Retail 2.0 in Mexico: REITs are Transforming Shopping Centers into Profitable Ecosystems

Amid a challenging economic environment, Real Estate Investment Trusts (REITs or FIBRAs) in Mexico are heavily investing in the retail sector as a diversification strategy, managing over 5.5 million square meters of shopping center space to secure stable revenue flows and adapt to inflationary pressures.

However, retail has transformed in the post-pandemic era: it’s no longer enough to simply offer stores; now, these environments must allow consumption to seamlessly integrate into everyday life, thus optimizing competitiveness and ensuring sustainable investments in an increasingly demanding market.

André El Mann, CEO of FIBRA Uno. Photo: SiiLA.

By: SiiLA News

11/06/2024

In a highly competitive and uncertain economic environment, Real Estate Investment Trusts (REITs or FIBRAs) in Mexico channel significant resources into the retail sector. According to SiiLA data, one-fifth of the gross leasable area (GLA) managed by these companies—more than 5.5 million square meters—is concentrated in shopping centers.

Portfolio diversification within the retail segment is a strategy to maximize returns and achieve financial stability, especially as the sector recovers from the pandemic and becomes a strong investment alternative amid inflation and rental price pressures, primarily driven by the peso-dollar exchange rate's volatility. This strategic focus is essential to secure stable and resilient revenue streams in a dynamic market.

Among Mexico's 16 leading FIBRAs, nine have retail portfolios, with the largest—FIBRAs Uno, Shop, and Danhos—accounting for nearly 77% of the GLA of shopping centers managed by these trusts. Each, however, employs a distinct approach to adding value to its properties and standing out in a competitive market.

For instance, FIBRA Shop has introduced the "Centros de Vida" (or "Life Centers") concept, focusing on creating spaces that integrate sociocultural and recreational activities in a sustainable environment to foster community engagement, setting themselves apart from traditional malls that rely on anchor stores to draw visitors. Meanwhile, FIBRA Danhos is investing in luxury models within mixed-use complexes, combining shopping centers with hotels to offer exclusive experiences that attract a premium clientele and increase the profitability of its spaces.

In this same vein, FIBRA Uno recently completed the acquisition of the Mítikah mixed-use project in Mexico City, increasing its stake from 62% to 100%, and launched TOCA Social at Galerías Valle Oriente in Monterrey—an entertainment space combining soccer simulators with dining options. These initiatives aim to enhance profitability in high-demand urban environments and, over time, adjust lease prices to address inflation. Notably, in Q2 of 2024, FIBRA Uno reported a rent increase of 4%, just under the average inflation rate of 4.3%, highlighting a lag in lease updates and the impact of the peso's depreciation against the dollar.

Retail 2.0: Resilience, Experience, and the Future in 2025

Today, shopping centers are lifestyle generators. Photo: Antara.

The pandemic was a litmus test for the retail sector, and what emerged from the crisis is a model that has not only endured but has evolved with remarkable adaptability. In 2024, retail in Mexico shows an occupancy rate nearing 93%—the highest level since Q2 of 2020—reflecting a solid recovery and new expectations for the future. This figure signals stability and transformation, prompting the market's key players to redefine their strategies and relationships with consumers.

To understand the impact of this occupancy in a post-pandemic context, it's essential to examine how the "shopping center" concept has changed. Once limited to a place for purchases, shopping centers now offer a far broader experience. Today, these centers are built around a core principle: adding value that retains visitors and fosters a sense of community, setting them apart from online shopping platforms. These spaces integrate stores, restaurants, entertainment areas, outdoor spaces, and cultural, recreational, and educational activities that drive visitor traffic—and, therefore, profitability.

Looking to 2025, retail developers and FIBRAs managing these properties face the challenge of maintaining occupancy while ensuring the relevance of their spaces. The answer lies in mixed-use models and flexibility to adapt spaces to the demands of a post-pandemic consumer who expects much more than shopping. FIBRA Shop's "Centros de Vida," focused on community and well-being through sociocultural activities, exemplify this evolution. In these spaces, the commercial environment becomes the true attraction beyond the stores themselves.

Yet, the resilience of the retail sector doesn't solely depend on creating attractive experiences. Peso-dollar exchange rate volatility and inflationary pressures have forced institutional players to review their lease policies, adapting them to mitigate the effects of peso depreciation and ensure competitiveness. Mixed-use models—which integrate retail, residential, office, and entertainment spaces—allow property owners to diversify their income streams and attract consumers willing to invest time and money in high-value experiences.

Would you like to learn more about retail market performance this year and next? Visit SiiLA REsource or email us at contacto@siila.com.mx.

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