Where Bricks Are Beating Clicks: Implications for Last-Mile Real Estate

Many observe the impacts of e-commerce growth as decimating commercial retail properties, leaving empty big-box warehouses and strip malls in its wake. While this may be true to a certain extent, it ignores the potential opportunity this new trend is creating in the industrial property sector. It seems that for every mall that closes, a distribution warehouse—or so-called last-mile logistics space—opens. Raymond Jacobs, Woon Pin Chong and Marc Weidner of Franklin Real Asset Advisors outline the opportunities they see, namely in new demand for logistics infrastructure.

Undeniably, the digitization of the retail industry over the last 10 years has dramatically changed traditional commerce. Keystrokes and mouse clicks have increasingly supplanted physical visits to corner stores and strip malls. Shoppers worldwide now have instant access to virtually unlimited selections of goods and services, from toothbrushes and razors to esoteric and bulky items like mattresses and televisions, delivered to their doorsteps often in 24 hours or less.

This new e-economy has had a ripple effect impact on commercial real estate, particularly commercial retail and industrial properties, felt across the United States, Europe, Latin America and Asia. This is the so-called “Amazon effect,” or “clicks versus bricks,” referring to the economic pressures put on traditional retail properties due to declining on-site traffic. While this impact on retail real estate is significant, the narrative associated with it often tends to emphasize the negative aspects—the closures of malls and big-box retailers.

What we think is overlooked is a vast redevelopment opportunity, particularly as it pertains to the space required to support “e-tail” business logistics.

When a Mall Closes a Warehouse Opens

As consumers of all ages embrace the convenience of online shopping, they have come to expect near-instant gratification in terms of product delivery. Goods of all sizes and types are delivered within 24 hours, and in some cases, less.

Consumers in Europe cited “best price,” “speed,” and “the ability to order anywhere and anytime” as the top three most-important factors driving their online shopping habits, according to Euromonitor’s syndicated Lifestyles Survey.1 E-retailers aim to meet this demand by securing warehouse and distribution space to house the inventory in as close proximity to their customer base as possible.

If inventory is no longer on store shelves, it must be kept somewhere.