As more consumers shift more of their buying activity online, demand is increasing for warehouse and fulfillment centers while demand is declining for more store space. A new research report confirms an estimated 166 Million Square Feet of Industrial space was absorbed for said use.
Although this is not a new commercial real estate revelation, the report by Ki Bin Kim, an analyst at Macquarie Capital (USA) Inc., has now put square footage numbers to the phenomenon for the first time.
Importantly, the secular shift in demand won’t result in a one-for-one change, Kim writes, because even as the amount of retail space devoted to certain items, such as books, movies, and music, is reduced, those items are increasingly being digitized and not resulting in offsetting demand for more warehouse space. Also, certain other retail items, such as clothing, can be stacked up 25 feet high and stored more efficiently in a warehouse than in an actual store, further reducing the demand for offsetting space.
In addition, some retailers that have experienced significant Internet sales growth, such as Nordstrom, have already expanded their online distribution centers and won’t likely expand for several years, even with higher sales. The Seattle-based retailer doubled the capacity of its fulfillment center in Iowa and has significant capacity remaining, even with increased online sales.
For these reasons, Kim said, the benefit to the industrial space market may be uneven at present. But it will come, and it will be meaningful.
“We expect the industrial warehouse sector to gain 166 million square feet in net absorption by 2016, representing 1.86% of additional occupancy,” Kim said. “And, we expect the retail real estate sector to lose an additional 210 million square feet, representing 2.94% of demand destruction by 2016.
Kim’s estimates are purely a function of e-commerce market share growth, and do not reflect the impact from further GDP growth.
Conversely, Macquarie expects the retail real estate sector to lose an additional 210 million square feet by 2016 on top of the 259 million square feet of retail demand already lost over the last 10 years.
“We don’t think the pain will be shared equally across the entire retail landscape. We think higher priced items and fashionware are much more resilient than commodity-type items (not a surprise),” Kim wrote. “One of the most ‘at-risk’ retail categories is electronics (a commodity type item), which is almost always cheaper to buy online vs. in the store. Conversely, most people would never buy a $200 pair of jeans without trying them on first, and higher-end malls offer a ‘shopping experience’ that shopping centers tend to lack, generally speaking. We recommend high-end malls like SPG/GGP over lower-quality ones, and the same is definitely true for the shopping center universe.”(credit to m. heschmeyer, co-star)