The retail apocalypse was a major concern before the COVID-19 outbreak took hold. In 2019, an estimated 9,500 stores went out of business, according to Coresight Research. But now, a lot of major retailers are making plans to close stores as the effects of the pandemic rear their ugly head.
According to the company, bankrupt retailer J.C. Penney (OTC: JCPNQ) plans to close 154 stores in the near term while Neiman Marcus and Lord & Taylor will be shuttering locations as well. And these are just a handful of examples. So far, an estimated 6,600 retail locations have shut down this year, according to Coresight Research, but as many as 25,000 could close permanently by the time 2020 comes to a close.
It's for this reason that real estate investors who would normally be inclined to invest in retail locations and malls may want to shift to another piece of the market: warehouses.
Why warehouses could be the next big thing
Many retailers that were struggling before the pandemic, or were hurt by it, are seeking to shift from physical stores to online sales in the near future. Doing so makes a lot of financial sense. It's more cost-effective to fulfill and ship online orders than to cover the expenses associated with maintaining physical locations, like rent, insurance, and employee wages.
But this rapidly evolving shift to e-commerce is apt to spark an uptick in warehouse demand. After all, retailers will need a home for their inventory once they stop maintaining physical stores, and warehouses fill that need. And that's something real estate investors should really line up to capitalize on, especially given shopping malls' precarious future.
Of course, there are several options for investors. They can sink money into building new facilities to align with what will likely be a near-term increase in demand. They can also invest in existing facilities or focus their strategy on industrial REITs, which typically acquire warehouse space as part of their portfolios.