LONDON (Reuters) - When rumors reached Bernard Arnault, the chief executive of luxury goods group LVMH, that an Irish state-run agency could seize control of developer David Daly’s three shops on London’s Bond Street, he quickly approached him about a deal.
Daly and adviser Savills soon set a 10-day deadline for talks, knowing that Arnault, France’s richest man, was anxious to avoid an auction via Ireland’s National Asset Management Agency (NAMA) that could result in a sale to rivals such as Chanel.
“LVMH was determined not to let what happened with the DKNY store happen again,” one source familiar with the deal said. The freehold on DKNY’s shop at 27 Old Bond Street was sold to Chanel in 2010. The sale derailed LVMH’s plans to replace its DKNY branded outlet with a Dior shop and left Arnault furious, the source said.
Arnault via his agent Harper Dennis Hobbs and Daly agreed a 300 million pound ($462 million) deal within the 10-day window last month. All parties declined or were unavailable to comment.
Arnault’s purchase shows how Bond Street, the UK’s most expensive shopping destination, is fast becoming a battlefield for deep-pocketed fashion dynasties that are increasingly willing to shell out hard cash to guarantee ownership of top sites and hedge against spiraling rents.
Retailers accounted for more than three-quarters of property deals on Bond Street in 2010, consultancy CBRE said, paying out more than 250 million pounds. CBRE Executive Director Phil Cann said the trend would accelerate.
Unlike mid-market retailers, luxury brands have bounced back strongly from the 2008 downturn on the back of strong demand from emerging markets such as China and Russia.
The acute space shortage on the half mile stretch combined with strong demand from global brands that see a Bond Street presence as essential to European expansion plans, may boost rents from 975 pounds per square foot to 1,500 pounds by 2013, consultancy Cushman & Wakefield said.
Jonathan O‘Regan, from Savills’ central London investment team, said the battle between luxury retailers and the families behind them, has been heating up since French luxury fashion house Hermes bought British rival Asprey’s New Bond Street home for 75 million pounds in 2009.
“There will never be enough stores on Bond Street to satisfy retailer demand and therefore by owning them, the retailer protects their presence on the street in the future,” he told Reuters.
The race to own space is injected with added tension as growing numbers of retailers become landlords to their rivals.
Besides the Chanel-owned DKNY store, the Maramotti family behind luxury clothing retailer Max Mara bought stores occupied by fashion houses Etro and Bottega Veneta in 2010, while diamond magnate Laurence Graff has been a long-term landlord to Cartier’s New Bond Street store.
Retailers are keen to acquire competitors’ buildings as they will be able to take control of them at some point in the future when leases expire, Cann said.
“Just look at Hermes and Asprey. As it gets closer to when the lease ends it’s not going to be a friendly conversation,” one agent who declined to be named told Reuters.
On neighboring Oxford Street, the families behind more mainstream retailers Inditex and Hennes and Mauritz have bought the buildings that house their respective Zara and H&M clothing brands.
Brokers say that as well as ensuring the best sites, larger retailers are increasingly investing in central London real estate as a perceived safe haven from the global financial crisis.
More brands are expected to become property owners. Fashion retailer Mango, rival to Inditex’s Zara, has been looking to buy its stores and iconic buildings potentially to occupy in London, one source with knowledge of the talks told Reuters. Mango was unavailable to comment.
Like Bond Street, prized Oxford Street addresses are notoriously hard to secure with premiums of up to 14 million pounds being paid to persuade existing tenants to exit their leases. Many tenants ignore frequent multi-million pound offers to leave their sites, one agent told Reuters
($1 = 0.6490 British pounds)
Reporting by Brenda Goh; Editing by Tom Bill and Jane Merriman