Leveraging High-Value Real EstateThu, 11/01/2018 - 10:22
Space in Mexico City is scarce and prices are soaring for the real estate available in prime locations. Some developers are taking advantage of this scenario to generate greater returns, says Victor Lachica, President and CEO of Mexico and Central America at Cushman & Wakefield. “Grupo Lar bought a substantial plot of land next to Carso’s in Nuevo Polanco, in 2012,” he explains. “It was able to develop on part of it but, due to its location, it was attractive to sell certain pieces to Carso at a high premium. The land was valuable to Carso as it would allow expansion of its own assets and it was willing to pay for it.”
The boom of development in Nuevo Polanco started when Sordo Madaleno decided to build Antara on the outskirts of the Polanco neighborhood. Cushman & Wakefield worked on this project alongside Walton Street Capital, leasing the mixed-use development’s office spaces. “In the years since, the area has developed around Antara, incorporating residential developments, public transport and amenities,” he says. “The land in the area has since significantly increased in value.”
This demonstrates the increasing value that new Class A developments are bringing to each location, whether in long-established areas such as the business district, or through a new well-planned project. “The main objective of all these developments is to improve quality of life,” says Lachica.
Due to the fact the area was largely industrialized before the establishment of Plaza Antara, many large factories, including Grupo Modelo and Colgate were present there. Lachica says Colgate was able to capitalize on the increasing property prices when it decided to move its operations from Mexico City to Guanajuato. “The US Embassy, represented by Cushman & Wakefield, bought the property in a transaction worth more than US$100 million,” he says. “Colgate was able to move to Guanajuato and invest in a Triple A facility, as well as pay to relocate some of its expert technicians as a result of the profit it made.”
Lachica says this development boom can be observed in Mexico’s main cities, like the San Pedro neighborhood in Monterrey or Guadalajara’s Providencia. “Those locations are seeing innovative developments within them or in their immediate surroundings,” says Lachica. “This generates new interest and impacts on important submarkets, as can be seen in Santa Fe in Mexico City, Valle Oriente in Monterrey, Puerta de Hierro in Guadalajara and even Centro Sur in Queretaro. He adds that this gentrification has been happening all over Mexico City, most notably in the Condesa and Roma neighborhoods, and more recently in Napoles and Del Valle. “These locations have the benefit that they are extremely central and close to transport links,” he says. The next location to experience this will be the area surrounding Metro Observatorio, Lachica says, due to the installation of the Mexico City-Toluca Interurban Train.
The traditional model of residential building is also changing and owners are taking advantage of this. “While previously people were living in large houses, today, mixed-use developments offer smaller apartments but incredibly dynamic and rich surroundings able to satisfy all kinds of needs while working, shopping and living in the same zone,” Lachica explains. “The desire to live in the heart of the city has overtaken the desire to own a large home.” This has benefited those who purchased large homes in up-and-coming areas prior to the boom. “The government allows a house to be converted into eight apartment buildings so the owners are doing this to create more value.”
While his overall perception of commercial real estate is positive for the coming years, he points to the office space trend as a potential risk area. “As long as the trend of moving from old spaces to new continues, office spaces will flourish,” he says. “But developers are now left in doubt by the announcement from President-elect López Obrador that government organizations will be decentralized. This would mean a drop in demand for office space in Mexico City as entire industries are relocated.”
Nevertheless, Lachica predicts large mixed-use projects such as Parque Las Antenas and Puerta La Victoria will continue flourishing in Mexico City, Monterrey and Guadalajara, as well as in up-and-coming secondary cities such as Queretaro, Puebla, Leon and Morelia.