Victor Lachica
President and CEO
Mexico and Central America at Cushman & Wakefield
View from the Top

Changing Lifestyles Demand Changing Real Estate

Wed, 11/01/2017 - 14:56

Q: How is Cushman & Wakefield differentiating itself and how does it plan to position itself further in the market?

A: We want to be seen as a one-stop shop in terms of advice. Not only do we want to sell or lease spaces, but we want to serve as advisers regarding efficiency of operations, streamlined interaction with other companies and improving client products. We are transparent and honest and most people will see the value in our service because we are experts in the field. Some of our competitors are exclusively transaction oriented while others are exclusively advisers. We want to bridge that gap and offer the whole range of services.

Q: What is your outlook for the Mexican commercial real estate market in the next two years?

A: In the short term, office, industrial and retail real estate will undergo a consolidation period, meaning there will be more caution over investments, portfolio consolidation and old properties will be sold in exchange for newer buildings. Clarity will be sought regarding the new policies implemented by the US. That being said, the industry is already taking advantage of several features. The people who know the market will take advantage of new entrants. For example, if one international fund wants to unload properties, a long-term investor in Mexico will be able to acquire these for more favorable rates than they would have in 2016. I see a lot of interesting movement in terms of more conservatism and more aggression.

During times of market uncertainty, two subsectors emerge in the market: those that are easily scared and want to unload assets and those that see the opportunity in buying these assets at reduced costs. Mexico has many more developments in percentage terms than most other countries. No country in Europe and no city in the US compares to the rate at which we are developing. This also applies to Queretaro, Puebla, Guadalajara and Monterrey. All our main cities are booming and the country is urbanizing quickly, and I do not believe this will stop in the next few years.

Q: How are your clients mitigating the risks associated with longer wait times between building and leasing?

A: Some of our clients are developers that hire us to lease their space and others are users or tenants seeking office space. In terms of the developer, our recommendation is to be very aggressive regarding modernization and efficiency. In a market that is oversupplied, a building that is competitive on price and technology will be the first to be leased. An oversupply forces developers to become more competitive and offer clients greater content. In Mexico City, the typical office space absorption per year is around 350,000m2 but in years of oversupply, this increases to around 500,000m2. With 1.5 million m2 of office space under construction, this will only last around two to three years. Office building leases are very much dollarized and we believe this context can push dollar prices down between 10-15 percent in the next few years.

Q: Where is the retail industry heading given the growth in ecommerce trends?

A: In Mexico City, we will see a trend in which people will be more reluctant to move around, meaning that E-commerce will gain some momentum. There will be an increase in logistics and delivery transportation as a result. We are around four or five years behind the US in terms of technology and trends but last year in the US 46 percent of consumption was ecommerce, which will gain greater traction. Companies are following this trend and retail spaces are becoming more compact, with warehouses placed strategically around cities to cash in onE-commerce. Mexico City will become much more efficient, sustainable, enjoyable and hopefully more controlled in terms of crime rates. Vertical growth means crime is much easier to control due to higher population density within an area. We will also see much more interactive retail spaces that will be used as entertainment or social areas rather than just shopping malls.