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The Effects of E-commerce on Retail Property Values

A study about how the growth of e-commerce affects property values in the retail real estate sector

Written by Charlotte Lund

Paper category

Master Thesis


Architecture & Real Estate




Master Thesis 2.3 The impact of e-commerce on physical retail The first and most prominent topic discussed in previous studies on the development of real estate and the structural changes caused by e-commerce was digitalization, how it developed, and how e-commerce turnover increased sharply Statistical evidence is from 1998 to present (Zimmermann & Burkholz, 2019; Miller, 2000; Overdiek, 2018; Muhanna & Wolf, 2002). Researchers believe that today's consumers can get more information about the product than they were ten years ago. An important result of digital development is how today's consumers can obtain information about the price, availability and availability of products before they enter the physical store to buy the product-they can now choose the product they want to buy instead of choosing the store . Interested in buying (Zhang, Zhu, & Ye, 2016). The second theme in the literature, close to the development of digitalization and e-commerce, is that the growth of e-commerce and the further expansion of digitalization will remain attractive to the real estate industry and how real estate owners adapt to the structural changes in retail properties. On this issue, researchers believe that “the growth of the real estate industry is closely related to the demand for accommodation in corporate environments covering cities and suburbs” (Yuvraj, Shrivastava, Agrawal, Maggu, Agnihotri, 2018) This means that the real estate market is facing adaptation Obvious structural changes and the pressure of digital development to maintain the economic growth of the industry. Related to the research of (Yuvraj, Shrivastava, Agrawal, Maggu, Agnihotri, 2018) Zhang, Zhu, & Ye (2016) also emphasized that regardless of the development of e-commerce, business owners must observe consumer needs and respond accordingly Adapt. As for the third theme, on the other hand, some scholars believe that the growing e-commerce is not only a threat to the real estate market, but also interpreted as one of the keys to the real estate market. The positioning of commercial real estate (Dixon et al., 2001, Weltevreden & Rietbergen, 2007). According to Hendershott et al. (2001), the impact of increasing e-commerce sales on retailers will be limited, as they are expected to actively adapt to changing consumer needs by integrating physical and virtual spaces. Combining physical retail with services will continue to attract customers. In addition, Hendershott et al. (2001) believe that this shift will not reduce the retailer's ability to pay rent, because economically resistant consumers may not use e-commerce as a tool to minimize consumption. For the fourth theme derived from previous research, the common view of physical retail and online retail is that they are complementary, and the increase in online sales will reduce physical retail (Salomon, 1986; Sparks & Findlay, 2000; Weltervreden & Rietbergen, 2007) . E-retailing makes the shopping experience more accessible and usable because it has the potential to expand geographical and time considerations (Baen, 2000; Burt & Sparks, 2003; Hendershott et al., 2000; Steel et al., 2013) ). On the issue that physical retail is difficult to compete with, these two considerations alone are the biggest challenges for physical retailers. It is almost impossible to make physical shopping streets available hourly, and at the same time available in all geographic areas. Labor, electricity, and rental costs are examples of practical restrictions on physical retail and e-commerce competition (Burt & Sparks, 2003; Morganosky, 1997; Garg & Kaur, 2018; Lee & Tan, 2003). Prior to this field The study also discussed the perceived risk of domino effect harm to brick-and-mortar retailers. More and more online purchases have a negative impact on the sales of physical stores. As a reaction to the negative impact of this trend, retailers face the risk that they start to meet with customers online because they have already Lost customers in physical stores. However, this creates a more difficult situation for brick-and-mortar retailers, as individual store sales will decline (Dixon & Marston, 2002). All in all, previous research in this field focused on owners of structural changes in real estate. Although e-commerce is growing, most studies provide scenario analysis on how the market situation develops and how retailers should adapt to changes to remain attractive. Today, people believe that physical retail is outdated, and it is essential for real estate owners to adopt a hybrid business model that combines physical and virtual spaces for their personal stores. As consumers changed their attitudes towards shopping in physical stores, research was conducted to examine the link between e-commerce and physical retail. A study explained that e-commerce and physical retailing are integrated in four main ways: substitution effect, complementarity, modification and neutrality (Cao et al., 2012). The substitution effect is explained as the replacement of physical stores by e-commerce. Researchers in this area often refer to it as the "death of retail." Read Less