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Retail Closure Creates Industrial Opportunity

September 15, 2016

As the announcement that Macy’s will close 12 percent of its base hits the national retail market, commercial real estate across the country is seeing the highest number of retail store closures and bankruptcy filings since 2010. And, while the shift toward fewer brick-and-mortars and greater online commerce doesn’t bode well for local economies, there is a bright side for commercial real estate investors.

Industrial real estate investment trusts (REITs) are in a strong position to make the most of retail closures. Even as chains are shuttering stores and selling space in response to slowed shopper traffic, they still need the warehouses and distribution centers required to keep up with the business of online commerce.

In the grand scheme, this arrangement is good news for commercial real estate. An online commerce business uses 20 percent more warehouse and distribution space than a traditional storefront. What’s more, every $1 billion of e-commerce activity drives demand for one million square feet of industrial real estate space. With warehouse demand on the rise, REITs that leverage industrial warehouse space are outperforming their competitors as well as the broader stock market.

While real estate research firm Green Street Advisors notes that Amazon is leading the charge for warehouse space usage, traditional retailers like Home Depot and Walmart are holding their own, adding more warehouse space to service their online business. Plus, development is expanding to new locations near cities to help lower transportation costs while meeting consumer expectations for fast delivery. Overall, the firm projects that this activity will boost annual demand by 20 percent in the coming years, and rents are already on the rise.

To learn more about the opportunities this commerce environment creates within the Midwestern market, contact the professionals at Intelica Commercial Real Estate. We can help you navigate the changing face of retail and find growth potential through your investment portfolio.