Observers are predicting another year of robust development across Latin America this year, despite the economic trials in certain countries of the region. From Mexico to Chile and Argentina, developers are striving to meet continuing demand for modern retail, particularly in the smaller cities. Brazil is set to get 38 more malls, and in Mexico there are 45 retail projects of various types and sizes at different stages of development. Argentina will be seeing at least three new malls this year, despite the economic tribulations there, bringing the total in that country to 121. Chile, one of Latin America’s most mature mall markets, is bringing out four projects. In Uruguay construction is set to start this year on two medium-sized malls, in the cities of Las Piedras and Paysandú, both of which are set to open in 2017. And work could begin this year on another mall in Montevideo.
In Central America at least two major malls are being built: Costa Rica’s $130 million City Mall Alajuela and Guatemala’s $100 million Multiplaza. In the Caribbean, meanwhile, Puerto Rico will see the opening in March of the $475 million Mall of San Juan. And in the Dominican Republic beach resort town of Punta Cana, the $40 million Blue Mall Punta Cana is under way.
“Latin America’s mall industry is at its best historical moment, with the first-ever convergence of factors like political and economic stability, middle-class growth, capital availability and entry of global retailers,” said retail and mall consultant Jorge Lizan, managing director of New York City–based Lizan Retail Advisors. “The biggest champion of this industry will be the variety and availability of financing sources.”
World Bank projections hold that the regional economy is set to expand by 1.2 percent for 2014 and by at least 2.2 percent for this year. And the strongest half of the region’s countries could emerge from 2014 with growth rates of 2.7 percent or higher, The World Bank says.
Peru, for one, is seeing relentless development. “Our industry continues to grow, averaging during the past four years 7.8 new shopping centers each year,” said José Antonio Contreras, president of mall trade group Asociación de Centros Comerciales y de Entretenimiento del Perú. Eight malls opened in Peru last year, and seven more are ready to open this year. “The bulk of new openings have been outside Lima,” he said, “because many smaller markets are still without a mall.” Combined sales at Peru’s 70 shopping centers are expected to exceed $7 billion for 2014, up 12 percent from 2013. For this year the projected growth rate is 8.5 percent. “The growth opportunity is still huge for our industry,” said Contreras.
Colombia’s mall industry continues to boom as economic expansion pushes up personal income and the middle class grows in size. Though one-third of the population remains in poverty, this is down from 50 percent in 2001. In the cities of Bogotá and Bucaramanga, the percentage of the population classified as “poor” is only 13 percent, according to Rafael España, economic director of FENALCO, Colombia’s retail trade group. “Colombia is one of the most attractive Latin American markets for investment,” said España. “We have a balanced fiscal situation, macroeconomic stability, controlled inflation, solid banks, no hint of a currency-exchange crisis, and a quality-investment grade from international rating agencies. We are projecting a real growth of 6 percent for 2015’s retail sales, particularly with rising sales of technology, electronics and apparel.”
In Brazil, meanwhile, development continues apace, despite a paltry projected growth rate of 0.9 percent for 2014 and of 1.3 percent for 2015. “The industry continues to grow solidly, because the GLA per capita is still low when compared to other Latin American countries, and consumption keeps growing,” said Andres Accetturi, a São Paulo–based analyst who oversees South American capital markets for Cushman & Wakefield. While Rio de Janeiro boasts 180 square meters (about 1,940 square feet) of GLA per 1,000 inhabitants, the number drops to 37 square meters in Brazil’s north and to 42 in the northeast, Accetturi says.
Still, there are fears that high levels of household debt will inhibit spending. Nearly two-thirds of Brazilian families went into 2014 saddled with debt, and some 30 percent of Brazilian family income is set apart for repaying consumer debt, according to one study. Rising consumer credit fueled retail sales over the past decade, but “families are more concerned about taking on new debts due to surging interest rates,” said Carla Franco Kauffmann, São Paulo–based manager of Cushman & Wakefield’s South American retail division. International retailers are still checking out the Brazilian market, but last year was more of an “exploratory year,” she says, pointing to H&M’s decision to postpone its Brazilian debut.
Aside from concerns about the economy and presidential elections, retailers are realizing that they need to open a larger number of stores to be profitable in Brazil as the cost of doing business has risen, Kauffmann says. Retail sales per square meter are lower because of reduced spending and increased shopping options. And to stay competitive, foreign retailers have lowered profit margins to between 15 and 20 percent. Many retailers are severing ties with franchisees and licensees and operating their Brazilian stores directly. Among those that have bought back their -Brazilian operations are -Armani, Diesel, Gucci, Prada and Tommy Hilfiger, Kauffmann says. Elsewhere in Latin America, international retailers are keen on Mexico because of its proximity to the U.S., and they also like Chile, Colombia and Peru, she says.
Landlords and retailers have some concerns about Mexico, however. During the first nine months of last year, same-store sales at department stores and major supermarket chains declined by 3.4 percent year on year, according to the Asociación Nacional de Tiendas de Autoservicio y Departamentales. Overall sales during that period rose by only 0.8 percent. Analysts say consumer confidence was off and the industry was affected by tax increases. This year is “a toss-up for our industry,” according to Elliot Bross, general director of Mexico’s Planigrupo, a developer and operator of supermarket-anchored shopping centers. “We still don’t have a clue as to how it will turn out,” Bross said. “Once the fiscal reforms take hold, we could see very good growth and the return of ample market liquidity that translates into good sales. Otherwise, retailers will have problems complying with their obligations. That will hit us strongly.”
Some countries continue to have problems. Venezuela is grappling with hyperinflation and strict currency controls. And economists worry about Argentina’s high inflation rate, declining foreign direct investment and a rising differential between the parallel and official exchange rates. Some have reservations about the year ahead for other places in the region. “The favorable wind enjoyed by Latin American economies in recent years is slowing down,” said mall consultant Carlos A. Lecueder, president of Uruguay-based Estudio Luis E. Lecueder. “On top of that, there are several presidential elections taking place between 2014 and 2015, and new governments will need to confront the new economic reality with a reduction in public spending and new initiatives. We foresee a better outlook for the industry starting in 2016.”
Industry players are concerned also about a shortage of land parcels for mall development in Brazil, Chile and Peru, as well as in Bogotá and Mexico City. Some are calling for governments to help improve the business climate. “We need to push investment by reducing the lengthy wait for construction permits and licenses,” said Contreras. “Today in Peru it takes two years to obtain permits, way too long for investments that generate many benefits to the population.”
These problems are worth tackling, however, in light of the growth potential that the Latin American retail real estate market displays, experts say. “Latin America shows solid fundamentals that support the growth of the mall industry,” said Accetturi, “even with both local and global challenges.”
