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The Evolution of the Marketplace: From the Mall to the Internet

With nearly 50,000 shopping malls spread across the United States, it certainly wouldn’t seem that the retail industry is struggling to keep its doors open.

Instead, it would seem that every time we turn around there is yet another yogurt shop or cell phone store announcing a grand opening.

This is a deceiving illusion, however. The reality is, as Chief Income Analyst Alan Gula explains, “many retailers are currently struggling to maintain their physical presence.”

We’ve already seen some of America’s most beloved household names fall into oblivion since the advent of the internet – Blockbuster, Borders Books, and now Sharper Image. And as the Internet of Things (IoT) takes on the tasks that simply no longer require leaving home, we have more to worry about than bankrupt retailers, alone.

Changing the Shopping Experience

Since the Great Recession, the retail industry has been struggling.

During the peak of the vacancy period, in 2010, approximately 17.5% of retail and office spaces were left empty. And, while most industries found themselves back on their feet, retail vacancy rates never normalized. In fact, the percentage of vacancies has hardly decreased in the years since, and currently hovers at around 16%.

While the recent advancements in online and mobile shopping have certainly changed the economic landscape, the shift away from brick-and-mortar storefronts has left a major glut in commercial real estate space.

There are currently over 650,000 U.S.-based online retailers generating over $1,000 in annual sales. Some of these are major corporations reeling in millions of dollars online – money that no longer requires an in-person transaction. Others counted in that number are small businesses that, without the internet, wouldn’t have an outlet for their sales.

The Ratio of Retailer to Revenue

The chart above shows that, though the ratio of retailer popularity to revenue does, of course, decrease based on the size of a company, online sales plateau after the 500th most-popular site.

This type of online traffic has also drawn advertising into the online realm.

What were once activities that required shopping malls and magazines – tangible items and personal interaction – can now be done entirely online.

The Effect on Prices and Fundamentals

Alan points out in his article on commercial real estate that the market for commercial mortgage backed securities (CMBS) is not reacting in line with the doubling of the Green Street U.S. Commercial Property Index (CPPI).

While the CMBS “has bounced back following a swoon at the beginning of 2016…prices haven’t returned to their mid-2015 levels,” Alan explains.

This imbalance will, ultimately, result in a bust. It’s a cycle after all.

Between the shifting landscape of the shopping experience, to the subsequent surplus of CRE space, and the discrepancy of market variables, commercial real estate is headed for trouble.

Check out Alan’s article for a more in-depth look at the commercial real estate market and what to expect for the future of shopping.

Safe and sound investing,

Sarah Adler

Around WSD

Elsewhere in Wall Street Daily…

  • Senior Technology Analyst Greg Miller delves into the future of home automation. While the Internet of Things has created an expansive market with endless possibilities, a lot of the products aiming to actualize these concepts haven’t been as successful as anticipated. “Products like Amazon.com Inc.’s (AMZN) Echo device and the imminent arrival of Google Home from Alphabet Inc. (GOOG) have generated a lot of press and excitement, but the kinds of products they control haven’t taken off,” Greg writes. One startup, however, aims to change the way consumers interact with their homes as well as the tech market.
  • Global Banking Analyst Martin Hutchinson examines the two types of REITs and how to safely invest in them without falling victim to leverage. Real estate investment trusts, he explains, are “a sensible choice,” but without the foresight to avoid interest rate and illiquidity risks – as well as the chance of bankruptcy – what was originally a sound investment can quickly unravel. Martin reveals the intricacies of real estate investment trusts (REITs), and how to carefully navigate the market.
  • Senior Analyst Jonathan Rodriguez predicts the forecast for the second half of 2016 – a year that, thus far, has been pretty unpredictable. “In January,” Jonathan explains, “the talking heads foretold recession. Now, the S&P 500 is on the verge of setting an all-time high, oil has closed above $50, and gold may actually breach the $1,300 barrier.” In order to close the year with a profitable portfolio, Jonathan offers three simple steps to follow as stocks approach super-heated conditions.
  • Martin Hutchinson also takes a closer look at China’s excessive market growth and the manner in which Chinese President Xi Jinping has taken the country’s economy down a new path. Additionally, President Xi is approaching foreign policy in a far more aggressive manner than his predecessors and has reduced the size of the People’s Libertarian Army. Instead, he is focusing on China’s Navy and Air Force. Martin is able to draw connections between Xi and the notoriously disastrous reign of Germany’s Kaiser Wilhelm II in order to illuminate the potential for both greatness and chaos in China’s current course.

Sarah Adler

, Managing Editor

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