Will Massive Retail Job Cuts & New Tech Trends Transform the Rental Market?

by | BiggerPockets.com

Will massive retailer job cuts and emerging technology change the rental property market and who landlords should be renting to?

American retailers are slashing jobs. Disruptive technology is likely to change the U.S. job market faster and more substantially than we’ve ever experienced before. How might that affect rental property investors?

U.S. Retailers Hit Hard

Some retailers seem to be getting it right. A few, like Amazon, are even broadening their physical store footprints. But overall, online shopping and the enhanced profitability of online companies is taking a huge bite out of American retail.

Related: 5 Real Estate Jobs That Have Been Made Obsolete by Tech (& 4 That Haven’t)

According to Bankrate.com, at least these 17 major retailers are closing stores in 2017:

  1. Payless Shoes
  2. JC Penney
  3. Macy’s
  4. Sears
  5. Kmart
  6. The Limited
  7. Abercrombie & Fitch
  8. HHGregg
  9. BCBG
  10. Crocs
  11. Gander Mountain
  12. CVS
  13. Chico’s
  14. The Children’s Place
  15. Wet Seal
  16. Whole Foods
  17. Bebe

These cutbacks and others mean the closing of hundreds of retail stores and the slashing of thousands of jobs.

New Tech to Kill More Jobs

The above is just the tip of the iceberg, especially when you factor in new technology, which is eliminating jobs in thousands more physical retail shops, offices, warehouses, and industrial companies. Mark Cuban even says that many tech jobs are no longer safe due to the development of AI. Some estimates put the number of jobs to be made redundant over the next few years as high as 80 percent. That’s 80 percent fewer jobs available!

How Will These Trends Impact Rental Housing?

Landlords must stay alert to trends like these. Obviously, if there is a massive pull back in local jobs and services, tenants may have a hard time living up to their lease agreements. In some cases, it may just be a matter of them running a month behind as they secure new work. For others, it may be very difficult to find local jobs that match their qualifications.

buyers-market

Related: 4 Ways New Technology is Changing How Real Estate Investors Communicate

Protect Yourself

Do not invest in a location where your only source of tenants is at a local grocery store, factory, or even a local mall. It’s always smart to underwrite your deals conservatively. So, do not buy a property that is barely cash flow positive and where there’s no room to increase rents. The moment rents drop, you’re in trouble.

Summary

The above means that some landlords may want to be a little more careful in who they target as renters. It is also worth tracking successful retailers and how they are hiring. Amazon is another great example, announcing it will hire thousands of work from home employees this year. For those landlords who want to stay safe, it is also important to remember that when the economy and job market get tough, the demand for affordable housing and destinations only grows. So, acquire rentals in the right areas and select tenants carefully, and you should be fine.

How do you think the shift in the U.S. retail sector, along with other tech trends, might change the rental landscape?

Weigh in with a comment!

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record

17 Comments

  1. Douglas Skipworth

    Sterling, like you, I’ve been thinking about this a lot. In addition to the retail cuts you mentioned, autonomous cars and drones are expected to replace drivers and truckers by the hundreds of thousands. As you know, lots of the jobs that are be eliminated belong to renters. It’s a scary time to own property, but I believe if we’re thoughtful and intentional, as you said above, then we can find our best way forward. I don’t have all the answers yet, but, man, what a great time to be alive!

    • Sterling White

      I wrote about the autonomous cars and drones in another article. I am glad you brought that point up in the comments. It will be interesting to see how everything plays out in the not too distant future.

      It is a phenomenal time to be alive, Douglas!

  2. Jerry W.

    Sterling.
    thought provoking article. The oil price crash has hammered my local economy. I suspect it will be at least 2 years before we get any chance of relief. It took me a long time to decide to really expand my rentals, now I am in the stay safe and ride the storm out mode for the most part. Hopefully we can develop some new industries to offset some of the job losses in tech.

  3. Caridad Reboyro

    If retail is dump merchandise, underpay store clerks. Clerks not motivated to create great customer experiences. Under those circumstances retail fails. Retailers like Patagonia or IKEA are not closing just thinking how they can improve customers experience. Starbucks not closing. Good compromise don’t sell things, the sell experience, they are on a mission to improve customers’ experience.

    • Sterling White

      Yes, I completely agree with you. It is my belief as well that the retailers that focus more on the customer “experience” will thrive during the tough times. Do you see most retailers shifting to more online from storefronts, Caridad?

  4. Jerry Kisasonak

    I agree that retailers who create an excellent customer experience will do better than those that don’t. But this shift is, in my opinion, driven by convenience. Why spend half the day driving to stores, finding out they don’t have what you want in stock, finding out their product is priced higher than you’ve seen elsewher, etc? You can go to Amazon and with a few clicks have a highly rated (social proof) product ordered and it will be on your doorstep in 2-3 days. Boom. Done. Convenience.

  5. Jeff Kehl

    Sterling,
    Great article, I love future-looking things like this.

    One question on this statement:
    Do not invest in a location where your only source of tenants is at a local grocery store, factory, or even a local mall

    What sort of tenants should I be looking for then? This is something I give a lot of thought to. If you exclude retail and manufacturing what are we left with? Medical, Education, Personal Care, Customer Service, High Tech, Artists & Writers?

    I would say all of those could be displaced with technology as well just that the time-frame is different.

    I do IT work in my other life and I have watched in the last 10 -15 years as a lot of the u.s. workforce has been replaced with foreign workers mainly from India. But the really interesting development is that most of them will probably not be needed in the next 5-10 years. Most of the basic software has already been written it just needs to be put together and applied to achieve the right business objective.

    So IMO all tenants are at risk in the long-term but I’m not overly concerned about it in the near-term.

    • Sterling White

      I only meant to offer the above statement as a recommendation.

      I do not have a definite answer to your question due to every job is at risk including the more sophisticated ones. Diversification in renter demographic can help mitigate risk i.e. investing in A,B and C class properties if possible

      I am interested to see how everything transpires.

  6. Mary B.

    fact is that those retail(former) employees need a place to stay also. HUD has made tremendous cuts as well. Now I’m in no way an advocate to operate section 8 housing but I’d rather help out the little people that are will to work for a living than the ones that aren’t, just want to lay around letting the taxpayers foot the bill. yet that should be the landlords/PMs mode of operation to begin with. sit down and talk with the applicant, get to know them a bit hear them out like a job interview; don’t just scan the paperwork and say we’ll give you a call.

    I’ve stated this a few years back. Its a time where more people are going to have to work more than one job. for those that have natural leadership skills, its a knock from Opportunity to jump start your own business. now of course I’m bias and would recommend real estate investing but if there is something else that they love and are good at by all means get the plans revamped and get it started! my coin.

    Kudos,
    Mary

  7. Joel Owens

    A lot of retail articles these days are written by those not in the space. I do retail investments day in and day out nationally.

    Most of what is in the news has been known by those of us on the inside for years and years when it comes to clothing type retailers and office supply stores. Those are things that are easy to order online.

    Online sales have been increasing to about 10% of all retail sales. Of those 10% that makes up online sales about 7% are EXISTING brick and mortar stores that are simply increasing their online presence. In fact those online only stores a bunch are fixing to get crushed. Those not paying sales tax and selling to consumers in states where the physical business is not located are in for a huge surprise. There are about 35 new legislation pieces up by many states to tax online companies for sales tax. The states want the revenue and also Amazon already pays the sales tax so they want these laws to pass and it weeds out the little guys. By not paying the taxes the little online companies have about a 10% advantage to price cheaper. That goes away with most online companies having to pay tax even though the physical business does not reside in that state where they are selling.

    A recent study shows consumers can’t stand the return policies for online sales. They want to bring back to a physical store to exchange rather then getting people from overseas to answer the phone and have to do burdensome steps and wait a long time for online returns. Brick and mortar has it’s place.

    Most of my clients we focus on destination type tenants ( Vet shop, doctor shop, restaurant, dry cleaners, nail salon, hair salon,etc.) These are heavily internet resistant businesses where consumers go and shop in person and do not go online.

    I am doing record business in retail this year. All of the sky is falling stuff is really unwarranted. Old malls that are 20 plus years in age are being the most affected. The anchors like a Macy’s are supposed to drive foot traffic and for that the anchor gets a really low per sq ft lease rate and the smaller tenants pay a high price per sq ft to be next to the foot traffic. Those small operators in malls tread water all year and Christmas usually puts them in the positive and the make it another year or sales are weak and they lose money and go out of the space. Problem is if a large anchor goes out then many small tenants have co-anchor tenant clauses where they can terminate the primary term of the lease early or they can get a rent reduction. New malls with open air concepts these days are crushing it. I have one newly built in the last 3 years 5 minutes from my house. 450,000 sq ft and is full with a waiting list and tenants paying upwards of 60 per sq ft. Every time I drive buy it is full with no parking left. Retail just like any investment should be analyzed on a case by case basis. We have more retail per sq ft in the United States than almost any other country. Now to take that in context there is a lot of old retail in rural to weak suburban areas or cold belt states that never should have been built to begin with. If you target the numbers for high demand areas in a lot of cases there is an under supply of quality retail.

  8. Anton Nentchev

    Could be it’s a great time to be alive, but these are also scary times. What happens to all these people that get laid off? Where do they go? Sadly it’s also the Intels of the world and the Fords of the world as of couple of days ago slashing 10% of global force in Intel’s case (~3,000 US jobs) and 10,000 for Ford. What’s going to happen to those high paying jobs? The sky might not be falling but you’d definitely be foolish not to pay heed to these events. Amazon’s work from home jobs probably pay about the same as retail did (haven’t verified this) but the hours are NOT going to be full time. If I’m investing in real estate, I’m definitely going to be very, very picky with where I deploy my capital. Due diligence and crunching numbers is more important than it has been in a long time. This is absolutely a negative and scary trend!

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