By: Rob Roe, Managing Director of Jones Lang LaSalle, Great Lakes Region
Retail businesses are rapidly evolving to remain relevant and competitive in a fast-changing field. According to JLL research, “…digital technology has reshaped—and will continue to reshape—the retail landscape.”
It’s critical that owners, tenants and investors of retail commercial real estate stay up-to-date on emerging trends, and subsequently adapt their space to meet the needs of today’s savvy consumers.
Think you can skip the whole online thing in favor of your physical storefront? In JLL’s white paper Digital Metamorphosis , researchers found that 65% of U.S. shoppers research products and services online before making an in-store purchase. E-commerce has transformed the face of the retail industry, and will continue to do so in the coming years.
4 Key Trends Driving Change in Retail Commercial Real Estate
Below are four leading trends driving change in the commercial real estate retail industry—also featured in JLL’s Digital Metamorphosis. We invite you to visit the white paper for a full listing.
1. E-commerce Pushes Stores to Rethink Space Logistics
According to JLL:
“The influx of e-commerce has completely altered the state of retail.”
To align processes with the popularity of online and mobile shopping, some retailers are shrinking their space to expand “the back room”—to ensure that items are always in stock. A recent article from National Real Estate Investor also emphasized the impact that e-commerce is having on space requirements. The article reported that retailers “… are altering the traditional stores to pull double duty as online fulfillment centers.”
To succeed in today’s fast-paced digital environment, retailers must have a comprehensive, dynamic commercial real estate strategy in place.
2. Shoppers Demand ‘Experiential Retail’
Consumers can enjoy the convenience of online shopping from their homes. Those who shop in-store seek a unique experience that makes it worth the trip. This trend is changing the way retailers determine their office amenities and organize their office layout.
In JLL’s white paper, researchers point to The Apple Store’s Genius Bar as an example that “offers hands-on troubleshooting where customers can interact with friendly, Apple- trained technical experts at a uniquely designed space in the store.”
3. Extinct Categories Leave Vacant Space
Some products can be easily replaced using new technologies; these retailers are slowly dwindling in number. For example, office supply retailers are struggling to remain relevant in a paperless world. Consumers continue to debate whether bookstores will continue to perform in the coming years.
Because some retailers may become extinct, there is an opportunity to fill these vacant spaces. Health retailers and fitness centers are expected to grow and possibly begin to fill these vacancies.
4. Sales Tax May Extend to Online Retailers
Sales tax can only be collected from retailers who have an in-state location, under the current law. But, changes may be coming. In fact, if approved, the Marketplace Fairness Act “would allow states and the District of Columbia to collect sales tax from retailers regardless of if they have a physical presence, such as stores or distribution centers, or not, in an online customer’s state,” according to JLL .
Eventually, sales tax may extend to include online retailers nationally. Experts don’t expect this change to make a significant impact on e-commerce sales; however, it may drive some customers away.
The retail industry is in the midst of a metamorphosis—the impact of which is being felt across the commercial real estate landscape.
Retailers are rethinking their in-store strategies and shifting more focus on large distribution centers to accommodate for online sales. JLL researchers conducted a survey in 2012, which found “companies with growing space needs in their distribution centers outnumbers those with shrinking needs by a factor of about three.”
JLL’s newly released Warehouse Demand Study also reported that the retail industry emerged as the leading source of industrial requirements (139) nationally during the summer of 2013. Following Q3, JLL ranked e-commerce among the top three industries seeking space in the Northeast and Midwest markets. It’s clear that e-commerce is driving strong growth in the industrial sector. Beyond a new emphasis on distribution, retailers must also tailor in-store design and layout to appease the experiential shopper.
How has your retail space evolved to accommodate for the growth in e-commerce? Please feel free to share in the comments below.
Are you a retail property owner, investor or tenant? Please contact us at firstname.lastname@example.org for more information.
Download the full white paper—Digital Metamorphosis: 10 Trends That Are Transforming the Retail Landscape.
About the Author
As managing director, Rob’s responsibilities include real estate transaction representation and consulting services for Jones Lang LaSalle. View Rob’s full bio to read up on his experience and recent transactions, or connect with him on LinkedIn.