The Retail Sector in Mexico Strengthens. What Trends are Emerging Amid its Recovery Process?

The Mexican commercial real estate market has shown resilience and strength in the face of global economic challenges, especially over the past three years. Yet, of all its segments, the retail sector stands out, having borne significant brunt and showing remarkable signs of recovery.

Alejandro Delgado, Country Manager Mexico at SiiLA, notes an increase in space occupancy in shopping centers has marked the recovery in the retail sector in Mexico. This, coupled with tenant retention and the low level of new inventory additions throughout 2023, has led to a significant decrease in the vacancy rate.

In fact, the vacancy rate for Q3 2023 stands at 8.2% - the lowest since Q3 2020. While it doesn't match pre-2020 levels, the positive momentum in Mexico's retail sector is palpable and holds promise. This encouraging trend has many market players and investors looking forward with optimism, anticipating consistent growth as the economy rebounds and consumer confidence rejuvenates. Consequently, new inventory releases are expected to kick off from 2023 onwards.

During SiiLA's recent Market Overview, a quarterly client event offering insights into the commercial real estate landscape, Delgado recalled 2022 as a year of significant new inventory addition, with over 420,000 square meters added. Notably, the mixed-use Mitikah building's retail space was nearly fully occupied upon its market debut.

Further, Delgado pointed out that while no new properties were added in 2023's last two quarters, several projects are slated for completion by year-end. Patio Martin Carrera and Distrito Santa Fe in Mexico City are cases in point. This underscores developers' faith in the retail sector and reiterates the medium-term expectation of new inventory supply.

Trends Shaping Mexico's Retail Sector

With dropping availability rates and rising commercial space occupancy, the retail sector is well-poised to seize future opportunities.

In the coming years, community centers and regional malls are projected to remain prominent retail property types with the most space in key national markets. The most sought-after spaces include mixed-use buildings and open-area premises, emphasizing high-end, tailored shopping experiences.

Regarding square footage, Mexico City and Monterrey are expected to remain dominant markets. However, Guadalajara is emerging not just for its current prominence in space but also for its anticipated growth. Notably, over the last three years, market expansion in Mexico City and Guadalajara outpaced that in Monterrey, even though these three regions remain the largest nationally.

Mexico's retail sector continues to underscore its adaptability and recovery prowess against global economic headwinds. Declining vacancy rates and surging commercial space occupancy are clear indicators of this revival. Near and medium-term inventory release expectations reflect investors' trust in this sector, particularly in a setting where market prices are uptick and consumer confidence is on the mend.

For more insights and outlooks on the commercial real estate market, explore SiiLA Market Analytics or contact us at contacto@siila.com.mx.