Retailers Turn Into Landlords to Pounce on Prime Properties

In a surprising shift, major NYC retailers are becoming landlords, snapping up prime retail real estate in the city’s most sought-after shopping districts, per Bisnow.

The shift, driven by skyrocketing retail rents and plummeting office values, is not just a local trend but a strategic response to broader market changes.

Case in Point

A notable example is Avi Hiaeve, founder of luxury jewelry brand Avi & Co., who bought the former Playboy Club building at 5 E. 59th St. in New York’s prestigious Midtown district. 

Hiaeve purchased the property out of foreclosure with plans to use part of the building for his company’s HQ. However, recognizing the demand for retail space in the area, he hired a brokerage team to lease out the ground floor and parts of the upper floors to other luxury retailers.

“We’ve decided to lease out the highly sought-after premier ground and second-floor spaces to other luxury retailers,” Hiaeve explained.

Prime Properties in Focus

This shift to owner-occupier transactions is gaining momentum. Data from JLL and Cushman & Wakefield reveals that at least 14 major retail acquisitions occurred in 2023 and 2024 alone, mostly in Manhattan’s top retail corridors, including Fifth Avenue, Madison Avenue, and SoHo.

As of 2024, retail availability in Manhattan reached a 10-year low, with asking rents on Fifth Avenue exceeding $2.3K PSF annually. Many office tenants, on the other hand, migrated to newer Class-A spaces or embraced remote work, leaving prime locations available for retail tenants.

Tanner Cain, research manager at Cushman & Wakefield, noted savvy retailers are seizing these prime opportunities. “In many cases, by occupying these properties with their own luxury retail presence, they can charge a premium to office tenants or other retailers,” he explained.

Growing Investor Interest

This Manhattan trend is reflected in several high-profile deals. For example, Kering, the parent company of Gucci and Balenciaga, bought a 115 KSF retail condo at 717 Fifth Ave. for nearly $1B. Prada bought two properties on Fifth Avenue for more than $820M. 

Retailers are also targeting properties beyond the typical shopping districts. Haddad Brands, a major clothing manufacturer, wrapped up 2024 with the $360M purchase of 2 Park Ave., where it plans to occupy only a fraction of the space, effectively becoming an office owner.

Transitioning to Landlords

While these purchases offer long-term stability, transitioning from retailer to landlord is challenging. Many companies are navigating very unfamiliar territory.

“They’re not looking at it the same way an investor would,” explained Bernadette Brennan, managing director at Serhant Commercial. She noted some retailers are opting to hire property managers or work with real estate firms to handle operations.

Securing financing for these deals is also a hurdle, particularly for smaller retailers without a ton of capital. Several large retailers are turning to nontraditional financing, including bond offerings, for deals.

Patrick Smith, vice chairman at JLL, pointed out that most retailers simply don’t have the capital to fund large-scale purchases independently. “How many stores can you actually build, open, operate, and stock with a couple hundred million?” he asked.

Adapting to New Roles

As the US retail landscape continues to evolve, more retailers are expected to enter the recovering market, leveraging their strong brand presence to command prime locations.

The shift from retailer to landlord also marks a significant evolution in CRE, particularly in high-demand areas like NYC. Though the transition comes with its challenges, the long-term benefits of owning prime real estate are proving too good to pass up for many major retailers.