Leasing by luxury retailers surged in the United States this past year, with nearly 40% of that in malls, as companies increasingly open stores in Sun Belt cities as demand for upscale goods explodes.

"The luxury retail boom shows no signs of slowing down," JLL said in a report released Wednesday. "As one of the first categories to rebound after COVID, these retailers benefited from a combination of persistent pent-up demand and robust retail, fueling even more growth in the past year."

The increase in sales resulted in upscale retailers leasing over 650,000 square feet in the United States in the past year, according to JLL.

While upscale retailers are still favoring New York and Los Angeles as locations for new stores — due to the "impressive foot traffic" in those cities — they are increasingly expanding into Sun Belt markets, the JLL report said. Cities such as Atlanta, Miami and Las Vegas have enjoyed "newfound population growth," and are "experiencing a wave of new luxury openings," JLL said.

And at least one Midwest city is also drawing upscale tenants.

"Detroit emerged as a popular choice for new luxury openings, with new stores from renowned brands including Balenciaga, Dior and Gucci," the JLL report noted.

While Sun Belt cities make up a growing share of luxury leasing, upscale retailers "continue to see value in maintaining a bi-coastal presence, with New York and California accounting for 55.2% of luxury openings in the past year," according to JLL.

Luxury goods consumers are devoted visitors to brick-and-mortar retail locations, the brokerage also said. It cited a recent survey from the Business of Fashion that found that 77% of frequent luxury shoppers plan to visit a luxury store as often or more frequently in the year ahead than they did last year.

Certain global luxury retailers such as LVMH and Kering are rolling out more stores to grab a bigger share of luxury retail sales in the United States, which reached nearly $70 billion in 2022 and are projected to exceed $75 billion this year, according to JLL. The United States remained the largest luxury market internationally last year, accounting for an estimated 32% of global luxury sales, JLL said.

"Luxury retailers recorded significant revenue growth across the board last year, and have cited retail store expansion as a key driver of that growth," said JLL, whose newest report is an update of its luxury retail analysis a year ago. "Brands embrace prime urban corridor street retail and luxury shopping centers, with an average store size of over 5,000 square feet."

However, the luxury sector does face potential challenges, the JLL report noted, including the fact that retail space vacancy and supply remain at historic lows.

CoStar's U.S. retail report described the strength of the retail leasing market.

"Despite longstanding concerns of a softening economy and eventual pullback in consumer spending, U.S. retail space markets remained resilient in the first half of 2023 thanks to steady demand from a diverse array of sectors, a still below-average pace of store closures, and minimal new supply," according to CoStar.

"Growing demand and still-limited new supply additions have kept the U.S. retail space market at its tightest level on record, with just 4.8% of all retail space available for lease" at the end of the second quarter, the CoStar report said.

Luxury retailers also face the threat that economic concerns will impact what JLL called the "aspirational luxury consumer."

JLL said "inflation, while subsiding, still rests at 20% higher than pre-pandemic levels, placing pressure on lower-income consumers and negatively impacting their discretionary purchasing power."

Malls have been a popular venue for luxury retailers to debut stores, according to JLL's latest report.

"Luxury brands did not shy away from opening in malls, accounting for 38% of new store openings," JLL said. "As the stratification between mall types deepens, best-in-class malls continue to optimize their tenant mix, inevitably including a host of luxury brands in that roster. While most brands explored opportunities in both malls and street retail, some brands concentrated their expansion efforts on shopping centers across the country."

Alexander McQueen chose malls for all three of its openings last year, at Phipps Plaza in Atlanta; Copley Place in Boston; and NorthPark in Charlotte, North Carolina, JLL said. Dior did the same at Mall at Millennia in Orlando, Florida, Somerset Collection outside Detroit, and the Domain in Austin, Texas, according to JLL.

American malls have been adapting to be more welcoming to upscale tenants, as well.

"Many malls have begun allocating significant percentages of their layouts to create new luxury wings, underscoring the importance of this category in mall performance," JLL said.

The brokerage cited several examples. Global mall giant Unibail-Rodamco-Westfield is creating a new luxury wing at Westfield Topanga near Los Angeles, JLL said. American Dream, the megamall in New Jersey owned by Canadian developer Triple Five Group, has launched a luxury retail section called The Avenue that's anchored by Saks Fifth Avenue. And Oxford Properties is repurposing 100,000 square feet of space at Yorkdale Shopping Centre in Toronto for a luxury retail cluster.