Mexican Malls Defy Odds, Take Flight

Due to the unprecedented closing of hundreds of malls throughout the US, the real estate industry has coined the term “dead mall” to describe shopping centers that have high vacancy rates or low consumer traffic. According to a 2017 Credit Suisse report, 20-25 percent of US malls will close within the next five years due to a sharp decline in traffic. The main culprits are e-commerce and developers’ inability to adapt to changing consumer needs. As more people shop online, they shop less at anchor stores, forcing them to close and creating a domino effect where the decrease in mall traffic later causes smaller tenants to close too.  
Mexico, on the other hand, is the largest e-commerce market in Latin America with an annual spend in 2017 of US$21 billion, according to the Latin America Ecommerce Report 2018. The market is expected to continue growing due to improvements in connectivity, higher financial inclusion and increased digital literacy. Yet, the Mexican market seems to be bucking the US trend and shopping center GLA is on the rise. Of ADI associate’s 584 projects in 2017-2018, 99 were shopping centers and 101 were mixed-use, representing 34 percent of the total. In 2017, Mexico had an inventory of 22 million m2 of commercial space, and throughout 2018, 300,000m2 were added to the national inventory.
By the end of 2018, Mexico will have an estimated 2.3 million m2 of shopping center space through the construction of 39 new projects. Unlike its northern neighbor, Mexican commercial real estate developers are completely changing the rules of the game when it comes to shopping malls. According to industry leaders, an element that differentiates the Mexican consumer market to other markets is the culture itself and core traditions. Mexican developers refer to the country’s traditions of using city squares or zocalos to meet their shopping and entertainment needs. “City squares or Zocalos were traditionally the meeting point of communities throughout Latin America and we want our projects to serve the same purpose for the new generations,” says Jimmy Arakanji, Founder and Co-CEO of Thor Urbana. “Many countries, including Mexico, have strayed away from spending time in their city squares due to insecurity. By providing secure environments, we can give back a sense of community and strengthen the social tissue.”
The Mexican consumer looks for a secure environment where they can spend their Sundays with their family, with places to eat, have fun and shop. Developers have adapted to the needs of these consumers and have pushed for projects that stray away from the boxed-in model of traditional shopping centers. Spaces such as Miyana, Toreo, Manacar, Parque Las Antenas and Artz are the types of projects taking over the Mexican market. Open spaces, green areas, gourmet food courts and new brands are the value proposition that will directly impact the success of a project.
A clear example of the impact these factors have on a shopping center can be seen in Cuernavaca, Morelos, about 93km south of Mexico City. Ares Arquitectos designed the Averanda shopping center, with a more open concept, integrating green areas and open-air spaces to take advantage of the weather in the area. “In front of Averanda is one of Cuernavaca’s oldest malls, Galerias, which has a more traditional concept,” says Jacinto Arenas, the firm’s CEO. “Many brands have moved to Averanda due to its popularity. The integration of various amenities such as entertainment areas, offices, homes and of course shopping spaces offers a completely different experience and it has proven to be a success.”
And while the industry’s mantra has always been location, location, location, successful locations can sometimes surprise. Developer Fibra Danhos, for example, has identified various mixed-use diamonds in the rough in areas that are not so obvious. Its Parque Tezontle shopping center in Iztapalapa, one of Mexico City’s lowest-income neighborhoods, has been a success for many years, credited with the highest spend per person compared to the rest of Fibra Danhos’ portfolio. The developer recently opened Parque Las Antenas nearby. “Despite official figures that suggest Iztapalapa is not one of the most affluent neighborhoods, informal labor in the borough is very common, meaning the official figures do not accurately reflect the purchasing power of the people living there,” says Elías Mizrahi, Director of Investor Relations at Fibra Danhos. “When we saw the characteristics of the project, for us it was a no-brainer to increase our reach in Iztapalapa and bring more services to those living in the borough.”