While online shopping might be causing retailers to shrink their real estate presence, it is also spurring the need for massive warehouses to store the goods that are being shipped directly to consumers.
Cushman & Wakefield recently surveyed the global market and ranked Canada in 12th place out of 50 countries in terms of the strides it has made in the online retailing space. Britain came in first, followed by the United States, Germany and France.
Globally, online retailing has been growing by an average of about 18 per cent over the past three years, a trend that's set to have large implications in the real estate sector, Cushman noted in its report.
The most obvious is that space in stores will be reduced. Retailers' strategies are still in flux, with some experimenting with a smaller number of larger stores and others creating a larger number of smaller stores, in an effort to cope with the changes.
Cushman expects that places that offer destination shopping, where consumers go to socialize or for the experience, will buck most of the negative impacts related to the trend. "Although negative for parts of the property market, large regional shopping centres and core in-town markets have considerable potential to emerge as winners from multi-channel retailing," says Cushman's report. "They tend to be areas of high traffic, with a confluence of transport links and parking and are key hubs for consumers to meet, enjoy experiences and access supporting uses such as leisure and food."
John Crombie, a senior managing director at Cushman, says that "when the Internet was taking off in 1999 and 2000, it seemed to be the death of bricks and mortar – it was doomsday and no one was going to go out shopping. Thirteen years later, all the shopping centres continue to expand. Shopping is not just about getting the product, it's also the experience of going out and having fun and enjoying your time doing it."
That being said, he also argues that there's no room for complacency. "Every retailer has got to face reality that the Internet is going to have an effect on them," he says. "And a lot of the large boxes that I work with, they hate being a showroom for the Internet. But some of these larger formats are obviously becoming difficult to afford, and so they need to downsize them."
One of the less obvious impacts of online shopping is the increasing need for mammoth warehouses. In another recent report about how global trade flows are changing, Cushman notes that e-commerce in Canada "is behind the growing demand for bigger, more efficient warehouses in strategic locations…
"Third-party logistic companies are also being used to manage shipping in markets that don't justify a full-sized distribution facility," the report says. "Bigger in Canada generally falls within the 500,000- to 800,000-square-foot range, with some exceptions. Target recently completed a 1.3-million square-foot distribution facility in Milton (part of the Greater Toronto Area) – one of three such facilities the giant retailer will use to service its new Canadian locations."
The cost per square foot of warehouse space is significantly lower (for instance, it could be one-third the cost) than that of retail space, Mr. Crombie notes.
For all the hype about online shopping, it remains a relatively small part of the market. The proportion of the total market that online business had captured in Canada stood at 1.6 per cent last year, according to Cushman. But it is growing. Online sales in Canada have grown by about 7.5 per cent per year over the past five years, Cushman says.