the four countries studied, dramatically boosting their purchasing power.
Tasos Vezyridis, head of European Thought Leadership at CBRE, said: ‘Our research tells us that luxury outperforms, including at a real estate level, and will continue to do so. The slowdown we’ve experienced in 2024 looks to be short-term and concentrated in certain markets outside of Europe. As a result, we expect London, Paris, Milan and Amsterdam to both set trends and influence the aspirations of affluent consumers worldwide.’
In terms of the impact on real estate of the expected continued growth in global wealth, the luxury retail, hotels and living sectors are all set to benefit, according to CBRE’s findings.
In the retail sector, luxury high streets are achieving rental growth that exceeds that of the mass market. For example, prime rents on New Bond Street are currently around triple the levels seen in 2010, while on Sloane Street they are over double compared to locations such as Oxford Street and Regent Street where they have increased by 12% and 50% respectively.
In Paris, Rue Saint-Honoré has seen rental growth of over 130% since 2010, while rents on Boulevard Haussmann are back to 2010 levels, having fallen during the pandemic due to long-term vacancies. In Milan, prime rents on luxury high streets have grown by more than 30% over the last four years relative to mass-market streets.
In the luxury hotel sector, the post-pandemic rebound in tourism has been a major catalyst for growth, along with a rise in global wealth.
According to CBRE, pricing in the luxury hotel market – expressed as average daily rate (ADR) – grew by 42% in London between 2019-2023, against 27% in the wider hotel market. This outperformance was mirrored in both Paris and Milan, with luxury ADR growth at 42% and 60% respectively, compared to ADR growth of 37% in both cities for the wider hotel market.
Major hotel groups have also expanded their portfolios in the luxury space, by either curating and growing owned brands or acquiring in that segment.
In the luxury residential market, European cities, and southern European cities in particular, have grown in popularity in the last seven years, with Portugal, Spain, Italy and Greece emerging as the main beneficiaries of heightened interest from Asian HNWIs, the research revealed.
London remains the biggest market for high-end living, with around 230,000 millionaires residing in the city. The findings show that the number of luxury transactions continuously increased between 2018-2022, peaking at 245 transactions that year. London also remains the most expensive in Europe, with pricing circa €30,000 per sqm, significantly higher than Paris and Amsterdam. The average transaction price of luxury properties in London has increased by 20%, from €8.4 mln in 2018 to €10 mln in 2023.
Marcus Bradbury-Ross, head of private clients at CBRE said: ‘The evolution of the luxury residential market has pushed peripheral locations into the spotlight. London remains the biggest market for high-end living, but we’re increasingly seeing destinations such as Amsterdam, Geneva and Dublin in-favour, primarily due to favourable tax regimes, attractive fiscal climates and geopolitical changes in the more traditional locations.’
