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A Paradigm Shift in Commercial Real Estate

With a 4.4% growth rate in countrywide revenue from 2015-2016, and Statista predicting 3.0% from 2016-2021, real estate’s continuous climb seems virtually guaranteed for the immediate future. But however attractive those numbers may seem at first glance, they don’t reflect the disconnect between industrial space and retail space. If you’ve been to a mall in the past year, you’ve probably noticed that some of your favorite stores are no longer there. Put bluntly, that’s because malls are getting slammed by e-commerce. So much so that about 15% of all of them will disappear in the next decade, according to a recent study by Green Street Advisors.

It makes intuitive sense if you think about it - when more items are being purchased online, there needs to be more industrial warehouse space to process those orders. And with the huge amount of growth in online purchasing (see the graph below), companies of all shapes and sizes are looking to expand their digital footprint rather than their physical.

Retail e-commerce sales 2017

But the rise in e-commerce is doing more than it may seem. The increased need for web presence and success leads companies to look into untapped markets to find low-cost space. And the only way to find those two things is to venture into the places that they would’ve never gone before. Steve Case touches on this concept in his book, The Third Wave. We’re moving into an era where no particular geographical location is more important than the next. When companies look into cheap locations for more working space, they bring jobs with them. And that creation of specialty jobs leads to a community-wide adoption of the ideals attached to that company’s innovative culture. Which, in most cases, creates an environment that expects and encourages more and more entrepreneurs each year. Silicon Valley will always be Silicon Valley, but its value in terms of innovation and entrepreneurial growth inversely diminishes as other locations flourish. Growth in e-commerce is just the beginning of the movement. It’s the precursor to a massive shift in the needs and wants of the entire real estate industry – both for century-old corporations and month-old startups.

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