Change is inevitable in real estate as it is with any other segment of the economy. Some of those affected will suffer, others will innovate and come out on top.

Columnist John Clark is Vice President with The Regional Group of Companies Inc.

That’s the way it’s been since one of our hairy ancestors first realized a sharp stone tied to a stick made a better tool than a stick alone.

A couple of weeks back, the Globe and Mail talked about the disruption sparked by the rise of e-commerce – Soaring property taxes? Blame Amazon.

The article contends Amazon (AMZN-Q) and other online retailers are gutting traditional bricks and mortars retail. It asserts e-commerce is devastating Manhattan’s Broadway, as well as “cutting swaths through main streets from Los Angeles to Rome and gutting suburban malls.”

The article also referenced Bill Ackman, CEO of the Pershing Square activist hedge fund, who last year pronounced the traditional department store dead.

Trouble for some, opportunity for others

Retail overall is experiencing a paradigm shift. The path to purchase for consumers is anything but direct these days.

Instore, online, and mobile purchase options are all influenced by social media and the handy availability of a smart phone to research a purchase or compare products anywhere on the spot.

Through any channel, top brands are challenged by cheap imported knockoffs.

Where e-commerce is causing damage, it’s also creating opportunity. Take Ottawa, where Amazon is expected to soon confirm its plan to build a one-million-square-foot distribution centre which will employ 1,000 people. How much will this facility contribute to the local tax base? (Not to mention the high-value jobs created by Shopify (SHOP-T) here in its hometown and elsewhere.)

Or take Walmart (WMT-N), which is expanding curbside grocery pickup services and store pickup in the parking lots across its North American operations in response to consumers’ increasing demand for convenience.

A changing retail model will result in some real estate becoming obsolete. This will result in lower assessed values on dormant properties which will negatively impact the local tax base. In response, municipalities may have to raise taxes on other properties to make up the revenue shortfall.

E-commerce a transitory impact

This is nothing new, but for the most part, these retractions will be transitory. Don’t overlook, or underestimate, the ingenuity of property owners to repurpose buildings where there is not a continued need for the space as it was designed.

This doesn’t mean all obsolete buildings will be demolished. On the contrary, owners often will find a way to repurpose them.

Take, for example, the fate of the traditional urban movie theatre. Through the ’80s and ’90s, two- or three-screen theatres were commonly tucked into the end of a shopping plaza or a downtown office complex. But then came along the suburban multiplex with dozens of screens. One by one, those older, smaller venues were shut down. In fact, over the past 150 years in Ottawa, the average life of a theatre, either live or film, has been less than 20 years.

What’s become of them? Ottawa has two examples now of that kind of space being repurposed as the new offices of growing high-tech companies.

One is located at the soon-to-be redeveloped Westgate Shopping Centre – a custom software shop called bitHeads. The other is at the World Exchange Plaza, which occupies a prime downtown location –  dashboard developer Klipfolio. The World Exchange Plaza theatre sat vacant for almost five years before Klipfolio took residence earlier this year.

Has anything really changed?

Certainly in the Canadian context there are very few examples of large tracts of derelict urban real estate which continue to be unused. Owners are just too motivated and creative. They find a way of generating revenue, rather than leave valuable space sitting vacant forever.

It’s also interesting to note companies like Shopify, which are chewing away at Amazon’s business, are occupying prime downtown office space in many cities. They are good candidates to occupy some of the space formerly occupied by retail driven out of business by Amazon et al.

Such competitive pressures, thanks to the rise of new technologies and changing consumer habits, are nothing new. Since the advent of the Industrial Revolution some 200 years ago, there are continuous examples of businesses that came and went, but the real estate continued to exist.

Contrary to the tone of that Globe and Mail article, these assets usually have been successfully repurposed. The article, in referencing Bill Ackman, fails to mention this repurposing is an opportunity to create new value – and taxable assessment.

A bit of scaremongering

Also, the article’s references to lost employment is a bit of scaremongering.  If you think of the number of jobs which exist now in Canada as opposed to the number of jobs when I was born, the current number is far greater. It also consists largely of jobs which didn’t even exist when I was born.

Very interesting as well is the article’s reference to business tax and the United Kingdom, in that this is an area of great vulnerability to government revenues. In the Canadian context, however, almost all provinces have eliminated the business tax which once existed, and have included the foregone revenue within the property tax base itself.

This severely reduces the volatility of municipal revenue, notwithstanding the fact it doesn’t eliminate all risk to government revenues.

Lastly, the article fails to mention the fact entities like Amazon and Shopify are subject to GST/HST, thereby generating revenue for government.

But this also leads to the likelihood senior levels of government will have to find a way of sharing sales tax revenues with municipalities which may be feeling the pinch of underperforming retail real estate in need of a new purpose.

To discuss this or any valuation topic in the context of your property, please contact me at jclark@regionalgroup.com. I am also interested in your feedback and suggestions for future articles.