The buying and selling of goods over the Internet — also known as e-commerce — has revolutionized the way people shop. The impact on consumers and businesses is clear: people have greater access to a wider range of goods, and retailers can expand their digital reach. But many don’t consider the way in which real estate is impacted, when in fact the two are closely tied.
E-commerce has grown rapidly at an annual average of more than 18 percent globally, even as non-Internet sales have grown by only 1.3 percent. The biggest implications on real estate are occurring in the commercial and industrial sectors, but even residential real estate may be touched by the revolution of digital retail.
Shopping is now as simple as tapping once or twice on a smartphone, but the way in which e-commerce operates and is more complex. Here’s how e-commerce impacts different areas of the real estate industry, and what it means for the success of both businesses and landlords.
Commercial real estate
Commercial real estate — which includes retail and office space — is feeling the greatest effects of e-commerce, which unfortunately are largely negative for some businesses. As predicted, the rising prominence of e-commerce has cut into brick and mortar transactions. As a result, the demand for retail space has dwindled.
For businesses in need of commercial real estate, this means that they are likely to need much less of it. If they increase their online presence and supply, this won’t necessarily cut into their profit — but stores must be adaptable and ahead of all digital trends to soar.
If retail stores can maintain sales within smaller stores, landlords can charge more for space and fit a more diverse range of businesses in large commercial spaces, enhancing rent capacity. For shoppers, this could mean exposure to more retailers, but fewer goods in person, prompting both physical and online purchases. Retailers may need to get creative to maintain the right balance and encourage spending both in and out of store, while landlords may be more wary about profitability when renting these spaces.
Retailers are less likely to be impacted by e-commerce if they are well-located, sell groceries or luxury goods, provide unique value or discount prices, or offer engaging shopping experiences.
Industrial real estate
Where less retail space is needed due to e-commerce, the opposite is true of industrial real estate. When people order items online, that means there must be space to store goods in mass for easy, quick distribution. Businesses that can afford mass storage will benefit from this, as will property owners and developers.
Specifically, centrally-located industrial-sized spaces that are able to ship goods quickly are highly sought after. Already, roughly one-third of industrial big box demand is related to e-commerce; as the industry grows, the demand will too.
As same-day delivery becomes more popular, location will become even more critical/ The middleman will be cut out, and items shipped directly from warehouse distributions centers rather than through the retail stores themselves. The spaces themselves must be located near clients or major transportation outlets.
Residential real estate
Though residential real estate may not be directly impacted by ecommerce, indirectly there are certainly benefits. Residential housing that is not located near retail stores, for example, may no longer be considered as undesirable as it once was. Though such properties are unlikely to get much of a boost in value from e-commerce, tenants may be more willing to sacrifice location if they can order goods straight to the door.
On the other hand, local retail stores could be hurt as residents choose to order from the Googles and Amazons of the world instead of the shop around the corner. If local retailers suffer in some neighborhoods, residential value could potentially decrease as a result.
Even as e-commerce grows, though, there will continue to be hard-to-reach areas unlikely to benefit from services like same-day delivery. While city residents will surely be blessed the most, far-flung corners of rural areas especially may be shopping and shipping the old way for a while.
Ultimately, e-commerce is a positive shift for an increasingly on-demand economy, providing more access than ever for shoppers, and opportunities for retail and property development to evolve with the ages, one click at a time.
Featured image: Soe Lin via Flickr