Evolution of Commercial Real Estate Prices in Mexico: Retail Strengthens in CDMX

The retail industry is undergoing strong growth in Mexico City's metropolitan area. Over the past year, the average rental price per square meter increased by 11% in the region's retail market, according to data from SiiLA. These price variations reflect the financial dynamics of the sector and provide valuable insights into its current state and performance. The price fluctuations manifest key factors such as demand and supply, local and national economic health, strategic location influence, consumer trends, regional competition, and market cycles.

However, rental increases in the retail market are typically tied to inflation. This can occur through adjustment clauses in contracts, as well as maintenance and location costs. Alternatively, these increases stem from the overall price rise within the economy.

While it's true that the average market price in the retail sector is similar to pre-pandemic levels, the increases in the last four quarters indicate a recovery process, occurring alongside a rise in absorptions and occupancy, now approaching levels seen at the end of 2020. These indicators suggest a growing demand for commercial spaces, coinciding with a resurgence in investments. New projects being developed and delivered reflect confidence in the sector.

Despite the widespread price increases, some regions within the Mexico City metropolitan area performed better than others. Interlomas stands out with exceptional increments of up to 57%. On the other hand, in submarkets such as Aragon, Bosques de las Lomas, Coapa, Iztapalapa, North, and Periferico Sur, average rental prices per square meter increased between 2% and 9%. Conversely, Insurgentes, Polanco, and Santa Fe experienced price reductions, ranging from 11% to 18%.

Price variations are connected to a blend of the factors above, including demand, location, new projects, and competition. For instance, areas like Interlomas witnessed notable increases due to their focus on specific types of shopping centers. On the other hand, sites like Santa Fe saw price decreases due to the diverse range of competitors and available properties in their market. Notably, while both submarkets host large shopping centers, in Interlomas, the competition centers around super regional malls and regional malls, whereas in Santa Fe, most of the competition spans these two types of shopping centers, along with some medium-sized properties like lifestyle centers.

It's worth noting that in the past year, large shopping centers and smaller ones, including community centers, tended to maintain or reduce their prices across various submarkets, mainly where competition is more segmented and space supply is ample. Conversely, medium-sized shopping centers, prevalent in high-income regions, offering open spaces and personalized shopping experiences, recorded a general price increase.

The observed trend in Santa Fe also applies to the Insurgentes submarket, where regional malls and lifestyle centers –representing large and medium-sized properties– fiercely compete for clientele. This dynamic also occurs in Polanco, where medium and small-sized properties, mainly lifestyle and community centers, enter into competition.

The type of competition plays a pivotal role in these price variations, with submarkets benefiting the most when different types of shopping centers, such as lifestyle centers, regional malls, and community centers, compete. In regions with more diversified portfolios, like Aragon, Coapa, Iztapalapa, North, and Periferico Sur, price growth has been more stable due to recent years' diverse shopping center types inclusion.

The behavior of market prices provides an overview of industries and their prospects, enabling analysts and market players to make informed decisions. For more information on various assets within the commercial real estate market, explore SiiLA REsource or contact us at contacto@siila.com.mx.