Chicago, IL,– CCIM Institute Chief Economist K.C. Conway, in partnership with the Alabama Center for Real Estate at the University of Alabama, released a special report entitled “Retail e-Volution: Predictions for 2025” that details five predictions for the future of retail real estate that debunk several primary myths behind the glut of bankruptcies and store closings in the past decade.
“This report is not another examination of retail’s demise, because quite the opposite is occurring,” says Conway. “With total retail sales increasing at an average annual rate in excess of 4.35 percent, this is a story of how retail will continue to grow and evolve, fueled by e-commerce, technology, logistics, and innovation.”
The report connects the dots of what’s happening in retail and what to expect by 2025, including:
Debunking Retail Myths
- The real culprit behind retail bankruptcies and closings is overleverage and the U.S. being “over-retailed” – not changes in consumer spending. One in four malls will close by 2022, and retail space will contract by more than 50 percent.
- Online apparel retail is actually less profitable than brick-and-mortar stores despite the proliferation of e-commerce (32 percent profit margin vs. 30 percent), partly because last-mile fulfillment isn’t cost effective (something even Amazon hasn’t figured out).
- Online retail sales will double by 2025, partly due to online grocery sales. U.S. online grocery sales will make up 20 percent of the total grocery retail sales – some $100 billion – by 2025, with grocery stores shrinking to a third or half their current size with a more limited, locally curated inventory.
- Providing experiences and services (e.g., co-retailing in hospitality and airports) will redefine brick-and-mortar success with hotels becoming the new showrooms for retail. Retail will also benefit from the “halo effect,” whereby online sales result in brick-and-mortar sales and vice versa.
- To make delivery/last-mile fulfillment more cost effective, changes are needed in infrastructure and logistics, combined with innovation like autonomous trucks and new warehouse designs. For example, the new three-story logistics facility at 640 Columbia Street in Brooklyn’s Red Hook neighborhood will offer the tallest and fastest last-mile fulfillment thus far.
- Adaptive reuse of retail centers and malls will be the most impactful trend for retail between now and 2025. For instance, The Howard Hughes Corp plans to transform the Landmark Mall, located in an opportunity zone in Alexandria, Va., into a mixed-use property with a hotel, residential, retail, office, and other public facilities. With capital and debt markets pulling back from retail due to overleverage and record-setting loss severities, this revenue could be replaced by deferred capital gains via qualified opportunity zone funds.
- Property tax is a sleeper issue in retail that will get more litigious by 2025, including recent wins in favor of Disney and Walmart. Where will states make up this revenue deficit to fund an already financially strapped education system?
“Commercial real estate is experiencing one unprecedented change after another,” says 2019 CCIM Institute President Barbara Crane, CCIM. “Our chief economist’s insights and analyses continue to prove invaluable to our members and the industry at large.”
About CCIM Institute
CCIM Institute created the language of global real estate investment. Our courses and worldwide community deploy commercial real estate investment methodologies and tools that speed the pathway between opportunity, a go/no-go decision, and success for an asset, taught by instructors who are themselves industry leaders. Today, the organization, through its 50-plus chapters, continues to innovate best practices and elevate the commercial real estate professional through its core designation program to earn the CCIM pin — real estate’s most coveted credential — and its topical education courses offered through the Ward Center for Real Estate Studies. In addition, membership in CCIM includes the industry’s best technology and operational platform, allowing entrepreneurial and mid-sized businesses to compete with the largest multinational providers. Today, almost 70 percent of designees hold the title of owner, partner, principal, or president, representing an exclusive worldwide referral network of 13,000 members in 30 countries. Ultimately, CCIM represents a larger vision of the commercial real estate provider, leveraging investment analysis, opinions of value, and underwriting to become a leader in sourcing capital, building a cash-flow vehicle, and ultimately creating value. Information at www.ccim.com.
About the Alabama Center for Real Estate
The Alabama Center for Real Estate is housed within the University of Alabama’s Culverhouse College of Business. ACRE is organized to provide national thought leadership and relevant resources in the areas of research, education, and outreach that enhance Alabama’s real estate industry. The heart of ACRE is advancing relationships by providing servant leadership with a passionate, adaptable, and humble spirit. It was established by legislative act in 1996 with the support and guidance of its founding partners, the Alabama REALTORS®, the Alabama Real Estate Commission, and the University of Alabama.