CHICAGO—As e-commerce rises in popularity, and distribution spaces mushroom in many places across the country in response, investors and owners of commercial real estate have had to consider how all this will affect traditional brick-and-mortar retail. Erik Foster, an Avison Young principal and author of a new study, “E-Commerce Fueling Demand for Industrial Distribution Space,” tells GlobeSt.com that he “thinks when you see traditional retail reduce their square footage and reduce their inventory,” that's a possible sign that that e-commerce has already cut into traditional retail.
As noted in yesterday's story, Foster pointed out that “since 2000, the amount of occupied distribution space has increased by 86.2%, from 459.3-million-square-feet to 855.1-million-square-feet at the end of Q1 of 2013, according to CoStar,” for an annual growth rate of 7%. Furthermore, during the same period, occupied retail space only grew at an average annual basis of 0.9%.
“I am not saying traditional retail will disappear,” Foster adds, just that it might get somewhat sidelined as the “Amazon.com effect” takes hold and investors and developers concentrate on industrial assets like big box distribution facilities that can send goods directly to people's homes.
Other experts have been giving a similar message. At this month's REITWeek conference in Chicago, for example, a questioner asked Prologis officials if they believe all the new construction in the e-commerce space will crowd out development of more traditional retail spaces. Gary Anderson, chief executive officer, Europe and Asia, replied that he believes traditional retail spaces will survive since customers will still want to examine and test out products in person, and then perhaps purchase them over the Internet.
“The industrial is a favored asset class and it's become even more of a favored asset of institutional investors and e-commerce is only one of those reasons,” Foster says. But investors have flocked to the newer, top-tier distribution facilities which include the features that help operators efficiently and quickly deliver goods including: 36-foot clear heights; 50-by-50 bay sizes; and extra parking to accommodate the higher ratio of employees these facilities need.
However, “investors are now clamoring for yield,” he says, but the competition for the top assets has increased so much that many have started looking at B product, that is, older buildings with lower ceiling heights without “the bells and whistles of the newer facilities,” or perhaps top product in secondary markets. “Those assets, if they trade, will trade at a premium.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
