Would Online Shops Take the Place of Physical Real Estate After the COVID-19 Pandemic?

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Author: Makafui Kuffo

EXCERPT

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The measures being taken to minimize the spread of the coronavirus pandemic have the potential of causing a further decline in the demand for retail spaces, as online shops take the place of physical shops. However, this would not cause a total disappearance of physical retail spaces because people patronize retail outlets for several other reasons.

In a matter of weeks, words like ‘social distancing’, ‘stay at home’, ‘stay safe’ have become common in our daily conversations. What seemed to be a little virus roaming the streets of Wuhan has gradually crept into several nations, taking the lives of many, causing a lot of redundancies at workplaces, causing painful loss of relatives, as well as businesses and negatively impacting global economies. The effects of the corona virus pandemic have been greatly felt in various facets. It has taken a major turn on our daily activities. Amidst all of these, one may ask: “are there any consequences of this in the world of real estate?” The obvious answer is yes. This write-up talks about the implications of the pandemic in the world of commercial real estate.

In simple terms, commercial real estate refers to any building or property used for the purpose of generating profit. It could be anything at all from shopping centres to offices, retail outlets, restaurants and hotels. For the purpose of this article, the focus for commercial real estate would be on shopping centres and retail outlets.

With an increase in the spread of the virus, measures such as lockdown, a ban on public gatherings , social distancing, the use of personal protective equipment (PPEs), among others have been the advice by many governments. To minimize physical contacts, there has been an increase in the use of virtual channels of communication, as the avoidance of physical contact has been key to minimizing the spread of the virus. The effect of this is an increase in the patronage of online shops as against the use of physical shops.

In the short term, the measures taken towards minimizing the spread of the virus would have the potential of promoting the advancement of technologies that create virtual environments. Long before now, the retail sector of commercial real estate has seen a substantial decline with the proliferation of online shops. Going forward, the pandemic has the potential of further causing the physical disappearance of commercial real estate as technologies further advance in response to curbing the spread of the pandemic. Again, as much as possible, business owners would want to minimize their use of physical commercial retail spaces if they have the option to conveniently transact their businesses online. This would save them a lot of cost with regards to the payment of rent, cost of maintaining buildings as well as business service charges.

These short term impacts may have lasting implications. With an increased awareness of the effectiveness of online shops, a further decline can be foreseen in the retail sector of commercial real estate where the owners of such buildings may want to consider changing the use of these buildings to suit a change in the demand for physical spaces for retail outlets.

The extent of the implications may vary depending on how fast we revert to normal activities. However, the disappearance of physical retail outlets may not be absolute. There would still be a certain level of patronage in the retail sector as people patronize these retail outlets for several reasons such as social cohesion where people get to meet friends and socialize. Again, there would always be the desire to touch and feel certain things we purchase. In this vain, commercial real estate cannot completely disappear. Also, for special-purpose retail spaces like pharmaceutical shops where customers may want to explain their conditions before the purchase of drugs, the demand for retail spaces in these areas may not suffer a decline.

About the Author

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The author is a student of MSc. Real Estate at the Henley Business School, University of Reading with specialisation in Real Estate Securities, Real Estate Portfolio Management and Housing Markets and Policy. She also co-founds the saasepedia group. She is passionate about educating society.

 

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