By Les Shaver for GlobeSt.com
While many CRE sectors and product types have floundered after COVID-19 hit, one industry has continued to flourish.
In the second quarter, cap rates for dollar stores fell a 12-basis point decrease when compared to the prior year, according to The Boulder Group.
There are some long-term concerns for the sector, most notably overbuilding. But e-commerce is not a near-term threat, according to Randy Blankstein, president of The Boulder Group. The main reason is that dollar stores are essential in small towns and rural areas.
“Amazon is a very developed network in the top 25-40 metros,” Blankstein says. “Once you start getting to rural areas, they don’t have the same kind of next-day type of services. So, I think Amazon won’t be entering into some of these markets. I’m not sure that economies of scale make sense [for Amazon] in rural markets, but that’s for them to compete with the dollar stores, and they have the immediate need issue.”
Chris Pappas, associate director with Marcus & Millichap’s Net Lease Division, agrees. “Dollar stores provide customers access to low-cost goods right now whereas Amazon must deliver which takes time,” he says. “According to recent data from GlobalData Retail, 75 percent percent of Americans are within five minutes of a Dollar General. Moreover, a critical mass of new dollar stores is opening in secondary and tertiary markets within which Amazon does not have the logistics infrastructure to deliver low-cost goods next day profitably.”
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