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Impact of E-commerce on Commercial Real Estate - Brigade Group
June 1, 2020

The whole world is packed into a single screen. From news to books to emails, everything is now at the fingertips. The traditional ways are dying out.

One such front is shopping. The number of footsteps approaching a local store has decreased significantly. Online shopping has made the world grow exponentially faster. It has entirely changed the shopping scenario. Rather than just a trend, it has now become a lifestyle. Just tapping a button can bring anything at the doorsteps within a day or two.

But ever heard that the world of e-commerce can affect the real estate sector? Does that sound odd? How can these two parallel universes have anything to do with each other?

When looked closely, these two sectors are in fact intertwined. According to one of the Economic Times reports, the major impact of e-commerce is due to the increasing requirements of warehouses and data centers. With the exponential growth in the online shopping market, tycoons like Amazon, Flipkart, etc. are no longer willing to pay high rentals for storage spaces. Hence, they seek for larger warehouses to accommodate larger-scale operations to provide round-the-clock service to their customers in all situations.

A CBRE Research study of 2018 found that each $1 billion growth in the e-commerce sector needs 1.25 million sq. ft. of space to support the growth. In 2017, out of 236 million sq. ft. new constructions, approximately 30% of it can be attributed to e-commerce.

It has also impacted the real estate brokers. They now need to redefine their selling strategies according to the e-commerce places.

 

Warehouse
The major percentage of the consumers of e-commerce is the youth. They want everything to be simplified. That’s why they prefer online shopping rather than stepping out and hassling with the traffic. One of the major shifts seen due to e-commerce is the increase in industrial buildings. With the increasing demands of fast delivery, most of the online products are stored in warehouses and facilities near major areas.

The location of these warehouses is most important. This governs the delivery time to the consumers. If the sellers want to provide a one-day delivery service to the customers, it means they need to have a warehouse in the population center if the city. The owners are retaining high-value occupiers by improving operational efficiencies and providing access to a talented workforce.

 

Logistics
The logistics of online shipping can create issues for apartment complexes and multifamily properties. Large department stores are closing to open a warehouse and distribution centers instead. This has led to an increase in the prices of these buildings. The effect can also be seen in tier II and tier III cities where the demand for warehouses is increasing gradually.

According to a JLL report, the logistics sector in 2018 became the most-favored property segment for investment, surpassing the residential sector. The investors see this segment as an opportunity for profit and growth. In fact, the funds for the logistics sector raised over $12 billion compared to the retail funds that reached $2 billion.

 

Co-working spaces
Co-working spaces are seeing a new incoming growth with the boom in the e-commerce market. Most of these e-commerce platforms outsource the management of their technology and supply divisions to some third party industries. These industries, in turn, operate from co-working spaces rather than establishing an office space for the same. This results in the demand for office spaces recently.

Managed office spaces and coworking spaces are in higher demand now. With the increase in land demands, the segment is also facing an increment in rents. The lease duration of the office spaces has also now extended owing to the stability and improvement of the income base.

 

Retail sector
The small retail stores which cannot survive the drought of customers due to the tsunami of online shopping had to shut down. The shift in shopping behavior has compelled many retailers to shut down their stores.

Those who survived or can afford to compete with the online world are now changing their strategies to attract customers. Several sectors like gym, gaming, cafe, etc. are such places that cannot be shut down. So the malls are being redesigned to place the retail stores nearby such facilities to attract people into the store. Online payment has changed the face of banking across the globe which has changed the placement of ATMs and bank branches.

With the introduction of the cloud kitchen, people are ordering more food online than actually going out. Small restaurants are closing and instead, converting the space into a cloud kitchen to expand and grow. Creative interiors, different food cuisines, discounts, and offers are some of the tactics of the restaurants to call out the people.

 

The Future
According to a study conducted by Deloitte, the land availability rate is likely to rise from 7.0% in 2018 to 10.3% by 2023. This is due to the fact that the owners have realized the potential of investing in such facilities. In fact, it is expected that there will be an additional 510 million sq. ft. of new industrial real estate space by 2020, surpassing the expected 421 million sq. ft.

In a nutshell, e-commerce is reshaping the commercial real estate industry. This will lead to the availability of more land for setting up industries and warehouses. The e-commerce journey is a long one that is going to stay here. The real estate sector needs to buckle up to adapt to the changes and advancements to take advantage.

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