Friday, March 23, 2018

The Intersection of Retail and Industrial Commercial Real Estate

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As frequenters of this column will attest, commercial real estate comes in many forms - most commonly office, industrial, and retail.

Office space  is primarily occupied by firms that provide a service - doctors, lawyers, CPA's, real estate agents, wealth advisers, insurance brokers.

Industrial buildings are tenanted by companies that make and ship things.

Finally, retail is housed in locations where folks go to consume products or be entertained - stores, restaurants, movie theaters, and malls.

Unions between genres of commercial real estate aren't without precedent. The computer boom in the early to mid 1980s morphed industrial and office space into a new sub category known as flex or research and development space.

Much has been written lately about a new intersection - that of industrial and retail - and the benefits and challenges such a marriage has engendered. Because today's consumer buys differently than those of us born when Eisenhower was President, traditional retail has been forced to change - or be docketed into the bankruptcy courts. Once upon a time, you visited a retailer or several and your ability to buy was based upon the stock on hand on the sales floor or in the small storeroom in back. Today's retail outlets are tantamount to a showroom where products are displayed but not necessarily purchased. Now, commonly, once you've seen the item, you search for the product online - sometimes in the showroom - find it, place the order, pay with PayPal, and a package arrives on your doorstep within days - or hours. What's not seen from your LCD screen is the procurement process of warehousing, sourcing, order picking, shipping, and delivery - historically an industrial function. Mammoth warehouses have sprung up in the Inland areas of Southern California - where the "back-end" of your purchase occurs. No longer is your purchase dependent upon the stock on hand - its always available!

So will we see large "big box" retailers converted into industrial procurement centers? Or, will industrial occupants find a way to open in shuttered mall space? We've certainly seen some recent examples with the likes of Living Spaces Furniture, IKEA, Bass Pro Shops and others. A Costco is simply a warehouse where products are sold. Challenges abound, however - with zoning, configuration, amenities, and locations. Cities, dependent upon the sales tax revenues retailers generate, will weigh in as well.

Stay tuned. We will see where the intersection takes us!

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