A new report published by the NAIOP Research Foundation finds that the pandemic and the e-commerce trends that preexisted it have led to a dramatic confluence of the industrial and retail real estate sectors.

“The COVID-19 pandemic dramatically accelerated demand for e-commerce. Correspondingly, it accelerated demand for distribution space from which to fulfill purchases made online. These conditions have led developers in land-constrained markets to consider new formats for distribution buildings and pursue redevelopment projects that would not have been feasible before 2020,” according to “New Places and New Spaces for E-commerce Distribution: Three Strategies Bringing Industrial and Retail Real Estate Closer Together.”

“At the same time, brick-and-mortar retailers have responded to customer preferences by expanding online order pickup services and shipping orders from retail stores. Together, these trends are contributing to the convergence of industrial and retail real estate, with implications for developers, investors and building owners,” according to the report.

The report examines the risks and opportunities associated with three related strategies:

• Functionally obsolete shopping centers can be attractive targets for conversion to distribution space given their size and location.
• Retailers are adding distribution capacity and online order pickup and return services to existing retail stores to enhance their customers’ shopping experience. 
• Some developers are pioneering mixed-use developments that collocate retail and industrial space. 

“No one is certain how quickly bright-line distinctions between industrial and retail space will disappear, how market participants will react or how ESG initiatives will shape corporate real estate portfolios. However, it stands to reason that all these factors may influence the prospects of retail-to-industrial conversions, micro fulfillment from operational retail outlets, and mixed-use development that includes industrial and retail components. Real estate developers who are mindful of them may therefore succeed in such projects when others fail,” the report said.

The report was written by Dustin C. Read, PhD/JD, who has two decades of experience conducting real estate research. In addition to holding academic positions at Clemson University, Virginia Tech, and UNC Charlotte over the course of his career, he has consulted with numerous public- and private-sector organizations to promote socially responsible real estate development.