Americans have already celebrated nature’s bounty on Thanksgiving Day. Now, as Black Friday kicks off the annual holiday shopping season, retailers have a chance to enjoy abundant sales.
And why not? Solid employment figures and rising wages drop hints of fatter purses this holiday season. Also, people have benefited from low inflation, leading to increased possibilities of higher consumer spending this time.
In fact, per a forecast by the National Retail Federation (NRF), holiday sales (November and December) excluding autos, gas, and restaurant sales, will see a solid 3.6% jump to $655.8 billion. This projection is well ahead of the 10-year average of 2.5% as well as the seven-year, post-recovery average of 3.4%.
Even though upbeat consumer confidence and an improving economy have infused optimism into the retail market, mall traffic continues to dwindle amid a rapid shift in customers’ shopping preferences with online purchases growing by leaps and bounds. This is also reflected in the NRF forecast of a 7–10% increase in online sales to $117 billion this season.
Now, if this is casting a pall over mall landlords with downsizing and store closures on the rise, then the once less-favorite real estate investment trust (REIT) category – Industrial REITs offering warehouse and distribution space – is back in the limelight. This is because, even online sales need real space for storage and efficient distribution.
According to industrial REIT Prologis Inc. (PLD - Free Report) , ecommerce sales require as much as three times floor space than traditional retail. This is because online retailers as well as their traditional counterparts that are now diverging to omni-channel routes are making concerted efforts to meet customers’ demand for faster delivery as well as returns. In fact, retailers like Amazon.com, Inc. (AMZN –Free Report) and Wal-Mart Stores Inc. (WMT - Free Report) are rapidly increasing their warehouse space to meet growing sales on the online platform.
Also, supply chain strategy transformations, last mile delivery efficiency and curtailing of transportation costs are on their agenda. This is spurring huge demand for warehouse space, and facilities near cities and consumption base are commanding higher rents amid manageable supply so far. Therefore, existing real estate landlords providing warehouse and distribution space are reaping huge benefits. These REITs pulled in their capital and scored well on the return book, with total returns of 26.71% in the first 10 months of 2016 as against the 5.87% logged by the S&P 500.
But retail REITs too are fast catching up with this trend. In fact, crippled by lesser traffic in malls and store closures, retail REITs are now transforming as distribution hubs. Also, they are turning into swanky entertainment zones by letting spaces to movie theaters and restaurants.
Expansion of the small shop portfolio is also a priority for the likes of Kimco Realty Corporation (KIM - Free Report) . This is because such shops comprise service-based industries like saloons and spas, personal fitness, and medical practices which enjoy frequent customer traffic and are Internet-resistant, thereby strategically offering what online retail can’t.
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