Before the pandemic gripped the world, e-commerce had already begun to influence commercial real estate in a significant way. With digital storefronts competing with the traditional brick-and-mortar institutions, e-commerce has been rising in popularity due to its flexibility, diversity, and simplicity. Now, e-commerce elites like Amazon have begun expanding their reach by occupying more industrial properties to obtain more storage and distribution centers. Companies that dwell in both the brick-and-mortar and e-commerce realms note what customers want, especially amidst these unprecedented circumstances.
The Need for Logistics and Warehousing
As the e-commerce industry continues to grow, the need for logistics centers and warehouses also rises in priority. While e-commerce sales can occur 100% online, the storage, organization, and distribution of goods must be managed in a physical setting; this contributes to the increase in demand for suitable space. In 2020, e-commerce companies account for 71.3 million rentable square feet, more than any other logistic or industrial subsector. Retailers, both brick-and-mortar and e-commerce, are looking to acquire more warehouse space to fulfill the growing number of online orders, increasing the demand for industrial properties and repurposed commercial real estate properties.
A Shift Toward Home Delivery
The ongoing pandemic did not disrupt the retail industry as it accelerated the adoption of existing trends. In this way, e-commerce has become more popular as consumers have increased their online spending and adjusted the way they budget for and buy necessities. From grocery stores like Tesco to big box stores like Walmart, the push for online ordering, secure pick-up, and home delivery options has been immense. The practices existed before the pandemic, but they have increased in popularity for the sake of safety and convenience, especially among vulnerable populations. Beyond the pandemic, a rise in e-commerce, digital transactions, and technological advancement will likely continue in the retail space. This will directly impact the outlook for commercial real estate properties and what they house moving forward.
What the Future Holds for CRE
In the immediate future, the Black Friday holiday presents a unique challenge as we continue to navigate the pandemic’s parameters and limitations. Because of widespread reservation, capacity limits, and the potential for a resurgence of mandated social distancing and quarantining, it is expected that a majority of Black Friday shopping will be conducted online. Brick-and-mortar stores are taking this belief into account and have begun offering sales in advance to help patrons stay safe when shopping in-person, but many of them are also making online sales a priority.
After the pandemic concludes, it is safe to assume that e-commerce will remain a powerhouse, but what does that mean for commercial real estate? The brick-and-mortar store is not projected to become obsolete by any means. In cases where retailers find that an e-commerce approach is more profitable, innovation and adaptation will be key. Repurposing or converting commercial real estate properties to suit consumers and renters’ needs has become a popular practice in recent years, and we may see more CRE properties becoming multifamily housing units, warehouses, or retail dispensaries.