LOS ANGELES—The Internet has been a catalyst for the change in the way that people shop. Consumers are no longer going to a single store to purchase items, but instead are going to specialty boutiques or finding goods online. Specifically, the Internet has really hurt big box department stores and large power centers. This change has helped to drive lender demand for industrial properties rather than retail properties.

“The Internet has really killed a lot of department stores,” Michael Tanner, EVP and principal at PSRS, tells GlobeSt.com. “It used to be that you could by all of your goods in one spot, but people just don't shop that way anymore. They like the diversity and the ease of the Internet, but people will also drive to go to a specialty store. I think that old school retailers are really struggling, like Macy's and JC Penny. However, people are still going to grocery stores and restaurants, because those can't be converted into ecommerce sites. For that reason, neighborhood centers are still doing well, but power centers are really struggling.”

Some big box and department store retailers are competing by creating a more experiential brick-and-mortar space. “A lot of retailers are turning their brick-and-mortar stores into showrooms, and then they are really selling product out of warehouses,” says Tanner.

Tanner represents life companies, and says that there is a broad trend toward more industrial product. While there are a few reasons for this trend, including diversification, ecommerce has really helped to drive lender demand because it has strengthened the market. “According to a friend at NAIOP, industrial rents across the country are up, and vacancies are down,” says Tanner. “It is an asset class that is performing really well and lenders can't seem to get enough of it. It can be difficult to do because loan sizes are smaller. Lenders are really trying to get as much exposure as possible.”

The industrial class is joining apartments as the most sough-after investment class, but retail as well as office has become more challenging. “The darling of the market has always been apartments,” adds Tanner. “Lenders just couldn't get enough of apartments, but industrial space has almost shifted to be on equal footing with apartments. As a result, retail and office have really been pushed to the side and are being done on a much more selective basis rather than as broadly as it was in the past.”

Instant Insights /

The Internet Has Killed Department Stores

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