Even before the coronavirus pandemic, there was a significant decline in the sales of commercial real estate properties. This was larger due to the increasing popularity of eCommerce and the convenience that online shopping represents. As the pandemic compelled cities to enforce lockdowns, consumers who might not have considered eCommerce turned to it as a means of getting essential items. Now, as life starts to return to normal, the marketability of commercial real estate may still not rebound.
What Does This Mean For Real Estate Investors?
In a 10-year period, the amount of retail sales that resulted from online transactions rose from 5% up to 16.1%, and that trend is expected to continue into the future. While this means that traditional stores may not survive for much longer, it doesn’t mean that there won’t be any need for commercial real estate. Smart investors will look at ways to diversify their holdings and invest in different types of real estate in the future.
Where Will We Find the Need For Physical Space?
Although businesses host eCommerce stores and that’s where the consumer’s transactions take place, the products they buy will still have to be stored in warehouses and distribution centers. Since eCommerce is a growing billion dollar industry, the amount of floor space needed to stage these products is significantly more than the square footage of the brick and mortar stores that would hold these inventories. As more generations begin consuming goods, that need for warehouse space will continue to expand.
Additionally, there’s a growing need for data centers, and that suggests an increased need for office space. Real estate investors should begin looking for commercial real estate that can be adapted to serve as data processing centers. These offices will be used to process the orders that customers make through the eCommerce website. For each business, there will need to be an eCommerce support center to process those orders. In the first quarter of last year, real estate used for data centers showed 8.8% of growth, while other types of real estate showed losses.
Looking towards the future, investing in real estate can still be a lucrative venture, but investors will have to re-examine how they will invest. They should stop looking for the strip malls and boutique style storefronts of the past and start looking towards the future needs of businesses. Order fulfillment will take the place of brick and mortar stores. Smart investors will shift their focuses to those areas by investing in more versatile properties.