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Doing Retail Real Estate Research in Latin America
Data-Driven Decisions
Robert Berg*
    Abstract: Since the year 2000, the total number of shopping centers has increased by almost 50% in Latin America’s three
    largest countries—Brazil, Mexico and Argentina. Other countries in Latin America, such as Colombia and Venezuela, are
    experiencing similar booms, as local and foreign developers, REITs and private equity funds have turned their attention to a
    region where returns on investment are higher than in more mature markets. This growth has transformed the shopping center
    industry from a relatively closed business, driven by local developers and retailers, into a global business in which
    development projects compete for capital and for retailers among other projects around the world. In light of these changes,
    the need for reliable research has increased as developers and investors, prior to committing large sums of capital, must
    evaluate a wide range of factors relevant to the success of a project.

Superior Returns Spur Shopping-Center                                invested in new shopping-center developments in the
Construction in Latin America                                        region this year.
     Strolling through Plaza Antara Polanco, the open air,                In Mexico alone, developments with investment of
mixed-use, name-brand, boutique-laden development in                 $6.3 billion over five years are already underway. In
one of Mexico City’s upscale neighborhoods, the                      Argentina, a consortium of local and Chilean investors
consumer could be in any large American city where                   has announced plans to invest $1.2 billion in 20 new
similar shopping centers abound. Forty miles to the                  shopping centers during the coming three years.
southeast, two new shopping centers, on opposite sides               Shopping-center development has evolved from a local
of a highway, compete for customers from the thousands               enterprise driven by opportunistic factors into a global
of low-income housing units that populate an area that               industry driven by long-term ROI-based decisions.
was neglected until recently by most large retailers.                     In the past, the number of retailers and small shops
These are but two examples of the developments                       available to occupy spaces in new shopping centers was
changing the Latin American landscape of the shopping                limited to local chains and mom-and-pop stores. Today,
center market in recent years.                                       by contrast, the number of international retailers looking
     As Chart 12-1 shows, the total number of shopping               to increase their sales abroad has augmented the number
centers has increased by almost 50% since 2000 in the                of potential tenants for new shopping centers in the
region’s three largest countries—Brazil, Mexico and                  region. In short, the shopping-center business in Latin
Argentina. Other countries in Latin America, such as
                                                                                             Chart 12-1
Colombia and Venezuela, are experiencing similar                                   Number of Shopping Centers
     While the region’s macroeconomic conditions have               500
improved significantly, and while credit is now available           450
to more households for the purchase of consumer goods,              400
these developments are not the only reason for growth in                                                                  Brazil
retail real estate.     The boom in shopping-center
                                                                    250                                                   Mexico
development has been made possible by the recent                    200
interest and investment of foreign developers, real estate                                                                Argentina
investment trusts (REITs) and major financial                       100
institutions. Hungry for a piece of the action in markets            50
where CAP rates above 15% were commonplace five                       0
years ago and on average still reach 10-12%, foreign









investors—primarily from the United States, Canada and








Spain—have been drawn to the region in search of
higher returns than they are realizing in their local
                                                                Sources: Camara Argentina de Shopping Centers, ABRASCE and Berg
markets. It has been estimated that $3 billion will be          Marketing & Research

* Managing Director, Berg Marketing & Research

RESEARCH REVIEW, VOL. 15, NO. 1, 2008                                                                                              50

America has evolved from a relatively small and closed             As satellite images of every major metropolitan area
local business to an international retail real-estate         in the region become available, it is all too easy to
business competing for capital and retailers with the rest    believe that a project’s trade area can be defined with the
of the developing markets around the globe.                   help of GIS modeling and mapping software. However,
                                                              in practice, traffic patterns and often the sheer volume of
How Developers Should Evaluate Opportunities                  traffic in the region make it very difficult to estimate
     In the current environment, institutional investors,
                                                              driving times from one place to another without actually
developers and retailers need accurate data based on
                                                              visiting the site. On the other hand, many of the
rigorous research to make their investment decisions.
                                                              shopping centers being developed today in Latin
The type of information required by these players is not
                                                              America are located in semi-urban areas. They draw
much different from what they traditionally work with in
                                                              their customers from the population living in the area,
their home markets. However, as most newcomers to
                                                              but also from smaller towns up to 50 miles away if it is
the region have learned, this type of information is not as
                                                              customary for the families in these towns to do their
readily available in Latin America.
                                                              weekly shopping in the city/town where the new
     When evaluating the feasibility of a new project,
                                                              shopping center is being developed.
developers and investors should consider a combination
                                                                   Once the borders of the trade area have been
of desk and on-the-ground research that covers a variety
                                                              defined, it is important to obtain precise socioeconomic
of issues.
                                                              information of the households in the area. It is crucial
     The site’s physical characteristics, in terms of size
                                                              to rely on local sources familiar with the area, as much
and geographical particulars, require careful study. For
                                                              of the information available through local government
example, in some cities—particularly the crowded ones
                                                              census reports does not precisely reflect the true
—the only sites available for development may be
                                                              economic conditions of the families living there.
located in suboptimal areas such as hillsides or flood
                                                              Foreign investors sometimes make the mistake of
prone areas.
                                                              relying on average GDP per capita when analyzing the
     Pedestrian and vehicular traffic patterns, along
                                                              potential of a particular area. Income disparities in the
with access roads to the site, should be carefully
                                                              region are such that the resulting average is often much
analyzed by potential investors, as these have important
                                                              higher than the actual average for a determined
implications for the success of a project. Is the site on a
main road, highway or a secondary street? Is public
                                                                   Walking the site’s trade area is often the best way to
transportation readily available to the site? Can families
                                                              learn about the true socioeconomic conditions of the
living across the road from a site access the shopping
                                                              families who live within it. A physical examination of
center on foot?
                                                              the area can also provide important first-hand
     In Latin America where a large percentage of the
                                                              information on the number of housing projects being
families do not own cars, it is important to consider
                                                              built in the area and those planned for the future. Unlike
pedestrian traffic patterns, as well as the availability of
                                                              most developed markets, it is not uncommon to find
public transportation in the area, even if the site under
                                                              several lower-middle and low-income housing
evaluation is on a large thoroughfare. Additionally, the
                                                              developments under construction in the suburbs of larger
traffic patterns of commuting employees in the trade
                                                              cities, and that can add 30-50,000 new families to a trade
area are key considerations. Many employees will stop
                                                              area in a 12-18 month period.
and purchase groceries several times a week as they
                                                                   Studying the shopping and entertainment habits of
return home from work. As a general rule in Latin
                                                              the families in a particular trade area is also very
America, lower income families make more visits to the
                                                              important to developers and retailers. A thorough
grocery store during the week than in North America, as
                                                              analysis of the area’s shopping and entertainment habits
many of them are laborers paid on a daily basis, or do
                                                              through quantitative and/or qualitative research
not have the storage capability to keep large amounts of
                                                              techniques will uncover key clues about the optimum
food in their homes.
                                                              store mix for a project.
     One of the most important steps in the decision
                                                                   Learning about the expenditures on retail
making process for investing in a new shopping center is
                                                              merchandise in the trade area will help developers to
the designation of its trade area. The size of a trade
                                                              figure out how many department and specialty stores a
area for a new shopping center will depend on the type
                                                              new shopping center can sustain, as well as how many
of project to be developed, the competition in the area,
                                                              small shops whose merchandise overlaps with the
access roads to the site, availability of public
                                                              categories served by the department and specialty stores
transportation and the area’s shopping patterns.
                                                              will thrive.
RESEARCH REVIEW, VOL. 15, NO. 1, 2008                                                                                 51

     An assessment of existing competitors in the area           population growth rates because many younger people
and their future growth plans is very important in the           leave in search of employment abroad or in other parts
investment decision-making process for a new project.            of the country.
The geographical size of Latin America may suggest that               In addition, an increasing number of companies
there is nearly unlimited growth potential for new               wisely perform background checks on potential
shopping centers. However, in reality, the number of             business partners prior to closing a deal. While not
cities and towns with the socioeconomic characteristics          widespread, there have been deals that were cancelled
desirable for a new shopping center is fairly limited. It        when it was discovered that the business practices of a
is often the case that developers and investors will rush        potential partner did not meet the standards required by
to be the first to develop a new project in a particular         foreign investment firms.
region, only to learn once they have broken ground or                 Furthermore, environmental impact studies are
signed the first leasing contracts that two similar projects     increasingly being required by local governments prior
are underway.                                                    to issuing any permits. It is also a best practice for
     As the number of shopping centers continues to              developers to conduct a physical assessment of the
grow in the region, retailers are paying more attention to       property on which they wish to build, as many of the
the cannibalization of same-store sales when evaluating          available sites were part of former industrial parks or
the feasibility of opening new stores.                           waste-management facilities.
     Finally, developers should carefully evaluate the
overall economic trend of the region in which they are           Opportunities Galore But Investor Beware
                                                                    Opportunities to develop new shopping centers in
planning to locate their shopping center. Speaking with
                                                                 Latin America will remain very attractive for at least
local government representatives, chambers of
                                                                 five more years. However, the dynamic nature of this
commerce, business leaders and real-estate brokers
                                                                 sector creates some risks. The pace of shopping-center
should provide a good picture of the overall economic
                                                                 and retail development is increasing competition and
climate of a region. In Mexico, for example, it is
                                                                 shopping alternatives for consumers. It makes sense
important to study migration patterns in smaller towns in
                                                                 for developers and investors to undertake thorough
or near a potential shopping center development. Many
                                                                 analysis of each potential site before they finalize their
smaller towns are currently experiencing negative
                                                                 investment plans.

              Robert A. Berg is the Managing Director of Berg Marketing & Research, a Mexico City based
              market research firm specializing in real-estate feasibility studies. His extensive experience
              includes evaluations for retail projects, office and housing complexes, mixed-use developments,
              hospitals, and many smaller businesses. His clients include shopping center developers, REITs,
              private equity funds and retail tenants, among others. His professional memberships include the
              Urban Land Institute and the International Council of Shopping Centers, where he serves on the
              Latin America Research Group. He also sits on the editorial board of Centros Comerciales & Retail
              Mexico, a publication focused on the shopping center industry in Mexico. Before joining Berg
              Marketing & Research in 2003, he was at The Profit Recovery Group International, a recovery audit
              firm serving the world’s leading retailers, where he last operated as Managing Director for Latin
              America, executing the company’s entry into Brazil, Argentina, Costa Rica, Venezuela and Chile
              from the regional office in Mexico City.

RESEARCH REVIEW, VOL. 15, NO. 1, 2008                                                                                   52

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