The Internet and  European retail real estate

Copyright: David Lawson - The European 1997

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Shopping will become more popular than sex in the 21st century. At least, that is the impression given by millions of people using the international network of computers called the Internet. For years, the most common words used on this system have come from spotty adolescents hunting pornography. But they are now being crowded out by bargain hunters. Shopping will dominate online communications by the end of the decade, according to an investigation by The Web, a magazine specialising in this new technology.

So what happens to traditional shopping malls and bustling town-centre streets? 'Developers must design alternative purposes into new buildings,' says Mark Borsuk, a retail broker who has watched the growth of the Internet in the US. Landlords should be checking which occupiers are most likely to move from real space to cyber space, he says. The best tenants will be those who offer goods and services that cannot easily switch.

There are already 50,000 electronic locations for buying goods ranging from Scottish kilts to Italian ham. Compuserve, Europe's leading Internet service is building a 'virtual mall' where phone callers can wander around shops just like the real world.

Many leading retailers have created a presence on the World Wide Web, which displays 'pages' of information on products. Few offer direct sales, although Tower Records has just opened a 'virtual store' and Amazon sold 800,000 books this way in the first three months of 1997. Food groups like Tesco and Sainsbury are also experimenting with online ordering and home delivery.

Around 250,000 people in the UK currently buy goods online. Property consultants Healey & Baker estimate that as this trend develops, 7.25bn pounds of spending could be diverted to electronic shopping every year. And the rest of Europe, which has lagged behind in the growth of home computers, is catching up. France, which pioneered the Minitel network of home shopping and banking, is now committed to expanding PC services. Sweden will give everyone in that country an electronic address.

International financial institution Morgan Stanley says in a hefty research report that mail order took 20 years to reach 5% of consumer sales in the US. The Internet could match that in five to eight years. But the message is ruffling few feathers on this side of the Atlantic. After all, Minitel has been around for years, but French shopping malls are still bustling. Steve Mallen, of international property consultants Knight Frank, says that while on-line shopping is worth 1 billion pounds a year in the UK, it is barely 1% of total retail spending.

Colin Vaughan of Verdict Research points out that retailing has become a leisure activity, which will not easily be moved onto computers. Mark Teale, head of retail research at another consultant, Hillier Parker, is sceptical about US warnings. 'North America has an average of 4.18 sq metres of shopping per head compared with Europe's 1.76 sq metres,' he says. 'We could easily lose 10% of market volume to online shopping and still have a shortage of space for retailers,' he says.

But property investors must anticipate the potential impact on different types of retailer. Financial services, computers, travel, books, magazines, flowers/gifts and cars have the biggest potential to move online, says Morgan Stanley. Routine purchases like soap powder and baked beans are also vulnerable. This kind of shopping has become 'a bore and a chore,' John Hollis of Andersen Consulting told a meeting of European IT managers in Vienna last year. That could mean the end of vast sales areas stacked with boxes and tins. Warehousing networks will also need to change. Goods for delivery to online customers will need different treatment to those organised to supply stores.

But Mallen sees hope rather than despair in the future. 'There will be an impact on store size, layout and design,' he admits. Retailers will need to find alternative uses such as pharmacies, leisure and banks. But this could benefit property, as the rents will be higher than for bulk sales. And if shopping streets lose tenants , they will be replaced by leisure and fashion outlets. 'This could be a good thing for our town centres, because it would bring them back to life,' says Mallen.