The Future of Commercial Real Estate

6 Replies

I’ve been thinking for a while, how do you think commercial real estate will be impacted by the transition into a more virtual world? For example, will commercial real estate still be in high demand for years to come despite the sophisticated advances in technology and the increasing popularity of online shopping? 

@Account Closed thats a very good question. I stay out of that area and focus all my time on residential. I have been for the past 25 years. I do own and few small commercial properties but I think you hit the nail on the head. Shopping will be done more from home and work will be done more from home. So where does that leave some commercial property owners??

Things seem to be moving in that direction. I believe that by the time that happens, businesses that do not exist yet will fill the buildings or they would be re-purposed for a different type of use, especially in high traffic areas where marketing will be effective.

A recent podcast, #253 with David Puchi talked about commercial real estate and the online threat to retail commercial investments. David's investment focus was on the neighborhood strip mall type plazas. Places where grocery stores, nail salons, barber shops, etc go to. These type services will be around long after Amazon kills (or changes) traditional retail shopping. He also talked a lot about the value add possibilities of changing traffic flow, attracting certain tenants, upgrading facades, considering synergy (Churches draw crowds on Sunday mornings, Restaurants draw crowds on Friday and Saturday nights, so a parking lot need not accommodate max crowds at both simultaneously... etc. It was a really good podcast, don't trust my cliff notes version from memory! I would think office buildings would be similarly "amazon-proof" as companies will still be run somewhere. Warehouses and industrial will still exist as well. I think the only market that may get shaken up significantly is big retail spaces, but that has been slowly coming for decades. Wal-Mart is still building new stores, Amazon bought Whole Foods and has launched pop up retail concepts, and people still love to browse Target/Kohls/etc. Time are changing, but investors adapt!

With all that the Internet can do, I see more opportunities to make extra cash for those wanting to gain the freedom of not working a 9 to 5 job until retirement. I will make it my mission once I am able to do Virtual Real Estate Investing full time, to show others a better way

There are lots of spaces within CRE (retail, industrial, office, multifamily, self-storage, leisure, healthcare, etc.) and retail has definitely and will continue to be impacted by the internet.

Malls are changing to the indoor/outdoor type with mixed use (retail, residential, leisure, office all combined) and entertainment included.  People like to get out, socialize, and consume; so, there will always be a market for it.

LOL I get tired of hearing this topic. Do you know I am on pace to make over 7 figures in commission alone for 2018??

That's right I focus on retail and larger multifamily buildings. I can tell you nationally buyers are purchasing the crap out of this asset class.

I know this asset class pretty well as I look at between 500 and 1,000 OM's a week nationally.

Internet is NOT,NOT taking over retail. Online sales over the past decade grew from about 2, to 4, to 6 , to 8% of all retail sale. Of that 8% only about 4% is online only retailers. The rest is brick and mortar existing that is expanding the online presence to compliment their physical stores.

What will stifle some online sales growth is laws being proposed nationally  to tax online retailers. Amazon actually likes this because they already pay the sales tax and want to take away the little guys edge. Online only businesses can be more capital intensive than brick and mortar in some cases due to shipping costs,etc.

Apparel only stores have been getting crushed for the last 6 years. It is very old news. The discount retailers for clothing like Ross, T.J. Maxx etc. are doing well. In the malls used to be about 70% clothing and now owners are moving to make percentage about 40% of overall mix. They are going after more experiential tenants to back fill spaces to draw the consumers in. The discount clothing retailers tend to do well and then the high end specialty clothing shops. It's the middle majority stores that do not cater to the cheap customers or the high end ones that is suffering a lot.

Amazon is actually going into brick and mortar folks! Did you know that? Surveys were done showing that 80% will order online but also enjoy shopping in a physical store. An astonishing 90% couldn't stand the return process for ordering online. They could lose what they sent back. You could be talking to overseas workers with limited English and problem solving skills. To get something back could take up to a month. Almost all customers said while they like occasionally ordering online to do a return over 90% want to bring it back to the store and get credit or replacement right away and shop while there.

There is just a lot of stories floating around that have little to no actual value or merit to them.  

I to focus on internet resistant tenants for neighborhood retail. Consumers tend to bee lazy and enjoy going to a strip center and the mom gets her nails done at the salon while Karate is going on for the kids then they pick up pizza to go home with for dinner etc. Retail put together correctly is very powerful. When a property is built the wrong way and in the wrong location it is bound to have problems no matter the asset class.

I have seen plenty of properties where I scratch my head and cannot believe someone bought that or built it.

People not interested in retail it's fine to focus on other asset classes just do not make blanket statements as someone on the outside not an expert in the asset class.

In the southeast and the warm belt states growth is incredible. What I would pay more attention to buying in cold belt states for retail is only urban core or very strong suburban. As net migration moves away to retire to warm belt states the cold belt state, counties, and cities generally start taxing at higher rates which puts pressure on remaining businesses there. The weak suburban to rural areas in cold belt states are getting pounded and many buildings sitting vacant having hard times being released as retail is overbuilt in those areas. In the cold belt states you tend to get higher cap rate to buy but while there is a few percent more cash flow going in the long term rent growth and markets in those states do not keep up with the warm belt states so a trade off.