Mexico

Mexico

Mexico is an emerging country with an expanding population and an increasingly manufacturing-based economy. In the last decade, the population has added 15 million people and grown to 112,330,000. Per-capita income increased to $15,100 USD per year.

A growing diversification in retail concepts has translated into growing sales volumes for international and innovative local retailers. This diversity has created a hybrid retail landscape.  New world-class retail development shares the market with an estimated 2.3 million mom-and-pop stores and traditional markets. All these venues serve a highly diversified and continuously growing base of consumers, and they make Mexico an ideal location to both assess and profit from retail strategies oriented to emerging nations.

 

ECONOMIC SUMMARY
ECONOMIC INDICATORS*200820092010201120122013201420152016E
GDP growth 1.2-6.05.53.93.91.42.12.53.0
Consumer spending 1.7-7.25.04.54.32.4-1.473.33.0
Manufacturing production-0.7-9.89.95.25.6-2.129.32.253.2
Investment 535-11.86.28.95.944.1922.628.325.0
Unemployment rate (%) 4.05.55.35.24.54.34.64.54.1
Inflation 6.53.64.43.83.63.84.02.13.0
MXP/US$ (average) 13.4012.9012.4013.7012.8712.814.517.117.7
Interest rates 3-month (%) 7.75.44.44.24.43.83.13.13.8

NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast

Source: 2009-2011: Instituto Nacional de Estadística y Geografía, INEGI.  Forecasts: Encuesta sobre expectativas de los especialistas en economía, Banco de México.

ECONOMIC BREAKDOWN
Population 112.3 million (2010)
GDPUS$ 1,661 billion (2012)
Public sector balance -2.5% of GDP (2011)
Parliament Largest minority: PAN
PresidentEnrique Peña (2012-2018)
President-Elect
Date of next federal elections July 2015

LARGEST CITIES (2010)
CITYPOPULATION
Mexico City20.2 million
Guadalajara4.43 million
Monterrey 4.08 million
Puebla2.66 million
Toluca1.84 million
Tijuana1.75 million
León1.60 million
Ciudad Juárez1.32 million
Querétaro1.09 million
San Luis Potosí1.04 million
Source: Censo de población y vivienda 2010 – Instituto Nacional de Estadística y Geografía INEGI

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Mexico City: 19.432608, -99.133208
Guadalajara: 20.673590, -103.343803
Monterrey: 25.673211, -100.309201
Puebla: 19.041297, -98.206200
Toluca: 19.287867, -99.646761
Tijuana: 32.533489, -117.018204
León: 21.123619, -101.680496
Ciudad Juárez: 31.731129, -106.462562
Querétaro: 20.588793, -100.389888
San Luis Potosí: 22.156470, -100.985541

 

MAJOR DOMESTIC FOOD RETAILERS

Soriana, Chedraui, Comercial Mexicana, OXXO, Extra, ISSSTE, City Market

MAJOR INTERNATIONAL FOOD RETAILERS

Walmart, Costco, HEB, 7-Eleven

MAJOR DOMESTIC NON-FOOD RETAILERS

Liverpool, El Palacio de Hierro, Sanborns, Coppel, Elektra

INTERNATIONAL RETAILERS in MEXICO (a selection)

Sears, Inditex Group (Zara, Bershka, Pull & Bear, Etc.), Home Depot, Best Buy, Office Depot, Lowe’s, Saks Fifth Avenue

Food & Beverage Operators

Domino’s Pizza, KFC, McDonalds, Burger King, Starbucks, Pizza Hut, Subway, Vips, Sushi-Itto, Chilli’s, Italianni’s, Wings, Carl’s Jr.

TYPICAL HOURS
MONDAY - FRIDAYSATURDAYSUNDAY
10.00-20.0010.00-21.3011.00-21.00

Paired with the world’s 11th largest population, Mexico’s strong economic rebound after the international economic downturn is being reflected in the reactivation of retail investment. Underlying economic and demographic factors are driving sales growth, among them a larger and young urban population (76.5% of Mexicans live in cities with more than 50,000 inhabitants), a growing middle class, and an increased access to credit. 

Modern retail has a long history in Mexico. The first department stores opened more than a century ago and supermarkets were present by the mid-20th century. However this development was chiefly limited to the largest cities and high-end consumers.  In the latest 20 years, a significant diversification in store formats has taken place, targeting all income levels and matching the growth of middle class. Also, innovative concepts are reaching all kind of localities. Remarkably, room still exists for expansion; leading retailers continue to grow, launching new formats and reaching into new geographies. 

The current inventory of modern shopping centers reaches 12.1 million square meters. The most prevalent format (48% of the Mexican market) is the community center, which is normally anchored by a supermarket and a movie theater complex. Following the diversification trend, small format stores account for 50% of investment plans for big box retailers.

The new formats expansion is one strategy pursued by leading retailers that indirectly counteracts one of the most prominent limitations in Mexican retail development: the limited availability for anchor store alternatives. This limitation usually translates into a tight market for retail real estate developers. As such, existing anchor stores have had the upper hand, and contract terms are frequently specifically tailored to the top anchors’ requests, who are able to negotiate complex contract terms.

E-commerce is growing, following a double-digit rate growth in the use of mobile devices. The Mexican Internet Association reported that e-commerce sales in Mexico reached US$6.4 billion in 2012, a 57% growth over the previous year, exceeding all expectations.

International retailers can enter the market directly as there are no legal restrictions on foreign companies regarding leasing or sales transactions.  However, because of the complex competitive and geographic landscape, franchising and joint-venture with local companies are the preferred methods for market entry.

The property market includes practices present in other geographies such as upward only rent reviews and insuring obligations on the tenant.  Ten year periods are common for leases, and the right to sublease is negotiable.   The process to search for a location and complete a transaction can take up to one year as there is limited availability of high quality premises.

 

New Entrants to the Market

Abercrombie & FitchAdoreBallyChico’sDentix
DesigualDestination MaternityHamleysJoe FreshJohn Varvatos
LoftOn FitnessPottery BarnScalpersWilliam Sonoma
9 RoundCheese Cake FactoryFogo de ChaoLittle Caesar’sMaison Kayser
Texas de Brasil

KEY FEATURES OF LEASE
ITEMCOMMENT
Lease TermsThe traditional lease term in Mexico is 10 years with potential renewal; for example, 20 years is not unheard of for an anchor tenant. Termination options are negotiable. In the absence of a clear agreement in the lease, the tenant has no legal right to break as long as the landlord fulfils his obligations. Where agreed, breaks are typically at half of the lease term for office space but are not currently common for retail unless the lease term is over 10 years.
Rental PaymentRents are typically payable monthly in advance. Security deposits are usually required (normally 2 month rent equivalent). Annual review of rents is always required.
Rent ReviewIndexation is common practice and normally uses the consumer price index as reference.
Service Charges, Repairs and Insurance Maintenance fees are typical in multi-tenant locations and include security, cleaning of common areas, landscaping, internal maintenance of common parts, external maintenance, management fees, and property taxes. Fees exclude internal maintenance and insurance of rented accommodation, utility charges, and VAT. The landlord is responsible for external /structural matters in properties. The tenant is responsible for internal matters. Tenant: Minor repairs Landlord: Main structural repairs
Property Taxes and other costs Local governments (municipalities) charge the local property tax, which is payable on commercial property, and differs vastly across states. VAT (16%) is normally charged on rental payments but it is usually recoverable by tenants (tax advice should be sought).
Disposal of a LeaseSublease is usually possible under the terms of contracts, but subject to landlord’s approval. Assignment rights are not normally barred in the lease but will also be subject to consent. At lease end, the tenant is responsible for re-instating the premises to the same condition as at the onset of the lease, subject to normal wear and tear. All tenant improvements must be approved by the landlord subject to the alteration covenant in the lease.
Valuation MethodsLocal methodology is similar to the U.S. USPAP (Uniform Standard Professional Appraisal Practice). C&W uses the latter for Mexican retail properties.
LegislationMexico is a federation of 31 states and as such each state has its own laws and regulations. The Código Civil (Civil Code) and Código Mercantil (Trade Code) of the state where the premises are located are the basic applicable laws for lease and sale transactions; they differ notably across geographies. Local (municipality) legislation may also apply.