E-Commerce Impacts Commercial Real Estate Industry

Arthur Andersen’s Real Estate and Hospitality Services Group and real estate consulting firm the Rosen Consulting Group released a joint study Friday that concluded that e-commerce is having a substantial impact on the commercial real estate industry.

“The Internet’s phenomenal growth and the increasing importance of eBusiness are directly impacting what the real estate industry builds, where it builds, and even land and property values,” says Gary Lenz, an Arthur Andersen partner based in Los Angeles and the Worldwide Managing Director of the firm’s Real Estate and Hospitality Services Group.

Lenz adds, “While each real estate product is being affected differently by the Internet and eBusiness, overall our study shows that the Internet has generally positive implications for the real estate industry.”

Impacting Industry in Multiple Ways

The study, entitled “The Impact of eBusiness and the Internet on Commercial Real Estate Industry,” says that the Internet is impacting the real estate industry in multiple manners.

While traditional location factors are still important, the study shows that “those projects with proximity to fiber-optic and cable hubs, or proximity to logistics hubs, will generate increasingly greater value.”

The study concludes that the Internet and e-commerce are changing a variety of building designs, including “automation in warehouses, flexible space configurations in offices that adapt to tenant improvements, and the inclusion of alcoves in apartments to house computers and other technology.”

Impact On Five Key Types of Commercial Real Estate

The study also examines the impact of the Internet and e-commerce on five key types of real estate: retail, industrial, office, hospitality and multi-family residential

In retail, the study claims that “Contrary to popular belief, eBusiness is not closing stores, it is opening stores. Retailers who have Web sites are expanding into new outlets at an above-average rate.”

On Friday, for example, Tandy Corporation/RadioShack opened its first “Web store,” RadioShack.com, in Aurora, Colorado. The store, virtually a mirror image of the company’s Radioshack.com Web site, offers the same product selection and consumer information as the Web site and uses the same colors, look and feel as the Web in its physical presence.

The store features interactive Internet pods connected to the RadioShack.com site that allows in-store customers access to the complete site. The store offers the same 22,000 products found on the Web site, which is six times the number found in the average RadioShack store.

The study finds that large malls are “relatively insulated from e-commerce sales growth, because they thrive on the browsing experience and impulse purchases denied by the Internet. Mall occupancy mixes will shift away from commodity goods — like computers, toys, and books — to more fashion, entertainment, and services.”

Industrial Real Estate ‘A Clear Winner’

The study claims that the industrial real estate sector will be “a clear winner” as e-commerce evolves. The study states that e-commerce will lead to the construction of state-of-the-art warehouse and service centers across the county. It added that the Net would also generate new types of industrial space related to “last-stage assembly or product transformation function in the customization process.”

In the area of office buildings, the study reports that office tenants today “want office buildings that focus on their technical priorities, including: (1) high-tech, energy-efficient HVAC systems to cool their technology systems, (2) built-in wiring for Internet access, (3) wiring for high-speed networks, (4) connection to LAN and WAN, and (5) fiber-optics capability.”

The study also predicts a mixed impact on the hospitality sector, from increased operating efficiencies and the expansion of potential markets, to “dramatically stronger pricing pressure on room rates as travelers and corporate travel agents increasingly use the Internet’s comparative pricing tools when selecting a hotel. There may be a reduction in business travel over the next decade as companies rely on telecommunications and eBusiness, which will impact occupancy levels.”

The study projects that e-commerce might impact multi-family apartments. While demand will not be impacted, the study claimed that the Net may impact “REOC and REIT operating efficiency and the attractiveness of individual buildings. Leasing Web sites on the Internet can more efficiently match renters with available units, while marketing on the Internet can create new branding possibilities. In the coming years, Internet access will become as commonplace and expected in multi-family properties as a phone jack.”