Is e-commerce an investment risk priced by retail real estate investors? An investigation

ABSTRACT

Over the last 20 years, online shopping has evolved into a major threat to the physical retail store. We investigate whether retail real estate investors price e-commerce as an investment risk. In particular, we analyse whether e-commerce sales have informative value for retail real estate returns. Focusing on institutional-grade shopping centres over the period of 2000 to 2018, we find that e-commerce sales predict total returns in the next quarter. This effect is driven by capital returns, which suggests that e-commerce is indeed priced as an investment risk. While consistent across mall types, this effect is stronger for regional and super-regional malls than neighbourhood and community shopping centres. Explanations for this difference include the types of retail tenants in these different mall categories and the varying impact of e-commerce on their business.

KEYWORDS:

• Commercial real estate
• asset pricing
• retail
• e-commerce
• institutional investors

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. US Census Bureau; https://www.census.gov/retail/index.html#ecommerce

2. ICSC; https://www.icsc.com/uploads/t07-subpage/Q4_Quarterly_E-Commerce_Industry_Sector_Series.pdf

3. For more information on ICSC shopping centre categories, please visit: https://www.icsc.com/uploads/research/general/US_CENTRE_CLASSIFICATION.pdf

4. https://business.gmu.edu/blog/realestate/2018/06/06/impact-e-commerce-retail-real-estate/

5. Both omni- and multi-channel retailing involve selling across multiple physical and digital channels (e.g. online, mobile, and social media channels). Whereas in the case of multi-channel retailing, channels remain unrelated to each other distributing their goods, in omni-channel retailing, all channels partially interact with each other and are connected (Verhoef et al., 2015).

6. We had to detrend income return and obtain the first difference of the property-specific occupancy rate (OCCR) to achieve stationarity for these two variables (based on the ADF).

7. For more information, please see the ICSC shopping centre classifications: https://www.icsc.com/uploads/research/general/US_CENTRE_CLASSIFICATION.pdf

8. https://business.gmu.edu/blog/realestate/2018/06/06/impact-e-commerce-retail-real-estate/

9. https://www.icsc.com/shopping-for-the-truth

Additional information

Notes on contributors

Carina Kaiser

Carina Kaiser is a PhD Student at IRE|BS International Real Estate Business School at the University of Regensburg in Regensburg, Bavaria (Germany) and currently a Research Scholar at The School of Business at Portland State University in Portland, Oregon (USA). Her PhD research focuses on determinants of asset pricing in retail real estate.

Julia Freybote

Dr. Julia Freybote is an Assistant Professor of Finance and Real Estate in The School of Business at Portland State University in Portland, Oregon (USA) and an Extraordinary Associate Professor in the Department of Business Management at Stellenbosch University (South Africa). She holds a PhD in real estate from Georgia State University and her work has been published in journals such as Real Estate Economics, the Journal of Real Estate Research, Journal of Property Research and Journal of Real Estate Finance and Economics. Her research predominantly focuses on investor behaviour, information environment and asset pricing in the REIT and commercial real estate market.