Internet retail continues to grow vigorously, suggesting that the phenomenon is no flash-in-the-pan. The number of retail web sites grew ten-fold in the first ten months of 1999 and now total about 30,000 or more sites. An estimated 26 million Americans shopped online between Thanksgiving and Christmas - approximately 12% of the population of the U.S. over age 16. Dot-com commercials on TV were as ubiquitous as tinsel. And Christmas Internet retail sales tripled from a year earlier, to $8-$10 billion or so in 1999 from an estimated $3 billion in 1998.

Internet shopping commands popular and press attention, but the important question is whether this format really poses a challenge to retail real estate given that it is still a small share of all retail sales. In fact, the Internet is starting to displace sales from shopping center and mall environments. Since retail space is the largest single property type in CMBS at 27% of all collateral, the potential erosion of sustainable cash flows in retail properties warrants attention. As a result, we are revisiting our review of the impact of the Internet on retail property of a year ago. Our principal observations and opinions are outlined below:

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