Javier Lomelín
CEO of Colliers International Mexico
View from the Top

Resurgence of Rental Good News for Developers

Thu, 11/01/2018 - 10:08

Q: What are developers and investors looking for when they contract companies such as Colliers International?
A: Our clients demand extremely specialized talent. It is not enough to be familiar with the real estate market; it is critical that we know our clients’ businesses to provide personalized advisory services. This has made the service provision sector a lot more demanding and competitive. Colliers International has integrated the wide scope of services offered within the real estate industry and we can do anything from project management, appraisal and commercialization to maintenance and operation of assets. Third-party appraisals are becoming more and more important, as the integration of investors into the real-estate market demands transparency and an independent perspective. Land use, fiscal implications, density and regulations are always factors that impact the success of a real estate project.
Q: What opportunities has Colliers International seen in the rental housing segment?
A: Colliers International could become more involved in the rental housing market through mixed-use projects. There could be a decrease in purchases of individual assets that will later be placed on the rental market but we are also seeing a comeback of institutional investors into that segment.
Rental disappeared some years ago because of regulations that were passed, protecting tenants. This made investments less profitable since rent prices were limited and could not be raised more than 85 percent of the increase in the minimum wage. These regulations have been modified, making it a good option for investors once again. We see that developers are now acquiring entire portfolios, giving life to economies of scale and with much greater viability.
Q: How will the 2018 elections impact real estate development in Mexico and how should players prepare for change?
A: This year is filled with question marks. The transition of political administration, the renegotiation of NAFTA, interest rate hikes and modifications in fiscal rules are causing the real estate industry to question its foundations. Players that benefit from a year like this are those that can adapt to the new circumstances. These factors automatically slow down activity and players will adopt a wait-and-see attitude. Everyone must understand that real estate is a long-term game, a marathon and not a sprint.
Q: What are the elements that raise asset values in Mexico and what should developers keep in mind when choosing projects?
A: For a development to be successful it is important to consider a broad variety of variables, including architecture, market cycles, potential clients, exposure, efficiency, prices, sustainability, market trends and location. The development must have a focus on future clients. Understanding the requirements and needs of customers facilitates the long-term possibility to lease the project. In terms of pricing, monitoring the real estate market allows us to track the levels of leasing that are prevailing in an area. With additional supply and demand analyses, we can estimate whether a project is viable or modifications must be made, so that the leases cover the cost of development.
In terms of market trends, the analyses go much further. New technologies and the rapid growth of new applications require new jobs and a way of working for the future. It is estimated that in a few years the labor model will change significantly, especially with the growing popularity of home office and shared working spaces. Some jobs such as bank tellers and physical mail and courier services are expected to experience reduced working hours, while on the other hand new jobs will be created in the future that do not currently exist. But by far, one of the most important factors to consider is location. The ability to get from different points in the city with ease and access to public transport leads to a privileged mobility scenario, a component highly valued by any tenant.