Eugenio González
CEO
Altea Desarrollos
/
Insight

Saturation Drives Developer to Look for Greener Pastures

Wed, 11/01/2017 - 15:07

Metropolitan Monterrey has quickly become one of the country’s top areas for total number of commercial malls, with a new construction seemingly around every corner. But a failure to look outside traditional areas is driving up land prices and a great deal of purchasing power is being left on the table, according to Eugenio González, CEO of Altea Desarollos. “Certain areas of Monterrey’s real estate market are becoming saturated, following the paths of Guadalajara and Mexico City,” he says. “The Valle and Cumbres neighborhoods are oversaturated in terms of commercial real estate, but there are many regions that are areas of opportunity for developers to take advantage of.”

According to Colliers International’s 1H17 Commercial Market Overview, the metropolitan area of Monterrey has more than 266 shopping centers, with the vast majority in the municipality of San Pedro Garza Garcia, which is home to the state’s most prosperous neighborhoods. With more than 67 shopping malls and seven more under construction in 2017, the high demand for space has caused the prices of land in Valle to increase more than 110 percent in the last three years, also pushing up leasing prices. According to González, highly saturated areas are becoming risky for commercial centers because they are starting to experience high tenant turnover. “Competition is growing tougher and as a developer, it is clear that when tenants are constantly leaving, there is something going wrong,” he says.

But Nuevo Leon is a large state and Monterrey’s metropolitan area has many neighborhoods with high potential for developers that are willing to look outside the traditional locations. “In terms of square meters of commercial area per capita, Mexico is approaching the same area as the US without the same purchasing power,” González says. Shopping centers continue to be concentrated in the country’s most affluent areas while segments of the population with greater density but with a lower income per capita are overlooked. “I believe that these areas are not taken advantage of, not because of insecurity or that they do not yield attractive returns but because of social comfort,” he says. Paseo La Fe is one of Altea Desarrollo’s latest developments and it was designed to cater to the middle-income segment in the lesser-served

San Nicolas de los Garza neighborhood. This shopping center contains lower-budget stores like Forever 21, H&M, Bershka,
Pull and Bear, Liverpool and many others and González says that, among this demographic, it would be difficult for more
expensive stores such as Massimo Dutti to be successful. 227 “The brands were skeptical at first and initially created much smaller stores than they usually would have,” says González. “When the mall opened, they realized that they should have had more faith in this location.”

Altea Desarrollos took a leap of faith and is demonstrating that this model is profitable and even more attractive. “We expect to recover our investment for Paseo la Fe in seven to eight years, which is a healthy number, especially since the competition developing projects in Valle will not see a return for 20 years,” he says. González explains that at the moment, there is little competition in these areas and that the challenge is in understanding the largest segments of the country’s population. In lower-income communities, the traditional outdoor markets are where most of the commerce takes place. Families buy food, accessories, clothing, electronics and more from these informal markets but González believes that if they had a mall nearby, they would much rather spend their money there. “Many SMEs want to sell in a formal establishment but we need to make the prices accessible to them,” says González. He adds that these informal sellers currently pay “rent” to a labor union in order to sell goods in these outdoor markets. “This means that labor unions may pose another challenge when constructing a large mall in these areas,” he says. Nevertheless, he is confident that if the correct path is followed, problems can be averted.

Altea Desarrollos has also had a project under construction in Merida for a couple of years, but with the sudden real estate boom in the region, it decided to hold off its inauguration. “There are many companies building in Merida and I prefer to wait for the market to fully develop,” González says. “Merida is a market of 1 million inhabitants that has more shopping malls than Puebla.” In the meantime, Altea Desarrollos wants to keep building projects such as Paseo la Fe and bringing value to all cities across Mexico.