Although growth in ecommerce activity has slowed in recent quarters, longer-term trends offer a better view of the performance of this asset type in the future, contends Jim Costello, executive director of MSCI Research.
Investment in IRE properties increased with this surge in pricing, and the sector grew from a 15% share of the market before the pandemic to a level consistently above 20%, according to MSCI data. This surge in asset pricing was tied closely to the growth in ecommerce activity and tenant demand.
Growth in ecommerce activity has slowed of late, however, lagging growth in total retail sales for the last four quarters. The slowing growth in ecommerce affected Amazon.com, which noted a miss in its first-quarter earnings release. Amazon cited, among other items, an excess of capacity built up during the worst parts of the pandemic.
The pace of growth in total retail sales over this period appears to be an aberration, however, standing well above the long-run trend. In fact, the growth in personal consumption into the first quarter of 2022 was higher than that of disposable personal income, a situation that is not sustainable.
“Households cannot spend at a higher pace than disposable personal income forever, without taking on ever-increasing levels of debt,” MSCI noted.
Ecommerce sales as a share of total retail sales had been growing sharply from 2013 to 2019 then spiked to a 16.4% share in Q2 2020.
Fitting a trend to ecommerce sales from the pace of growth from 2013 to 2019 would suggest ecommerce sales would have represented 13.6% of total retail sales in the first quarter of 2022, according to MSCI.
Instead, ecommerce activity represented 14.3% of all retail sales in the quarter. The company concluded, “With the harshest restrictions of the pandemic lifted in the United States, some return to previous patterns in consumer behavior should not be a surprise.”