E-Commerce Isn't the End for Retail REITs
Here's why mall and shopping center REITs should still expect solid growth.
Traditional brick-and-mortar retail has come under pressure from the rapid growth of e-commerce as consumers shift an increasing amount of their buying online. The U.S. Census Bureau reports that e-commerce has grown at double-digit year-over-year rates for nearly every quarter since it began tracking digital sales in 1999. Focusing on the categories of retail sales that people generally buy online, e-commerce’s share is over 20%. However, the growth rate for e-commerce sales has followed a smooth, declining curve over time. Extending this curve out produces another five years of double-digit sales, but eventually the growth of e-commerce will converge with the growth of brick-and-mortar retail. Even though e-commerce’s market share will continue to climb, we believe that brick-and-mortar retail’s portion will remain large enough to sustain positive sales growth over time, as it has the previous nine years.
However, we also believe that there is a significant bifurcation between high-quality and low-quality retail locations. Retailers want to place their stores in the best locations, even in a retail environment when retailers are closing stores. Many formerly online-only e-tailers are opening stores in the highest-quality locations. Meanwhile, struggling retail locations will face store closures, and increased vacancies will lead to lower sales for remaining tenants. While we expect store closures to dominate headlines, we think that the top retail locations should be mostly spared from the brick-and-mortar attrition. The retail real estate investment trusts that we cover have all built portfolios with high-quality retail assets that should produce continued solid growth. The Class A properties owned by these REITs should see higher foot traffic and sales growth and be less affected by store closures than lower-quality retail.
Kevin Brown does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.