Your Neighborhood May Soon Become Less Appealing

You don’t have to be a Goldman Sachs analyst to realize that the retail industry is rapidly changing. People aren’t spending as much time in malls and a shit load of brick and mortar stores are going out of business.

“I have no illusion that 10 years from now will look the same as today, and there will be a few things along the way that surprise us,” says Warren Buffett. “The department store is online now,” the billionaire investor went on to say at Berkshire Hathaway’s annual meeting.

Whether due to changes in demographics, competition from Asian brands, a strong dollar, the near-perfection of online shopping or Jeff Bezos and Amazon, people aren’t spending their time and money like they used to.

In Santa Monica, for instance, it seems like every 5th store is vacant. This generally means that commercial real estate prices have hit a ceiling and, in a free market, this tends to fix itself. When property developers can’t rent out places, they’re forced to reduce prices to a level retailers can afford.

But all buildings aren’t created equal. There’s a lot of retailers who, at affordable prices, could profit in a 1,500 square foot location but very few who have enough inventory to pack a 40,000 square foot facility. These buildings tend to lose value much more quickly and, may even struggle to find a suitable renter.

For instance, the 35,000 square foot Sears in Santa Monica just closed. The only retailer I can think of who would be large enough to move in is Target (maybe Home Depot). A gym, possibly?

These stores aren’t doing so well either and will be cautious about expanding, regardless of how low real estate prices are. And when they’re vacant, they reduce the appeal of the nearby vicinity.

Luckily, department stores are usually located in more remote areas, possibly in close proximity to malls. It’s the Supermarkets that are located a little closer to home.

Will Supermarkets suffer the same fate as department stores? I’m not sure. But two weeks ago I was introduced to Amazon Fresh and I’m addicted.

If you’re unfamiliar with Fresh, I suggest you check it out immediately. In most cities it’s a Millennial savior. In 10 minutes per week, I’m able to order 80% of my groceries, delivered to my front door for 15%-20% cheaper than if I went to the Supermarket a few blocks away. This may very well be a Supermarket killer.

So what will happen once department stores, supermarkets can’t fill space?

Either we figure out what to do with those buildings or our nearby towns start looking like the title picture.

My best guess is we’re going to see a lot of residential real estate. Millennials can’t afford to buy houses so it’s only natural to see more affordable housing. This is good for our generation, as an increase in supply generally leads to lower prices.

Let’s wait to see but one things for sure, sooner or later, our communities are going to look very different.

Originally appeared on www.Growplanning.com