The Impact of Ecommerce and Commercial Real Estate Demand

August 22, 2022

According to research, ecommerce global sales rose by 43% from 2019-2020. While the number of retail shops resuming business after the pandemic is high, consumers have already released the convenience of shopping online. As a result, the demand for certain commercial facilities increased while that for others reduced.

When investing in commercial real estate, you should understand how ecommerce affects demand. This measure will help you make informed and sound financial decisions. It also allows you to recover your investments and make profits. The following blog post details the relationship between ecommerce and commercial real estate.

The High Demand for Commercial Properties Due to Ecommerce

The supply chain is a significant aspect of ecommerce and commercial real estate properties. Businesses selling to consumers online must find a reliable solution for packaging and shipping goods. They must also find secure places to store their products until customers order them.

Due to these factors, commercial properties that support ecommerce are in high demand. For example, most online retailers are now hiring warehouses instead of physical shops. Likewise, they are leasing distribution centers to streamline product picking and packaging.

When planning to invest in industrial real estate, prioritize such properties. As ecommerce grows, you can ensure high demand for your commercial building.

Decreased Demand for Some Commercial Real Estate Properties Due to Ecommerce

As many brands shift to online sales, the demand for retail real estate is decreasing. Thus, many investors are incurring losses due to the lack of tenants for retail outlets. Others are opting to close their businesses or downsize to reduce maintenance costs.

Storefront retail stores are among the real estate properties affected by the rise in ecommerce. These include brick-and-mortar shops and outdoor strip malls.

How to Deal With the Evolving Ecommerce and Commercial Real Estate Relationship

Since the commercial real estate market is changing, you should strategize your investments. Instead of buying properties to lease to retailers, opt for industrial ones. For example, purchase warehouses and lease them to one company. Alternatively, partition and rent them to several brands needing distribution centers.

If you want to venture into retail real estate, you have some viable options. For example, you may reduce shop spaces to accommodate businesses needing less in-store space. These may include:

  • Gift shops
  • Grocery stores
  • Coffee shops
  • Candy stores
  • Toy stores

Changing the Look of In-Store Space

Modifying your property to match the changing market can boost demand. It also helps attract tenants needing a physical location for their hybrid businesses.

In-store pick-ups are a widespread practice among online shoppers and retailers. In-store pick-ups are when consumers collect items ordered online at a shop instead of receiving them at home.

Since some brands need space to store items once they leave the warehouse, you can generate desirable revenue from retail real estate. Still, you must design your properties based on the needs of your target market. This aspect means you should prioritize small spaces with shelves. Moreover, provide ample space for bulky and delicate items.

Business owners must ensure their physical location is attractive to shoppers. Failure to do so can cause them to shift to ecommerce, and commercial real estate demand decreases. Before investing in a property, ensure it has features desirable to consumers. These can help keep your tenant’s businesses running, allowing them to renew their leases for an extended period.

How to Safely Invest in Commercial Real Estate

Investing in commercial real estate as the demand for ecommerce rises can be confusing. Researching beforehand will help you weigh your options. It also allows you to gather data on your target market and better understand them.

Some practical tips to guide you with ecommerce and commercial real estate investing include:

Follow Commercial Real Estate Trends

Keeping up with trends in the real estate market is vital before investing. You should also follow up on economic factors that may impact the demand. These may include:

  • The profitability of ecommerce businesses
  • Inflation
  • Unemployment rates
  • Government policies
  • Financial services

Following real estate trends will help you gather some vital information. These may pertain to the square footage with the highest demand and the average price. This step also allows you to identify what your competitors are doing to market their properties.

Another benefit of following real estate trends is identifying the properties in demand. This way, you can determine if you should invest in retail, industrial or office spaces. You may then focus on ventures and market shifts that yield the best returns.

Study Local Demographics

Understanding local demographics can improve market targeting. It also gives you valuable data about potential customers visiting your property. This step is vital mainly if you want to invest in retail real estate and target local businesses.

Gather information on the average income of individuals interested in your property. After that, assess how long they will likely lease based on their age and business profits. You should also consider other vital factors like the type of business they have and its demand in the area.

When investing in commercial real estate property, consider neighborhood amenities. An area with the facilities businesses need will make your building attractive. Hence, you can attract more tenants and lease at the best possible price.

Since the amenities needed for each business vary, identify if you want to venture into industrial or commercial real estate. After that, invest in properties located in neighborhoods with desirable resources. This measure will simplify attracting the target market. It will also ensure your facilities attract the right businesses to avoid commercial lease breaks.

Assess the Property and Tenant Risks

Ecommerce increased the risk of investing in commercial real estate. Hence, you will likely incur losses if you aren’t careful when selecting a commercial property.

Assess various risks before investing in real estate. First, visit the property to evaluate its condition. During this process, analyze the structure to determine if it’s what tenants need. After that, check if the building has desirable interior amenities. These may include enough washrooms and updated furniture.

If you are investing in industrial real estate, you watch out for:

  • Accessible transport and parking spaces
  • Advanced air filtration systems
  • Adequate square footage
  • Walking trails

Once you evaluate the building condition, consider the tenants’ leases. Here, confirm how long each leased the property and the status of their spaces. Moreover, check if amenities like air filtration systems or HVACs are in good condition.

The next step to take when evaluating risks is assessing tenant quality. This process will involve evaluating their ability to pay rent on time. It will also include checking their lease options. An ideal tenant should help your business generate steady revenue. Their services and products should also not be easily replaceable by ecommerce.

Assessing risks and tenants’ quality before investing in real estate has many benefits. First, it prevents you from spending money on properties that will not generate good returns. Further, you may identify the leases to renew and the tenants to charge more based on how they care for the provided amenities.

Manage Your Commercial Real Estate Investments With EXtrance

Ecommerce and commercial real estate have a significant relationship. Due to this, it may be tough to make the right decisions without the right data. You also need a platform to manage your investments.

The EXtrance platform can boost your potential for CRE limited partnerships with all the data analytics, workflows, and tech-enabled solutions you need to effectively manage these investments. Contact us now for more details about our product.