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Retail booms as Mexico’s economy blooms

By Edmund Mander

Rising incomes and foreign investment coupled with declining interest and inflation rates are providing fertile ground for the biggest retail development boom Mexico has ever seen, speakers observed at ICSC’s Real Estate Show last month in Mexico City.

The country’s ascendant fortunes were underscored in an address by Mexican President C. Felipe Calderón Hinojosa, who told the gathering Tuesday that he intends to upgrade the country’s infrastructure, clarify its legal system and make it easier for Mexicans to launch businesses. He also pledged to support a massive development of Mexico’s tourism industry. “Now is the time to push Mexico toward the future,” he told the gathering of hundreds of real estate professionals and financiers. “I am determined to make Mexico one of the safest investment opportunities in the world.”

The country’s growing economy is boosting the ranks of the middle classes, which in turn is fueling demand for consumer goods. And this economic picture, coupled with a stable political environment, bodes well for the growth of the retail industry, noted Michael P. Kercheval, president and CEO of ICSC, which is co-sponsoring the conference with several Mexican real estate organizations.

The country’s long-term economic prospects look good also, he and others observed. There are now some 107 million people in Mexico, making it the world’s 11th-largest country by population — and a particularly young population at that: The average Mexican is 27, Calderón pointed out. By 2040 Mexico will have the world’s fifth-largest economy, Calderón said, citing a report by Goldman Sachs.

In the next 30 years the number of privately owned homes will more than double to 40 million, predicted Raul Gallegos, general director of GE Real Estate in Mexico.

Developers and retailers are scrambling to provide places for people to spend this newfound wealth. Currently, there is a paltry 1.2 square feet of shopping center space per capita in Mexico, compared with about 20 square feet in the U.S., several speakers said. Retailers such as Waldo’s Dolar Mart de Mexico, which has opened 300 stores since its foundation five years ago, are desperate to find shopping centers to host their growth, said Luis Corcuera, the company’s vice president of real estate. The company wants to open an additional 100 stores this year. Other retailers serving a similarly low-income shopper are in the same straits when it comes to finding shopping centers, Corcuera said.

But construction is under way (some 85 centers are currently going up), helped by an unprecedented infusion of foreign and domestic capital. About $3 billion will be invested in shopping centers in Mexico during the next three years, said researchers attending the conference. A total $20 billion in direct foreign investment entered Mexico last year, some 60 percent of it from the U.S., Kercheval said.

But for all its promise, the country is not without its challenges, some said. The business community sorely needs reliable economic and demographic data, said Elliott Bross, chief executive of Planigrupo, one of Mexico’s largest development firms.

“We are really developing in a vacuum here,” Bross said. There is no certainty even about the amount of retail per capita in Mexico, he said. Similar frustrations were expressed at last year’s ICSC Asia Expo, in Singapore, about development in China, Korea and everywhere else reliable government data are hard to come by.