Call it the Amazon effect, clicks vs. bricks, or even the ominous retail apocalypse, but without a doubt, e-commerce is having a massive impact on the world of commercial real estate. Consumers love to shop online, and avoiding those upcoming hordes converging on Black Friday has never been more appealing. (We hear you, Cyber Monday).
Demand for industrial real estate
This evolution of shopping has lead to an unprecedented demand for industrial real estate – leading the market to look to innovation to keep up with demand. Not only has this growth lead to the desire for more space, consumers are expecting faster delivery, with the expectation of same- and next-day delivery putting pressure on the supply chain. This translates to the need for even more space. Per CBRE:
It is commonly thought that an e-commerce supply chain requires up to three times more warehouse and logistics space than a traditional brick-and-mortar supply chain. Anecdotal evidence suggests that this is true, but a recent CBRE Research study found that for each incremental $1 billion growth in e-commerce sales, an additional 1.25 million sq. ft. of distribution space is needed to support this growth.
Retailers are adapting, not only by looking towards properties that can double as stores and warehouse spaces, but by upping their game when it comes to creating in-store experiences designed to make the consumer put their phones down. Creating an out-of-doors experience for the shopper is now the key to success. Restaurants, fitness centers, entertainment areas are increasingly important to a shopping center’s retail mix. Every day services like grocery anchors are no longer new to the retail mix, but some mall operators are seeking out medical and veterinary operators to further lure in foot traffic.
Disruption in the marketplace
The momentum has led to some curious developments. Brands considered digitally native, meaning their business is solely online, are set to open 850 brick-and-mortar stores in the next five years, according to JLL’s Clicks to Bricks report. Amazon appears primed for further disruption, with its acquisition of Whole Foods and now 17 locations of its Amazon Go stores, which features a cashierless, contactless payment option.
According to the U.S. Department of Commerce, e-commerce sales in the second quarter of 2019 accounted for just 10.7 percent of total retail sales. Perhaps this all means that the threat of retail’s demise has been overblown. Continuous innovation and adaptation are setting the tone in the realm of commercial real estate.