What's the Impact of E-commerce to Commercial Real Estate?

We currently sit in the midst of an industry overhaul. Where commerce and consumerism once (not too long ago) meant going to the nearest mall or store, now we associate it with logging onto the latest e-commerce hub and waiting for the package to arrive on our doorstep two days later. Evolution is inevitable in any sector of course, but the rapid change stimulated a shift in commercial real estate as well. Where the norm of commercial real estate was once retail, it's now shifting to focus on commercial infrastructures like office spaces and warehouses.

                                                                                                                     Photo Credit:   Scottish Enterprise

                                                                                                                    Photo Credit: Scottish Enterprise

What the Customers Want

Consumers want fast deliveries and easy access to the products they love. Investors want to capitalize on the new opportunities in the industrial real estate sector. Real Estate Investment Trusts (REITs) in particular benefitted from the move. As Lauren Thomas describes, "Share prices of industrial REITs Prologis, DCT Industrial Trust, EastGroup Properties are up more than 22 percent each this year. The price of another REIT, First Industrial Realty Trust, is up about 10 percent." REITs make great options for adopting the new trend while still safeguarding an investment given the more limited risk.

The Warehouse Boom

In the wake of the e-commerce rise, the commercial real estate sector stood unprepared, and therefore warehousing options were limited. As Charles Davidson explains, "Construction spending on general commercial warehouses reached a record $24.2 billion in 2017, according to Haver Analytics data gathered from the U.S. Census Bureau. On average, in inflation-adjusted 2017 dollars, warehouse construction spending increased 29 percent annually over the past five years, compared to 1 percent per year during the previous 19 years." Now high ceilings, large open spaces and a central location to major metros act as one of the biggest selling points for investors and tenants alike.

What Comes Next

Like any rapid rise, people worry about bubbles that inevitable pop. While the warehouse sectors booms, it doesn't show times of slowing down anytime soon. As early adopters, Amazon may reach their fill for warehouses for the time being, but that doesn't account for all of the competitors that want to compete with the online giant. Lauren Thomas says, "Nearly 1 billion square feet is more than 50 years old, built back when the term "e-commerce" wasn't on all retailers' minds. Now, every company — even the digitally native brands — are looking for sites to plant their own fulfillment centers in a race against Amazon." The fact of the matter is that right now the supply still doesn't meet the demand. Therefore, it feels safe to assume that the warehouse bubble won't be bursting anytime soon.

 

Article Resource: Patch