With most of our buying, selling, and shopping happening online, what’s the point of commercial real estate in California? Is there a need for brick-and-mortar commercial spaces or are they becoming obsolete?
As expert commercial property managers in California, we can assure you that the market for commercial properties is still strong. However, there has been an impact on those spaces, thanks in part to the rise of e-commerce and the willingness of consumers to make so many of their buying decisions online.
The commercial real estate market in California has been shifting for several years, especially since the pandemic dramatically changed how people work and shop. Understanding the changes, the challenges, and the opportunities will put you in a stronger position as an investor. Let’s take a look at the impact of e-commerce on the physical commercial spaces that are being bought, sold, and rented.
What California Commercial Investors Need to Know About the Rise of E-Commerce
You know that e-commerce has grown exponentially over the last decade or two. It started with platforms like Amazon and eBay, and before too long, every merchant selling a product or a service had something to offer online. This digital transformation was accelerated by the growing reliance consumers had on mobile shopping and the impact of the COVID-19 pandemic, which created a fast pivot towards the already-growing sector of online purchasing.
More people are spending time online than in stores. And, with remote work growing steadily, more people are working from home than ever before, which has disrupted the demand for office space, especially in markets throughout California, where digital work has always been a part of corporate culture.
You won’t find too many people complaining about the growth of e-commerce.
California is home to tech giants like Apple, Google, and Facebook, so naturally, e-commerce has flourished in this environment. California companies have led the way in offering businesses new ways to reach customers beyond traditional brick-and-mortar stores. Here’s how:
Increased Market Reach. E-commerce platforms break geographical barriers, allowing California-based businesses to access customers worldwide. This global reach translates into expanded market opportunities and increased revenues.
Cost Efficiency. Operating an online store often requires less overhead than a physical storefront. For small business owners, this means more money to invest in product development, marketing, and expanding their digital presence.
- Convenience and Flexibility. E-commerce offers both customers and business owners the convenience of 24/7 accessibility. Customers can shop at their leisure, while business owners can manage sales and inventory from anywhere, at any time.
It’s hard to argue with the value of online commerce, especially in California, which is the world’s fifth largest economy.
The impact of e-commerce on California’s economy is significant, contributing to job creation, business growth, and tax revenue. Small businesses can scale faster. New businesses can start with less overhead. And, the online sales contribute to California’s tax base, funding public services and infrastructure.
Challenges for Brick-and-Mortar Commercial Spaces
Online shopping might be great for the general economy, but what does it mean for commercial spaces, specifically stores where people are spending less time?
There are two major challenges.
1. Reduced Foot Traffic
One of the most significant impacts of e-commerce on physical retail spaces is the decline in foot traffic. When is the last time you were in a mall? Many consumers now prefer the convenience of online shopping, where they can compare prices and read reviews from the comfort of their homes.
This shift has led to a decrease in in-store sales, forcing many retailers to reconsider the viability of maintaining large physical storefronts. This is going to impact you, as a commercial property owner, if your customers don’t bring in the revenue they expected they would when they opened a shop in your space.
2. Increased Vacancy Rates
The reduction in foot traffic has resulted in increased vacancy rates in retail spaces across California. The state's once-packed malls and shopping centers have seen a downturn in occupancy, prompting landlords to offer lease incentives or repurpose spaces for alternative uses. This trend poses both challenges and opportunities for real estate investors who must adapt to a changing landscape.
If you want to continue investing in retail space in California, you’ll need to be creative about how you market that space to businesses, and you’ll likely need to be flexible with your lease agreement.
Opportunities for Real Estate Investors
With challenges come opportunities, and in our experience as California commercial real estate property managers, we have noticed that smart investors will find a way to leverage the current market, the increase in e-commerce, and their own properties in order to ensure they continue enjoying a profitable investment experience.
We’re going to share some of the best ways you can position yourself in this shifting environment for retailers.
1. Adaptive Reuse Projects
One promising avenue for investors is the adaptive reuse of underutilized retail spaces. Converting vacant stores and malls into mixed-use developments, residential units, or co-working spaces can breathe new life into these properties, and provide investors with a way to earn some money on the buildings and spaces that already exist. With California's high demand for housing and flexible workspaces, such projects can offer attractive returns. If you’re wondering where to find these opportunities, get in touch with us. We’d love to explore this new and growing market with you.
2. E-Commerce Fulfillment Centers
Why not get in on the e-commerce trend and think about using your commercial space to support the industry? The rise of e-commerce has also created a demand for distribution and fulfillment centers. Properties near major transportation hubs or urban areas are excellent candidates for conversion into logistics facilities. Investing in these spaces can capitalize on the insistent demand for fast shipping and local delivery services.
3. Experiential Retail
Despite the challenges, brick-and-mortar stores are not entirely obsolete.
There is no reason to cease and desist your commercial operations in California. There is a growing trend towards experiential retail, where stores focus on offering unique, immersive experiences that cannot be replicated online. Investors can look for retail spaces that cater to this niche market, attracting consumers seeking more than just transactions.
Diversify Your California Commercial Real Estate Portfolio
Here’s the most important takeaway: you need to diversify your portfolio of commercial real estate in California. We think there is still money to be made when you’re renting out retail spaces, but it has definitely become more challenging, and you need to be creative and prepared.
You should also think about diversifying. There are many ways to invest in commercial property outside of retail spaces. We’ve talked a bit about office space, and how that may not be the strongest market right now, either. However, you have other options.
For example, consider industrial properties. Industrial properties encompass warehouses, distribution centers (which we have already mentioned), and manufacturing units. These spaces play a crucial role in supply chains and production processes. They make good investments because there’s a growing demand. They have generally low management costs, compared to other commercial properties. Industrial spaces require minimal management efforts, reducing operational expenses. You can also expect stable commercial tenants when those tenants move into your industrial space. Industrial leases are typically long-term, with tenants often investing in custom modifications that bind them to the location.
You could also consider hospitality properties. Hospitality properties cover hotels, motels, and resorts, primarily serving the travel and tourism industry. These make good investments because tourism in California is strong. This is a popular place to visit, and hospitality properties benefit from consistent tourist inflow, leading to high occupancy rates and revenue.
Investors also enjoy having the flexibility to pivot their business model—such as leveraging properties for events or conferences—based on market demands.
There are all sorts of commercial properties to invest in, and you don’t have to feel like retail properties are the only way.
California Commercial Property Management
We might be your secret weapon in navigating a challenging, competitive, and complex commercial real estate market in California. When you’re partnered with an expert management company, you don’t have to worry about long vacancies, unstable tenants, or shifting market trends. You’ll be working with a strategic team that understands the market, has seen it shift before, and knows how to help you make smart decisions that protect your property and its profitability.
Don’t sell off all of your properties because you fear e-commerce has made retail space unnecessary. That’s far from the truth. And we can help you adapt.
The rise of e-commerce is reshaping the California real estate landscape, fundamentally altering the role of brick-and-mortar commercial spaces. While challenges like reduced foot traffic and increased vacancy rates present obstacles, they also offer opportunities for savvy real estate investors.
By exploring adaptive reuse projects, investing in e-commerce fulfillment centers, and supporting experiential retail, investors can strategically position themselves to benefit from these shifts. Working with a commercial management team like ours can help you diversify your assets and build a stronger portfolio.
Let’s talk about it. Contact us at Bell Properties Commercial Real Estate.
