The use of e-commerce is reshaping commercial real estate and how we look at both retail space and industrial space. The world of commercial real estate has undergone a significant transformation in the past decade, largely influenced by the explosive growth of e-commerce. As online shopping becomes increasingly prevalent, the commercial real estate sector has faced both challenges and opportunities.
5 ways e-commerce has impacted commercial real estate
A shift in retail space demand
Traditionally, commercial real estate has been dominated by retail spaces like shopping malls and high-street shops. However, the rise of e-commerce has shifted consumer shopping habits from in-person to online. As more people shop online, the demand for traditional brick-and-mortar retail spaces has decreased. Shopping malls and high-street stores are experiencing reduced foot traffic, leading to higher vacancy rates. Although numerous brick-and-mortar stores have evidence of closure, there is an increasing need for warehouses, distribution centers, and logistics hubs to facilitate online sales.
The growth of industrial real estate
The most significant impact of e-commerce on commercial real estate is the booming demand for industrial properties. As the e-commerce juggernaut rolls on, there’s an increasing need for warehouses and distribution centers. These spaces are vital for storing a vast array of products and ensuring they are efficiently dispatched to customers. This surge in demand presents a golden opportunity for commercial real estate investors. Locations near urban centers or transportation hubs are particularly lucrative, as they facilitate quicker delivery times – a key competitive factor in e-commerce.
“When considering the future of e-commerce, the focus is often on the digital experience,” said Al Brooks, Head of JPMorgan Chase Commercial Real Estate. “But the most meaningful change is happening outside the consumer’s view, in a company’s physical operations.”
Changing consumers expectations
The rise of e-commerce has also altered consumer expectations. Customers now anticipate faster delivery times, which has led to the development of a trend known as ‘last mile’ logistics. The concept of ‘last-mile logistics’ – the final step in delivering goods to consumers, has become critical in the e-commerce era. Properties that facilitate quick, efficient delivery processes are in high demand. This trend has led to a rise in the development of smaller distribution centers within cities, sometimes repurposing existing buildings to serve this need. As a result, there’s an increasing demand for smaller urban warehouses and distribution centers located close to consumers.
“The desire for same-day delivery and the need to get products into consumers’ hands sooner helps drive innovation, from investments in last-mile distribution complexes to drones.”, according to JPMorgan Chase Commercial Real Estate
Repurposing retail spaces
Another trend emerging in the commercial real estate sector is the repurposing of traditional retail spaces. The changing retail landscape opens doors for adaptive reuse and redevelopment of underutilized retail spaces. For instance, converting retail spaces into mixed-use developments, incorporating residential, office, and entertainment facilities, can revitalize these properties. This repurposing trend is not only a response to the decline in demand for traditional retail space but also an innovative way to utilize prime commercial real estate in urban centers.
Learn more on how to repurpose dark retail spaces into thriving assets in this article.
For investors in commercial real estate, the rise of e-commerce presents both challenges and opportunities. While traditional retail spaces might be seeing a decline, there’s a growing market for industrial and logistics properties. Warehouses, distribution centers, and fulfillment centers are in high demand, driven by the need for efficient logistics to support online sales. This trend presents lucrative opportunities for investors in commercial real estate, particularly in strategically located areas near major transport hubs or urban centers. Staying ahead of the curve, understanding market trends, and being open to diversification are key to thriving in this changing landscape.
The rise of e-commerce has irrevocably changed the face of commercial real estate. While it presents certain challenges, particularly for traditional retail spaces, it also opens new avenues and opportunities, especially in the industrial real estate sector. For investors and business owners, understanding these trends is crucial for making informed decisions in this evolving landscape. As e-commerce continues to grow, its influence on commercial real estate is likely to expand, offering new opportunities for those ready to adapt.
If you are interested in learning more about repurposing commercial real estate property and the Arizona commercial real estate market in Arizona, feel free to reach out to us at ICRE Investment Team anytime. We’d be happy to help supply you with information on any relevant properties or markets, alongside any connections in lending, investing, brokerage service or consulting that you might need!