Over the past few years e-commerce and online shopping have become a crucial part of business, real estate and our personal lives. People have changed the way they shop, and businesses have changed the way they do business, in line with this emerging trend.
As a direct consequence, the real estate industry has seen an increase in the need for warehouses, to meet the growing demand of e-commerce. While online shopping and e-commerce has seen a steady double-digit growth in previous years, growth has accelerated considerably in 2020, as a direct result of the coronavirus pandemic.
Many people have been forced into online shopping due to the stay at home restrictions put in place by Australia’s state and Commonwealth governments, in order to manage the spread of the virus. While some may never have entertained the option of online shopping in the past, many have now discovered the convenience of shopping this way and experts believe that this trend will continue, even after everything returns to normal.
The huge surge in online purchasing has resulted in a rapid structural shift to e-commerce, with the need for warehouses increasing at an exceptional rate. Accordingly, businesses that have been late to the e-commerce party are now having to lift their game quite quickly. Those that haven’t kept pace with the e-commerce boom in such a fast-moving market are now being forced to rapidly adapt to the online orders increasing as a result of the pandemic.
The pandemic caused the commercial real estate market to experience a monumental shift. While in the past Industrial real estate hasn’t struggled, nothing compares to the sudden increase, felt as a result of Covid-19. Overall, the outlook for the industrial market is bright. This is because, as an asset class, it is better positioned than many other sectors to overcome the changes imposed by the pandemic. So, how exactly will this sudden amplified demand for industrial property, due to the shift in online behaviour, impact industrial and commercial real estate?
Experts believe that this change in buyer behaviour is permanent, and retailers are responding. They are looking to redefine their futures that have been brought forward by three years’ worth of growth occurring in a very short time.
Many will be needing to secure distribution hubs and we expect that coming out of the pandemic there is real potential to see the repurposing of retail assets for distribution hubs. Fringe areas will be in higher demand and will experience rental growth for industrial property such as warehouses and manufacturing sites. Operators will also be rethinking their supply chain models, focusing on accessible inventory in facilities that are designed for faster delivery and holding more stock onshore. This is all aimed to avoid gaps as a result of interrupted supply chains.
A spike in manufacturing activity within Australia is also widely anticipated, so that less manufacturing is being sourced offshore. This will be a part of the emerging strategy for many businesses that will be seeking to ensure that their supply chains are as strong as possible and protected against any possible future disruptions. Any increase in onshore manufacturing will lead to an increased need for real estate, once again seeing an increased need for industrial spaces in the future.
A shift towards online behaviour might also see warehouses and industrial spaces change shape, in order to adapt. There is the possibility, as local manufacturing increases and the requirement for real estate surges, that multi-level warehousing might be introduced so that industrial hubs can expand production and support the growth of their online retail sales.
The need for space will exceed what is available in industrial hubs and these hubs will need to move further increasingly into the rural/urban fringe. We may also see warehouses becoming multi-use, with spaces having to ‘smarten up’ with technology, to allow pick up directly from warehouses and premises that also act as showrooms as well as storage spaces. This would mean that businesses can do more within their space and don’t have to move out of prime industrial areas into more regional hubs.
The growth we have seen as direct result of the coronavirus pandemic will change the future of industrial and commercial real estate as we move forward, if our online behaviours continue. From multi-level to multi-use warehousing and improved technology to pick up orders from hubs, the opportunities in the coming years are considerable.
While no one can tell us what the future holds for these real estate sectors, we are confident that the future of industrial and commercial real estate is full of promise.