The continued growth of e-commerce is having a deleterious impact on commercial mortgage-backed securities (CMBS), according to a new report by Standard & Poor's Ratings Services (S&P).
According to the S&P report ‘Rising Online Sales Could Keep Retail Vacancies Elevated,’ the growth in e-commerce sales could lead to higher numbers of retail store closings – which, in turn, could keep the retail vacancy rate elevated over the next 10 years. As a result, S&P warns, this trend could hurt CMBS with high exposure to threatened stores.
‘A rise in the vacancy rate could have a potentially negative effect on CMBS credit,’ says James Manzi, S&P research analyst. ‘New transactions with retail property concentrations of nearly 50 percent could be especially hard hit.’
Manzi adds that these CMBS transactions will likely continue to feel the pressure of occupancy declines among their underlying collateral if vacancies rise over the next decade.
S&P predicts online sales to double over the next 10 years to 10% of all retail sales; these sales are currently at 5%, according to the U.S. Department of Commerce. S&P forecasts that economic improvement could spur an increase in consumer spending, which could offset some of the reduced demand for retail space from increasing Internet sales, but the continued rise in e-commerce will likely keep the retail vacancy rate high even if the economy continues to exhibit modest growth.
‘Our results indicated that a one percent increase in the percentage of online sales would lead to about a 0.6% increase in the retail vacancy rate,’ says Howard Esaki, S&P research analyst. ‘Under this outcome, our regression forecasts a vacancy rate of six percentage points above what it would otherwise be if Internet sales were nonexistent and three percentage points higher over the next 10 years if the percentage of Internet sales remained at 2011 levels.’