by Dan Rafter
The most important commercial real estate trend for 2017? In little surprise, it’s the continued rise of Amazon and online shopping.
In its latest U.S. economic forecast, Cushman & Wakefield says that the popularity of e-commerce will only continue in 2017. And as even more consumers flock to the Internet to order everything from holiday presents to laundry soap to shoes and take-out meals, e-commerce will provide a boost to the country’s industrial market while it leads to a continued shrink in the number of brick-and-mortar stores filling shopping malls and retail centers.
Cushman & Wakefield said that companies such as Amazon, Walmart, Zappos, Apple and Staples will continue to grow their online presence this year. As they do, they will need more distribution centers. Expect the Midwest to be home to many of these centers; its location in the center of the country is ideal for retailers who need to ship product to as many consumers as quickly as possible.
E-commerce, then, will fuel an increase in demand for warehouse and distribution space, according to Cushman & Wakefield. And e-commerce isn’t the only positive for the industrial market. Cushman & Wakefield says that manufacturing is set to enter a period of positive growth this year, too, while auto sales are expected to remain at a healthy 17 million to 18 million units for the next two years.
The takeaway? The outlook for the industrial sector is bright in 2017.
The retail market, though, will face some challenges. Consumer spending will rise in 2017 — good news — but Cushman & Wakefield says that a larger share of this spending will go to e-commerce. This means that several major retail categories — such as sporting goods and clothing — will move into contraction mode this year, with retailers in these categories shutting down stores across the country.
Cushman & Wakefield says that retailers operating in malls and lifestyle centers, especially those operating Class-B and Class-C properties in secondary markets, will see the biggest number of closings.
Looking back at 2016, it’s clear that Cushman & Wakefield is on trend with its retail predictions, teen clothing chain Aeropostale closed 113 U.S. stores last year, while American Eagle announced that it would shut down 150 stores over a three-year period.
Women’s clothing retailer Chicos said is in the middle of a large series of closings, too, with plans to have shut down 120 stores from 2015 through 2017. Macy’s last year announced that it was closing 100 stores, while the merged Men’s Warehouse and Jos. A. Bank, a men’s clothing chain, last year said it would close 250 stores across the country.
Perhaps because of these challenges, Cushman & Wakefield predicts that the investment sales of commercial real estate properties will decline in 2017 by 2.2 percent and in 2018 by 8 percent. That equates to $455.7 billion in investment sales this year and a predicted $422 billion in 2018. Even though those numbers are down a bit from the $466 billion in investment sales in 2016, they are still well above the 15-year average of about $279 billion.
Even with the uncertainty that has become a constant with the U.S. economy, and the changes coming with the continued growth of online shopping, Cushman & Wakefield says that the next two years should be strong ones for the commercial real estate market.
“Although headwinds have come and gone and come again, the major force driving growth, the consumer, is still gaining momentum,” said Kevin Thorpe, global chief economist with Cushman & Wakefield. “We believe there will be a net positive impact on economic growth as well as the property markets in 2017 and 2018.”