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Gucci owner Kering has bought a retail block on Milan’s top shopping street from Blackstone for €1.3bn in Europe’s biggest property deals for two years, as intense demand from luxury groups helps high-end retail real estate defy the wider downturn.
The sale of Via Monte Napoleone 8, a building that houses Kering’s Saint Laurent store, as well as Prada and the LVMH-owned Cafe Cova, marks the largest-ever single asset real estate sale by Blackstone in Europe.
It is also the latest in a series of large real estate purchases by luxury fashion houses seeking to lock down flagship locations in key global cities.
The race to control these sites has made luxury retail properties one of the niches where large deals are still being done, at a time when high borrowing costs and uncertainty over the wider market have depressed global real estate deal volumes by more than half and made big ticket sales a rarity.
Kering said on Thursday that the investment was part of a “selective real estate strategy, aimed at securing key highly desirable locations for its houses”.
The luxury group in January announced the $963mn purchase of a building at the corner of Fifth Avenue and 56th Street in New York, adding to a portfolio of flagship assets in other cities including Paris and Tokyo.
Kering and its larger rival LVMH were the buyers in three of Europe’s largest five property sales last year, according to MSCI, with LVMH’s roughly €1bn purchase from investment firm Brookfield on the Champs-Élysées in Paris topping the list. Prada in December agreed a $425mn purchase of its New York flagship store.
The Milan deal is the largest single property sale in Europe since March 2022, said MSCI. Via Monte Napoleone commands the second-highest rent of any shopping street in the world, after Fifth Avenue in New York, according to advisers Cushman & Wakefield.
Blackstone bought the Milan property as part of its 2021 acquisition of Reale Compagnia Italiana, a private Italian firm that also owned offices, hotels and residential properties in the city.
The US firm, which is the world’s largest owner of commercial real estate, paid about €1.1bn for the whole portfolio. It has managed the property with its partner Kryalos, an Italian real estate firm.
James Seppala, head of European real estate at Blackstone, said the deal “demonstrates exceptional investor demand for high-quality real estate in the strongest markets”.
All the luxury groups are “really running to get the best locations”, said a banker in Milan. “It will become even more a game for the big, big boys, because you need to have firepower in order to buy. It’s going to continue . . . and make the difference even more clear between those that can and those that cannot compete.”
Blackstone has also recently moved to add to its own luxury retail holdings. It is in talks to buy a £230mn property on London’s New Bond Street.
Kering recently issued a profit warning, a rarity in the luxury sector, saying it expected sales at Gucci — which accounts for half of group sales and two-thirds of earnings — to decline 20 per cent in the first quarter led by weakening demand in China, its key market.
Efforts at Gucci to turn around its business under new designer Sabato de Sarno as well as new management after several years of declining sales have yet to bear fruit.
However the company had €2bn in free cash flow from operations last year, and the group views the purchase of key real estate assets as part of its long-term strategy.
“We devoted a large part of 2023 to making investments — whether through spending, our investments in stores and in real estate — to strengthen the exclusivity and elevation of our brands,” Kering’s deputy chief executive Jean-Marc Duplaix said earlier this year.
“We will continue these investments, and it will have a short-term impact on our results, but in order to nourish the long-term development of our brands.”