The Strategist

Internet commerce is revolutionizing the real estate market

04/02/2018 - 10:35

Consulting company Colliers International Group reports that prices for warehouse real estate began to outpace the prices for office real estate in the US due to rapid development of Internet commerce. Other researchers note that growth of Internet trading leads to fundamental changes not only in the commercial real estate market, but also in the air transportation industry, software and robotics.

icondigital via pixabay
icondigital via pixabay
In the course of a study in 13 American regions and in Toronto, Canada, the international company Colliers International Group found that last year the capitalization rate (the ratio of income from real estate to its value) for warehouses larger than 18.6 thousand sq. m. was lower or almost equal (5.8%) than the capitalization rate of office real estate in the same regions (5.7% for office real estate in the city center and 6.7% for the rest of office real estate). Colliers researchers, referenced by Bloomberg, explain the decrease in the capitalization rate for warehouse real estate by the growth of prices for it. In turn, the rising prices have been triggered by the growing demand from online retailers trying to keep up with consumer demand for Internet trading and delivery services.

A similar trend is observed not only in the US. The sharp increase in demand for warehouses led to the fact that operating profit of one of the largest British operators of such real estate, the investment company Tritax Big Box, increased by 49%, to £ 93.8 million for the past year, and the total profit before taxes - by 170 %, to £ 247 million. The company's main warehouse assets are located in East Anglia and the Midlands. Reporting at the beginning of March on annual results, the company noted: "Our assets have felt the positive impact of structural changes in the market, which is driven by the growth of e-retailers." The investment company underlined: "The key indicators of our business remain positive even against the backdrop of current geopolitical and economic events, including the threatening growth in the uncertainty of Brexit."

Other experts and market participants note that the growing popularity of retail Internet trading leads to fundamental changes not only in the commercial real estate market. In addition to the development of logistics chains, including the use of additional cargo aviation capacity, companies are increasingly demanding new technologies that make it easier and quicker to process deliveries and serve orders. "I would say that technology carries the greatest changes in the industry," Steve Bullard, vice president of logistics for the transport company Pilot Freight Services, told Air Cargo World. "There are many ways to deliver a mattress or an armchair to a buyer, but all these methods have not changed in recent years. Therefore, now new technologies are altering the whole established picture of things."

In turn, Andrew Bird, partner of the investment company Tilstone Partners, which manages the UK warehouse trust Warehouse REIT, notes that the development of Internet trading will result in more frequent use of new technologies and robotics. This is taking place against the backdrop of growing commodity turnover and the current economic situation, when workers' salaries go up due to low unemployment. According to the investor, until recently robotics and artificial intelligence have not yet made their way to many warehouses. However, "as the turnover and labor costs increase, more and more owners will start thinking about reducing the human factor in the work of warehouses and investing in automation".