Why is that you ask? Short answer: Because people are willing to pay more for it and there is a limited supply of it. But what does this all mean for commercial real estate? Let's take a poll: what do the following businesses have in common?
- Record stores
- Video stores
- Book stores
- Video arcades stores
Yes, they've all been replace by their online equivalent. What's more is, it hasn't fully happened yet, but you can very likely add the following to the list:
- Office supply stores
- Electronics stores
- Other specialty/hobby/gaming stores
- Personal hygiene supply stores
And that will basically leave you with a large number of grocery stores, eateries, and clothing stores. Even the clothing outlets are mostly online now. They're becoming mostly a place where you can try things on then shop online for them.
And then the coup de grĂ¢ce to the commercial real estate market is the advent of virtual private networks that allow employees to mostly work from home, eliminating the need for billions of square feet of office space around the world.
So basically now we're down to food places, and living places. What is going to fill the void left behind in commercial real estate? Sure, there will be tons of warehouses, call centers, and server farms, but those can basically be anywhere now. With ever increasing supply and little demand for commercial space, unless a big game-changer enters the market with a large demand for space, I predict a lot of conversions of commercial into residential real estate, along with a flood of bankruptcies and foreclosures in the next 10-20 years.
As usual, I'm sure I've taken some wild assumptions and completely missed something somewhere, so I invite you to continue this conversation as I certainly hope I'm wrong.
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