The real estate and investment sectors have undergone major shifts over the past year with growth in online shopping and co-working impacting investor and occupier interest in retail and office space in key global markets.
As consumers become more reliant on online shopping, interest in retail properties has been steadily waning. At the same time, interest in shared working spaces requires investors to rethink their management of office space while WeWork attempts to stabilize its economic footing over the next few months. While market conditions remain solid for office and industrial buildings, how will investors respond to these trends in 2020?
Online shopping has been steadily growing year over year and now consumers are making the shift to online shopping at an unprecedented pace. According to the US Census Bureau, third quarter 2019 e-commerce sales were up by almost 17 percent compared to the same quarter last year. This trend shows no signs of slowing. A recent study by Google found that 40 percent of US shoppers with online access spend more of their time shopping online than in-store.
This shift in consumer preference for online stores rather than bricks-and-mortar stores means it's troubling times for the retail sector – and this trend is global. According to the Global Commercial Property Monitor, this ongoing shift toward online shopping is contributing to negative metrics in the beleaguered retail market for the third straight quarter, with a fall in tenant and investor enquiries.
"The challenge facing the retail sector is likely to intensify over the coming years as technological improvements continue to enhance the on-line shopping experience," said Simon Rubinsohn, RICS Chief Economist. "Against this backdrop, it is hard not to envisage further downward pressure on both rental and capital values particularly away from prime locations."
Online shopping isn't the only disrupter in this space. Another trend that is causing a buzz is the appeal of co-working spaces.
The appeal of co-working is clear and anyone who has worked in a coffee shop, airport or library knows these spaces can be beneficial for those who step away from their home offices. Employers are also enjoying the flexibility shared spaces provide.
Technology has enabled entrepreneurs to enjoy the benefits of working in an office through co-working spaces, explained Executive Director of Portfolio and Asset Management with Cominar REIT Alexandra Faciu MRICS, a recently appointed member of the RICS Americas World Regional Board. She pointed out that co-working allows small companies to scale up or down according to their needs and benefit from the inspiration and energy of working in a buzzing office.
"When I was starting my own business twelve years ago as a start-up entrepreneur, I missed having people around," said Faciu. "Co-working spaces have a really positive effect on young companies because that atmosphere helps energize entrepreneurs. People feed on each other's energy."
"The challenge facing the retail sector is likely to intensify over the coming years as technological improvements continue to enhance the on-line shopping experience"
Chief Economist, RICS
While co-working is a winning trend, there is a lot of volatility around how it rolls out over the next couple of years. As RICS convenes thought leaders with international investment portfolios, at the Sixth Annual International Investment Panel, attendees will be curious to hear how industry leaders are adapting their portfolios in response to both online retail and co-working trends.
"There's a number of factors investors will be taking into consideration as they manage their portfolios over the next few months," says Julian Josephs FRICS, Adjunct Professor of Global Real Estate of the School of Continuing Studies at Georgetown University. He'll be moderating the Investment Panel. "This event is an opportunity to hear directly from international investment managers about how they're navigating these challenges and what they see on the horizon."
Representatives from some of the largest international investment firms will discuss their international and U.S. investment portfolios and goals, how it fits into their global strategy and changes they've made over the past year. RICS Chief Economist Simon Rubinsohn will discuss the most recent findings of the Global Commercial Property Monitor.