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IRVINE, CA-Quarterly US E-Retail sales as a percentage of overall sales recently came in stronger than ever, up 30bps to 5.8%. This marks a new all-time for e-retail, giving further credence to the thesis that e-retail continues to crimp brick and mortar demand.

The shift to e-commerce has big-box stores struggling, continuing a trend over the last few years.  Wal-Mart just cut its profit forecasts for the year citing the effect the payroll tax is having on its consumer base. But while it may be easy to point fingers at the economy, big ticket items like televisions, electronics, appliances, once a strength of Wal-Mart’s and other large retailers, can be found discounted online with nominal shipping fees, hurting demand. This is a cause for concern for retail property owners because as e-commerce cuts into the bottom line, big chains will at the very least slow or halt expansion plans, or in a worst case scenario, close locations. This will be a drag on retail space demand, leaving vacancies elevated and placing downward pressure on rents. This becomes especially problematic when anchor tenants close locations due to the rise of online commerce, resulting in a cascade of rent renegotiations for landlords. This shift in retail dynamics is only just beginning, and will provide a secular headwind for sector fundamentals in addition to the current cyclical ones.

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