Industrial Real Estate Will Benefit from Rising Online Retail Sales

by CoyDavidson on December 2, 2010

What Does Surging Online Retail Sales Mean for Real Estate?

By: Ross Moore, Chief Economist – Colliers International USA

Earlier this week, for the first time ever retailers reportedly racked up online retail sales in excess of $1 billion on Cyber Monday (the name given to the Monday after Thanksgiving when shoppers return to work and shop from their computers). According to Coremetrics, which tracks websites of over 500 online retailers, online retail sales increased 19.4% this year – a significant jump from last year, when Cyber Monday sales increased 14% from the year before. Clearly online retail is gaining momentum but just how significant is this form of e-commerce and what are the implications for real estate?

Online Retail Sales Quickly Approaching 10% of Total Sales

As the chart below demonstrates, online retail sales have nearly tripled since the early 1990’s from under 3% to almost 9% and quickly on the way to 10%. While still just a fraction of total retail sales, at 10% it is no longer a distribution channel that retailers can ignore. Indeed, it is now the exception to find a retailer that isn’t utilizing this form of commerce as a way to sell their products. Amazon is an obvious leader in online retail, but traditional retailers such as Best Buy, Walmart and Toys “R” Us are driving this movement. Such a duel-prong strategy makes sense from a retailer’s point of view, but what does this mean for owners of real estate?

Industrial is a Big Beneficiary, Retail Not So Much

As more retail sales migrate to the internet, shopping center owners will no doubt face some stiff headwinds but among the losers will be a good number of winners. Many products (and services) just don’t sell well on the internet and never will. Also, retailers are not going to abandon their “bricks and mortar” strategy and become purely virtual, but they will become more selective in terms of their physical premises. Bad retail real estate has always struggled, and online sales growth will exacerbate that trend. Keep in mind at 10% annual growth, sales will double in seven years. The big beneficiary will of course be industrial real estate; no matter where consumers purchase their goods, they must be manufactured and warehoused somewhere. Most certain to be in demand will be industrial real estate near key distribution hubs that can service a wide geographic region.

Ross Moore is the Colliers International’s Chief Economist with a focus on providing bottom-up and top-down analysis of commercial real estate markets across the United States. In addition to his North America wide reports, Ross also authors all global research produced by Colliers.

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