Internet shopping is set to explode, and a big change in consumers' buying habits could blow up institutional investors' retail real estate portfolios, according to a recent paper by RREEF, Deutsche Bank's real estate investment arm.
Under what RREEF considers a conservative assumption of five times faster than overall sales, online sales would double within five years, to 11.3% of all retail sales excluding auto-related sales, the report found. Sales of goods most often sold online — electronics, hobby supplies, apparel and furnishings — would double to 21.3%, it stated. Big-box stores, which were themselves a game-changer five decades ago, will become obsolete, the paper contends.
“Impacts on the shopping center industry will be profound and far-reaching,” the paper proclaims. This will, in turn, have a major impact on investors with exposure to the retail sector.
Retailers will want fewer and smaller stores. And owners of retail stores will be picky. They will want to rent in only great locations; more retailers will adopt a hybrid approach in which consumers will be able to shop online as well as in a store. This will allow retailers to keep most of their inventory in warehouses to be shipped directly to customers, the paper contends.
There is some good news. Well-located malls, main-street shopping districts and grocery-anchored centers will be big winners. Because stores will be smaller, there will be more shops in these shopping centers and districts, “making them more exciting,” RREEF's paper noted.