Retail Temperature Check: Latin America

Colombia

We took a look at shopping center development in Latin America over the last two years and the findings were a mixed bag. Much of the data in our most recent Latin America Retail Shopping Center Development MarketBeat reflect recent overall economic activity in Latin America. But some surprises came out of C&W’s fist ever retail report from the region as well.

Focusing on six primary countries—Brazil, Mexico, Colombia, Argentina, Peru, and Chile—our report shows that shopping center inventory grew significantly in 2012 and 2013, and now stands at its highest level ever.

Growth is moderating, though, which comes as no great surprise given the cooling of regional economies. Brazil, now grappling with some of the hangovers of its path to decade-long explosive growth (inflation and currency devaluation, for example), saw some of the largest declines in investment transaction volumes in 2013, posting year-over-year declines of more than 50%. But we need to put that in context with the tremendous quantity of new malls coming online, 2.7 million square meters worth, which 22% of all current stock.

Growth bright spots include investment transaction volumes (including retail) in Mexico, which nearly tripled. And if economic and labor reforms there boost growth to the levels President Enrique Pena Nieto hopes, a significant increase in consumption is not out of the question. With half its population under 25, Mexico has the right demographics in place to fuel a boost in consumer spending.

So what’s next for the region in terms of shopping center activity? Overall, the pipeline reflects investors’ less-than-bullish attitudes. Over the next three years, nearly 6.4 million sq.m (69 million square feet) of new shopping center GLA will come online, a decrease of roughly 6.4% from the previous three years. The region’s largest economies of Brazil and Mexico will lead that category with more than 60 new centers expected to deliver over the three-year period.

GLA

Of note is Peru. While Peru ranks low in terms of relative overall shopping center inventory, the projects expected to deliver through 2016 will represent a nearly 50% increase in the country’s total GLA.

The good news is that the supply pipeline looks fairly balanced with demand in the region. Most markets should see sustainable levels of absorption and adequate retailer demand for space in newly delivered centers as long as those fundamentals remain aligned.

View the complete report online.

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