The uncertainty in the global economy continues to exist as we complete the second year of the COVID-19 pandemic. Many industries are still facing the impact but with aggressive vaccination drives taking place, the world can finally go back to its pre-pandemic days in the coming months.
There was also considerable change observed in the consumer mindset. The primary concern for people was to maintain sanitation and hygiene. They had to remain safe and practice social distancing, which meant that there was a drastic change in their daily lives. Activities such as going to work, shopping for groceries, buying clothes, eating out, and more, became a forgotten dream.
Current impact of COVID-19 on commercial real estate
This scenario obviously impacted the real estate industry. Currently more than 50% of the working human capital in India is employed in the industrial and digital industry, which requires physical work spaces.
The retail industry alone employs 40 million Indians. This number is expected to grow by another 25 million people by 2030.
The retail real estate industry is booming, which may come as a surprise to many. Why is that?
- The growth of e-commerce sales in the retail industry
- The evolution of the consumer's mindset regarding online shopping and the increase in trust on the platforms
- The introduction of daily groceries on e-commerce giants such as Amazon
People have settled into their homes and accepted that working from home will be the new normal. These changes do not mean that there is a drop in demand, but it does seem like people will not step out to make a purchase - be it a new gadget, their groceries, clothes, or even medicine which can be delivered to their homes.
Online shopping portals reduce the amount of people they need to maintain their operations. It also means that the shipping will get outsourced to a third-party logistics company, reducing the employment requirement even further. Everything can now be automated, and whatever cannot be, can be handled by just a few people.
Does this mean that the retail real estate industry is a dying sector?
Impact of COVID-19 on the retail real estate industry
According to the market trends mentioned above, the answer is no. All signs lead to a decline in real estate for retail, but the opposite rings true.
How is that possible?
- Retail companies have adapted to the e-commerce trends and shifted their real estate investments to warehousing and storage, which will reach a size of 500 million sq. ft. by 2030
- There is still a demand for on-premise stores as consumers will step out and shop once they feel safer. It is a slow move in that direction but a guaranteed one
- There will always be people who prefer the physical experience over an online one, no matter how convenient, so the demand for retail real estate will never cease to exist
The demand is present and so are the resources. All the real estate industry in retail can do is wait patiently for the world to go back to normal. Until then, companies can continue to invest in warehousing and grow their e-commerce sales.