Published on: September 8, 2022, 01:08 am.
Last updated: September 8, 2022, 01:52.
The reason so many $5,000 watches are for sale on the Las Vegas Strip is that luxury goods are the only way to pay the extravagant rents charged by the hotels and malls located there. Rent in stores at Crystals, Wynn or Bellagio costs five to 10 times more than a store of the same size off the Strip.
According to an informal survey of recent trade listings by Casino.orgcurrent rents are between $200 and $300 per square foot.
That not include an additional $70-100 per square foot for property taxes, property insurance premiums and common area maintenance fees. Shops have to pay this to their landlords in typical triple net tenancy structures.
“If you have to pay $1 million a month for a 2,500-square-foot store, you’re probably not going to sell T-shirts there,” said Frank Volk, executive vice president of real estate group CBRE. Casino.org. Volk, who is part of the retail leasing team at Fontainebleau Las Vegas, has had a 30-year career in commercial real estate in Las Vegas, completing more than $1.5 billion in transactions.
According to Volk, there are a few variables to play with in an upscale shopping district that help determine the rental price. For example, the best position in a mall usually costs more. “So you start playing chess,” he said. “You put the high-volume store in the best position and a lower-volume store in the next position because they can only pay so much rent.”
The bigger the brand, the better Smaller the rent?
You’d think tenants with super-recognized names would be charged the most. But according to Volk, they can often pay a lower base price than their lesser-known neighbors because those neighbors are willing to pay more. Being next to a Gucci, Dior or Chanel store – the top-grossing luxury brands in 2022 – means more foot traffic for them.
Volk cites as an example Rolex, whose three stores in Las Vegas no longer typically carry watches because the company limits production to maintain the value of each watch. “You go to a Rolex store on the Strip and see if there’s a watch there,” he said. “Most likely there isn’t. But another store with very nice, expensive watches will want to open in the same property as a Rolex store so they can capitalize on their cross traffic and move their inventory into stock.”
The importance of brand compatibility
A well-planned shopping district, whether it’s a super high-end or a strip mall, will tend to appeal to the core values of the same type of customer, Volk explained. This makes it more likely that that customer will window shop and shop at all outlets in the district.
That seems to be why, after 12 years, the PBR Rock Bar and Grill was dumped last month by Miracle Mile Shops. The 500,000-square-foot shopping district adjacent to Planet Hollywood is currently undergoing a multi-million dollar remodel. Get help from design and build groups Cooper Carry, Digital Kitchen, Sensory Interactive and VCC.
After two years of lease negotiations, PBR owner Jonathan Fine posted on his bar’s Facebook page: “The owner has determined that a Country Americana brand is not the ‘right’ for them at this time.”
Volk said he couldn’t speak specifically about the PBR situation, “But it’s not always about the money. Sometimes it’s about the type of image an owner is trying to build and the type of customer they want to go from place to place after that. And it’s the owner’s right to do that.”
Filling an upscale neighborhood with retail 101
When trying to find brands to fill a new luxury shopping district on the Las Vegas Strip, Volk said he usually draws a grid showing the locations of all the top luxury brands.
I’m trying to figure out who’s in growth mode, who’s looking to expand.” he said. “I’d like to say there’s an abstract formula, but you just look at the top luxury brands and say, ‘These are the brands people want.’ The roadmap exists in the merchandising of luxury malls across the country and then you can customize [it] to your specific project.
“The Las Vegas Strip is not a hard sell to luxury,” he added. “Before I talk to them, many have already made the decision to either open another store or move to a better, newer project.”