Mexico's retail space demand is rebounding, signaling a positive shift in Q3 2023 after two consecutive quarters of slowdown. While the current demand hasn't yet reached its pre-pandemic levels, projections are optimistic. From 2023 onward, space absorption is expected to rise, and by the end of 2024, we could see figures mirroring those of 2022, when absorptions surged due to heightened competition between shopping centers of various sizes in the country's major cities.

According to data from SiiLA, between January and September 2023, major cities like Mexico City, Monterrey, Guadalajara, and Queretaro recorded absorptions exceeding 187,000 square meters. This is 23% lower than the same period in 2021 and 65% less than in 2022. Interestingly, the vacancy rate in 2023 has been 22% lower than the previous two years.

This absorption slowdown, coupled with the decreased vacancy rate, indicates a transformation in Mexico's retail sector. The current landscape, characterized by a limited new inventory supply and high tenant retention, has reduced the vacancy rate. This shift has spurred competition among tenants seeking prime spaces in strategic locations.

Additionally, the absorption decline reflects businesses' cautious approach to expansion or relocation. This can be largely attributed to lessons learned during the pandemic and the adoption of business models that merge e-commerce with brick-and-mortar stores.

Consumer habits have evolved as well. Retail space demand now places greater emphasis on customer experience and the integration of technologies that enhance interaction and purchasing. Brands that have successfully adapted to these trends and offer an omnichannel experience have gained a competitive edge in this new landscape. These factors, together with anticipated economic recovery and a gradual rise in consumer confidence suggest a swifter growth in retail space demand, benefiting both landlords and tenants in Mexico.

Absorptions in 2023: A Closer Look

So far this year, Mexico City has led absorptions, accounting for over 104,000 square meters. Monterrey follows with almost 53,000 square meters, followed by Guadalajara with around 19,000 square meters, and Queretaro with over 11,000 square meters.

Regarding the type of retail spaces, regional malls have dominated, making up 28% of the total absorption in these four regions. Lifestyle centers (21%), community centers (20%), and super-regional malls (20%) also saw significant demand, while power centers accounted for the remaining 11%.

While regional malls lead in absorption, no single retail space type completely dominates the market. This diverse demand underscores the adaptability and resilience of the Mexican retail market. Despite challenges, there's a balance in the supply and demand for various commercial spaces, painting a promising outlook for Mexico's retail sector in 2024.