Amazon Increasing Presence in Retail
Is a big Amazon warehouse distribution center coming to your local area soon? With retail shopping malls suffering in 2020 and into 2021, a key opportunity for eCommerce fulfillment firms is presenting itself.
Commercial property managers who have suffered big losses of tenants and revenue during the pandemic are looking for new tenants. They’re finding unlikely new ones — Amazon and other ecommerce fulfillment companies which may include UPS, Fedex and other “last mile” delivery providers. In fact, the last mile to consumers is where the key battles are being fought.
The retail rental property sector is following in the shadow of the residential rental market. As apartment renters buy online and abandon the inner city, huge losses lurk for commercial, office and retail landlords. The success of Amazon is directly related to renters in the big cities.
Amazon Moves into America’s Malls
You may already be using an Amazon Go store in your region. With low foot traffic though in 2020, these locations might not be as busy as they were. Amazon is moving onto another option — malls and big box store locations.
Amazon is eyeballing abandoned department stores, empty big box stores and under-occupied malls throughout America. In particular cities as well, these are ideal locations for ecommerce fulfillment centers (benefits listed below).
Yes, some property developers are looking at retail and office building to residential conversions as well, yet none of those options compares well to retail to warehouse conversion which has sizable financial and marketing advantages along with retail fulfillment possibilities.
Retail Rents Falling and Tenants Disappearing
For retail property management unfortunately, the outlook appears dim for the next 12 months. Brick and mortar retail sales did grow in August, yet the fall and winter seasons may curtail further foot traffic growth. The pandemic continues and retailers in some urban locations continue to see declining sales. Bankruptcies are rising.
Retail vacancies have risen sharply, and as job losses become more permanent, both residential and retail rents in cities will likely fall much faster in early 2021 as leases expire. Property managers will need to work harder and increase efficiency.
Unfortunately, a cease of the pandemic won’t change the outlook for commercial property owners and management companies. To Amazon, this is an opportunity to grow market share and affix themselves permanently within consumers shopping habits.
Commercial Retail Sales Report:
- total retail sales fell 8.1% in Q2
- retail availability rose to 6.4%
- construction completions hit lowest level since 2008
- net retail absorption rate down 14.6 million square feet
- power centers saw asking rents fall 4% YoY to $17.63 sq ft
- retailer bankruptcies nearing record levels
With growing vacancy, there’s available space for ecommerce fulfillment centers in big box malls and shopping centers where asking rents are falling.
7 Reasons Why Amazon is Converting Retail Space to Fulfillment Centers
- cheaper than building brand new warehousing/fulfillment centers
- price per square of old retail might only be 20% of current warehouse/industrial space cost
- established locations in local communities and cities with quick transport of packages
- greater visibility in communities and to consumers
- large spaces ideal for big footprint operations required
- eCommerce taking more share from brick and mortar
- local online grocery becoming more popular
Retreat from Urban Sectors
The migration of homeowners and renters to the suburbs and beyond is creating a lot of empty rental space. Big apartment vacancy numbers, abandoned stores and offices, and the disappearance of customers and tourists are only changing the urban property management landscape faster.
The advantages of living in the city core seem to be evaporating while the value of suburban and rural life are growing. Yet whether city or countryside, this retail space to fulfillment center transformation has actually been ongoing for some time now.
We’re seeing more accounts of small and medium size retail stores disappearing. From New York and New Jersey to the Bay Area in California, they’re being replaced by new robotic warehousing facilities.
CBRE says most of the transition is happening in big cities that include Milwaukee, Cleveland, Chicago, Omaha and Dallas/Ft. Worth.
Experts will ask if all of this is permanent, but perhaps the question for companies such as Amazon, is whether they can make it permanent.
According to the commercial real estate services firm CBRE, since 2017 at least 59 projects in the U.S. have centered on converting 14 million square feet of retail space into 15.5 million square feet of industrial space, and that trend is “absolutely going to continue,” says Matthew Walaszek, an associate director of industrial and logistics research at CBRE.
Retail Sector Undergoing Extensive Transformation
As winter closes in on us, brick and mortar retailers are concerned about low foot traffic and weak sales. The amount of restaurant space alone coming available in the next 8 months will be shocking.
The pandemic has only poured figurative fuel on fire. Forbes estimates that upwards of 14,000 real-world retail stores will close in the U.S. this year. Meanwhile, during the first six months of the year, consumers spent $347.26 billion online with U.S. retailers, up 30.1% from $266.84 billion for the same period in 2019, according to U.S. — Techcrunch Report
Department of Commerce data parsed by the news and research outfit Digital Commerce — extract from Yahoo money news story.
Retail and office properties have been particularly hard during the pandemic after years of watching online commerce eat away at brick and mortar sales. With epidemiologic experts forecasting that the Corona Virus may be with us for a while, and that vaccines are typically only 50% effective, we can see how demand for indoor space including retail space could be reduced further.
A Glut of Retail and Office Space
The US unfortunately has an excess of retail space. Estimates are 24 square feet of retail space per capita compared to Australia which has only 11.2 sq feet per capita.
For malls and restaurants, the threat is severe and very creative solutions are needed. Those solutions might include new spacious designs and powerful air cleaning systems, all very expensive.
That’s a big challenge for commercial real estate development companies and retail landlords. It’s not just a disruption, it appears what’s happening to retail real estate may skew the entire commercial real estate sector.
Fulfillment for e-commerce requires three times the warehousing space of traditional brick-and-mortar store inventory, given the greater variety of SKUs and space-intensive shipping and parcel operations. — supplychaindive.com article.
And big empty malls provide the perfect move in opportunity for big ecommerce fulfillment providers.
Amazon in the News Again
The case of Amazon is the most well known. The eCommerce giant has already been using Whole Foods grocery locations as grocery distribution locations.
Amazon needs localized fulfillment for food, especially for delivery of fresh produce direct to consumers. And the company may also be reacting to Walmart’s local distribution power and looking to build the same local fulfillment presence that Walmart enjoys.
What makes it such a powerful opportunity for Amazon and any other big eCommerce firms such as Shopify and Walmart, is that once they’ve established themselves in these popular retail spots, retailers may not be able to move back into their old locations once the pandemic eases and in person retail shopping resumes.
The other benefits for mall locations include very low cost per square foot, huge parking facilities, perfect geolocation with customer neighborhoods surrounding them, and plenty of square footage and size for efficient operations and lots of room for sku’s.
Amazon is All About Efficiencies
Amazon has an efficient copy and paste process for creating new fulfillment centers that gets them up and running quickly and efficiently. And with a larger number of locations, they’re able to deliver packages quicker and allow customers to return products.
Other etailers such as Target, Walmart, Costco, Walgreens, Kroger, etc. will be looking at the opportunity too as Walmart expands exponentially.
There is no shortage of “dead mall space” across America. Amazon won’t have to work hard to find it. Most recently the company was negotiating with a mall operator (Simon Properties) to convert defunct Sears and J.C. Penney stores in to fulfillment centers.
Rental property owners should be considering approaching the various eCommerce companies to provide buildings and needed services for these businesses. eCommerce isn’t going away. The trend to online shopping will only steepen in the years ahead.
The shift to virtual shopping is on and property management companies must adjust. The types of projects, geographic dispersion, and demands for professional financial services will grow. This is a good time to gravitate to better property management platform and leverage the power of efficiency and key business knowledge.
Learn more about ManageCasa Property Management Software and achieve new efficiencies and better ROI.
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