With the return of tourism to New York after pandemic-related declines, luxury retailers are again betting on refreshed flagships to drive consumer interest and traffic.

Saks is undergoing a US$250 million to US$270 million renovation of its Fifth Avenue flagship, including a remodelled seventh-floor men’s department. Hermès opened a new four-story flagship on nearby Madison Avenue in 2022.

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It involved a redesign of the entire 10-story building led by architect Peter Marino, known for his work on some of the biggest flagship stores in the luxury industry. LVMH officials have not made the cost of the revamp public. The group has invested heavily in flagships for other labels including Bulgari, across the street from Tiffany, as well as Louis Vuitton’s Place Vendôme outpost in Paris.

A slew of high-profile investments in the neighbourhood

The store’s reopening is the latest in a series of high-profile investments in the neighbourhood, said Richard Hodos, vice-chairman of real estate firm JLL’s New York retail team. Rolex is in the midst of a renovation of its Fifth Avenue headquarters, which will feature a ground-floor retail store and 25-story glass office tower.

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The development firm SHVO invested at least US$135 million to convert 685 Fifth Avenue into luxury residences. Managed by the Mandarin Oriental Hotel Group, according to industry estimates, Brookfield Properties is also spending US$400 million to renovate a 39-story office building at 660 Fifth Avenue.

“Fifth Avenue is in the middle of this renaissance,” Hodos said. “This is after a lot of retailers struggled during the pandemic.” Many companies began leaving the area even before Covid-related closures cut into sales. Beginning in 2017, brands including Ralph Lauren, Calvin Klein and Gap said they would shut their flagship stores on Fifth Avenue.

Gene Spiegelman, vice-chairman of Ripco Real Estate, said departures were driven by a rise in e-commerce and high rents in the area, which lowered the profitability of large flagships. “Brands are not going to pay a premium for bricks-and-mortar locations that have been diluted by online sales,” Spiegelman said.

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Renewed interest in the area has stemmed from a variety of factors

Both Spiegelman and Hodos said that retail rents have dropped to about US$2,000 per sq ft for ground-floor spaces. While high, it’s a decline from 2015, when Spiegelman said the luxury retailer Bulgari paid US$5,000 per sq ft for a lease extension on Fifth Avenue.

Tourism is also recovering. There were 47.3 million domestic visitors to New York in 2022 and 9.4 million international travellers, versus 53.1 million domestic tourists and 13.5 million international visitors in 2019, according to the New York City Tourism and Conventions bureau.

Chinese tourists, key drivers of luxury purchasing, are returning at a slower pace than other visitors, and office attendance in New York is at 52 per cent on most weekdays compared to around 83 per cent pre-pandemic, according to JLL estimates.

Those factors have left the area with some uncertainty, mirroring global trends in retail real estate. In its market outlook for 2023, CBRE said that persistent inflation and labour shortages would keep construction costs high, limiting inventory and driving up demand for space.

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Still, property experts say the recovery along Fifth Avenue is notable. The availability rate for retail frontage from 49th to 59th Street has dropped from 13.8 per cent in the first quarter of 2019 to 3.8 per cent in the first quarter of 2023, according to data from real estate firm CBRE.

Hodos said that Esprit and Glossier are among the brands seeking to open stores on the avenue.