Online Sales Beginning To Impact Property Values

Peter G. Miller
OurBroker®

The "holiday season" is here and it looks like retail sales online are taking off. This year, says Jupiter Communications, online retail sales during November and December are expected to total $6 billion, up from $3 billion last year.

AOL tells us that "with the holiday retailing season officially launched," some 4 million AOL members made purchases online during a single week in November. What AOL does not say is what "official" launched the holiday season, or how he or she obtained such awesome retailing power.

There's no doubt that more and more orders are being placed online, but the meaning of this trend is less clear than it might seem -- something with extensive implications for real estate.

For example, $6 billion is a lot of money. At the same time, we have a big economy. Wal-Mart -- by itself -- racked up sales worth $12.12 billion in the four-week period ending November 26th. As to the economy in general, the latest figures from the government's Bureau of Economic Analysis show that from the first quarter of 1998 to the first quester of 1999, the gross domestic product increased $425 billion.

These numbers all have a real-world impact on real estate.

If you own property, you want an expanding population and high levels of prosperity because it means that more people will compete for real estate and thus prices will rise. Just look at soaring home prices in San Jose as evidence.

Alternatively, if you own commercial property online retail sales should make you nervous.

Last month, the Saint Louis Galleria told 165 retail tenants that they could not post ads for their Internet sites, "within, at, on, or about the interior or exterior of the leased premises," according to the St. Louis Post-Dispatch. (See: "Galleria's management drops its ban on display of store Web sites," Dec. 3, 1999)

Within a few days, the Galleria's ad ban was dropped, but the thinking behind the prohibition is lucid and impeccable. Mall rents are based on retail sales at the site. If a store sends consumers elsewhere -- whether "elsewhere" is a store across town or an Internet site -- the impact is the same: retail sales at the mall location decline and so do mall revenues. In general terms, malls with declining revenues are worth less, a potent problem when it's time to sell, refinance, or generate a positive cashflow.

Whether "official" or not, online sales are with us and they will impact traditional real estate valuations and concepts. The mall owners in St. Louis asked the right question, which is how they can benefit when their location is used to generate income online and away from their powerty. The answer, at this point, is unknown.

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Question Of The Week

Q: Who usually pays closing costs when a home is sold?

A: In general terms, the convention is that East of the Mississippi the buyer pays closing costs, and West of the Mississippi the seller is responsible. Thus, if you sell a home in New York and move to California you are likely to face fewer closing expenses than someone moving in the opposite direction.

But conventions can be readily overcome by savvy contract negotiations. If the sale agreement says one party or the other pays a given cost, then that's the way it will work.

Weekly Resource

Ever wonder if the Internet is really speedy and efficient? Are there days when the Web seems slow? Interestingly enough, you can now find out by visiting the Internet Traffic Report. The site shows how fast networks are working -- and also the percentage of packets which are lost online.

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