In recent years, technology has begun to transform commerce—not just the advent of e-commerce, but also innovations in supply chains, fulfillment, delivery and beyond. What’s more, all of these changes are rippling down to real estate, impacting commercial and industrial properties in significant ways.
If you’re a real estate investor, it’s essential to consider how e-commerce will affect your local real estate industry in the immediate future and for decades to come.
E-commerce and commercial real estate
Because so many consumers are taking their business to e-commerce sites, many of the brick and mortar businesses that lease commercial real estate are losing their local customer base. As a result, they’re shifting their operations to support an internet-driven market.
Some businesses are moving away from brick and mortar retail and investing in online commerce platforms, while others are closing up shop altogether because they can’t keep up with competition. In many cases, large retailers are closing their stores and turning their facilities into warehousing and distribution space, to accommodate the changing demands of consumers.
On the surface, this looks bad for commercial real estate. When we look deeper, however, it’s merely an evolution. Commercial real estate is changing and industrial real estate is picking up. Both bring opportunities for investors.
How are businesses adapting?
While there are still plenty of examples of successful retailers operating primarily out of a brick and mortar store, a lot of businesses have had to adapt to generate continued interest in their products. Retailers still thriving in the e-commerce age are the ones focused on remaining relevant through various methods and strategies.
Beyond the physical
Many businesses are emphasizing the experience of shopping, rather than just products or services. For example, some stores offer pop-up events with activities, photo booths and unique merchandise, designed to provide shoppers with an experience. This requires agile space, which means reassessing how commercial real estate is used. Often, this idea favors space in mixed-use developments or urban residential adjacent properties.
Capitalizing on urban demand
Retail is still popular in urban areas. In dense city centers, shops with commercial real estate are capitalizing on the unique culture of the area. Many offer one-of-a-kind products and shopping experiences targeted to the specific people who visit those neighborhoods on a daily basis. These properties tend to thrive and in many cases create artificial scarcity by inflating property costs in desirable areas. Property investors need to be aware of this and adapt their acquisition and holding strategies according to market demand.
Many commercial businesses are downsizing. It’s actually a win-win for retailers and commercial property owners, though! Reducing their physical footprint cuts overhead costs for retailers and allows property owners to restructure their properties, accommodating more tenants and collecting more rent. Some commercial property owners may lose tenants, but others will gain them just as easily.
There are a lot of factors driving an increased demand for industrial properties, like warehouses and distribution facilities. In many cases, commercial properties are re-zoning and converting to meet these demands. Just because a property was once made for retail doesn’t mean it can’t become a staging and last-mile e-commerce fulfillment center. Investing in or converting to one of these types of facilities can help you maintain a steady flow of income, even if your properties aren’t performing as well as you’d like them to.
Tips for adapting to the changes
You can’t control the changes occurring in the real estate market, but you can control how you react to them. If you want to keep your portfolio relevant and promote your success in real estate investing for the long run, there are several options you should explore.
•Do your homework: There is far more to learn about e-commerce and its impact on commercial real estate than can be covered in a single article. You need to do plenty of research into this complex subject to help inform your choices as an investor moving forward. The more you know, the better-equipped you will be to make informed decisions about your portfolio and any property considerations you’re making.
•Assess your portfolio: No matter how successful you become as a real estate investor, constant reflection and assessment are essential. Take a look at your current portfolio and consider the types of properties you are invested in. Categorize these investments based on whether they are commercial or residential and evaluate their performance since you’ve invested in them. If you have commercial properties that have consistently decreased in value or demand in the last several years, it might be a good time to make a change.
•Consider industrial investments: While demand for commercial real estate has declined, the need for warehouses, distribution centers and other industrial facilities has increased significantly. If you haven’t already invested in industrial properties, it’s a great time to jump in. Even if you don’t have the experience or capital to invest in an industrial property on your own, you can still benefit from the booming industrial real estate market by investing in an industrial REIT. REITs give you the opportunity to invest your money into large-scale industrial properties without a huge amount of capital.
•Promote the success of your commercial properties: As a real estate investor, you can promote success for your investment properties by helping your brick and mortar tenants attract customers. Many commercial property owners are offering short term rentals at higher rates in an attempt to attract experienced-based retailers and pop up shops to bring in customers looking for something they can’t get from e-commerce.
•Consult people with experience: There are so many people out there with experience in the real estate market you can benefit from. Your network directly impacts your net worth, so make sure to tap the expertise of someone who knows the trends you’re interested in. If you don’t have a mentor, coach or adviser, it’s a good idea to find someone who can provide you with professional advice and support. The decisions that you make about your investments have the potential to shape your entire future and you want to make sure you are making the best choices possible for your investment goals and needs.
Any investor who wants to be successful in the long term has to learn how to adapt to changing markets and economies. There will always be market fluctuations, shifts and trends that affect real estate. Investors can still make the most of their investments by adapting their habits accordingly.
There’s no stopping e-commerce; only adapting to it
E-commerce isn’t going anywhere. In fact, it’s expected to grow by as much as 66% in the next 5 years! The commercial and industrial real estate markets are going to continue shifting to accommodate it. Real estate investors who understand how to read budding trends today will be able to place their capital smartly for the future.
Recognizing how commercial spaces are being used and what the expectation for utilization is will leave you in a position to maintain a strong portfolio where others struggle. With plenty of research, self-assessment and some professional guidance, investors can modify their approach to accommodate the needs of an economy that’s increasingly centered around e-commerce.