The retail industry has been experiencing disruption due to technological innovations that have pushed a growing number of consumers to mobile purchases and e-commerce transactions. In 2017, nationwide e-retail sales totaled over $409 billion. Amazon accounted for $54.47 billion and Walmart sold $14 billion in the U.S. alone. By the year 2021, forecasts for global e-retail sales expect the number to reach $603.4 billion (USD).
In tandem, local and national media headlines in the last few years have reported stories of major retail industry giants closing hundreds of brick-and-mortar locations due to steady declines in sales. Among the most notable retailers closing doors or filing for bankruptcy protection are RadioShack, Gap Inc., Kmart, and Toys R Us.
Across the commercial property board, access to information that was once limited to CRE brokers who paid fees for such data is now available to the general public for free. This has removed barriers between commercial real estate owners and prospective tenants.
For example, the website 42Floors provides office space rentals and commercial real estate listings for owners and prospective tenants. A fair amount of information is available for free, and a premium service lets licensed brokers access better-qualified prospective tenants. Some companies like CompStak and DealX implement a crowd-sourced platform by providing lease comparables for public usage, coupled with details like the tenant’s name, rent amount, length of lease and landlord concessions. Real Massive and VTS have even more comprehensive platforms, offering property listings, relevant market data, workflows and information to owners, CRE professionals and tenants.
These are just a few of the startups looking to transform commercial real estate through innovation and by making data transparent and ubiquitous.
Digital Disruption Is Affecting All Real Estate Asset Classes
It’s clear that technological innovation has affected many asset classes of real estate, including workspaces, retail shopping centers, distribution centers, offices and more. With an increasing amount of work and consumer purchases being performed from anywhere on mobile devices that have internet access, employees and consumers are transforming the way they do their jobs, purchase goods and services, and live. Retail stores are reorganizing their traditional infrastructure from a decade ago to better compete with e-commerce giants such as Amazon and Walmart.
Because of the amount of information consumers are able to access, change is taking place in the retail industry. Retail store owners, commercial brokers and staff are no longer the ones with absolute power. Consumers are not taking a back seat anymore and the ramifications for the commercial real estate industry cannot be taken lightly.
The road to a purchase is no longer a straight line for consumers. Nowadays, they include both traditional store and online channels. Consumers are investigating and learning all there is to know about the product well before going into a physical location — if they ever do. One of the outcomes is that square footage demand for retail space has decreased due to shifts in consumer behavior and buying patterns, efficiencies of the physical store and online channels. In many major cities across the U.S., foot traffic has been on a gradual decline.
Disruption in the retail market is having a similar influence in manufacturing. Warehousing and distribution markets have experienced an increasing demand due to the yearly growth in online purchases. It should come as no surprise that many large retailers are making investments in extremely complex technical fulfillment sites that are strategically located.
Customers can now receive merchandise that is directly shipped from the warehouse inventory instead of retail stores having to keep it within the store. This works out well for retailers since the cost per square foot of warehousing space tends to be a lot less expensive than retail space.
In the office class, the integration of technology, mobile devices and infrastructure empowers workers to work virtually anywhere. Traditional office environments have been places where employees go to perform their jobs Monday through Friday on a 9-5 work schedule. People communicated with colleagues and fellow staff and even met with customers. In essence, the original social network was the office. This system was linear, strict and offered few to no opportunities for personalization and uniqueness.
Overall, disruption is a positive thing that brings about progressive change for the disrupted industry. Commercial real estate agents and investors who are open to new methods and who evolve with the latest disruptive technologies should remain market leaders. Innovation will often produce very good results if you’re willing to embrace it. If not, you are likely to be left behind.
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