Portal San Angel is a shopping mall built by Mexico Retail Properties in Mexico City.
By Robbie Whelan | Photographs by Adriana Zehbrauskas for The Wall Street Journal
Feb. 13, 2018 7:00 a.m. ET
MEXICO CITY — On a recent weekday afternoon in Iztapalapa, a hardscrabble neighborhood on the eastern outskirts of the Mexican capital, two sets of construction crews entered the final stages of work on a project that captures the current state of retail real estate here.
One crew hung doors, welded braces and finished floors for Parque Antenas, a brand new 1.1-million square foot shopping mall. Up above, workers hauled carnival rides and carousel parts for a rooftop amusement park the company said would be the world’s first atop a mall.
While U.S. malls are dying a slow, painful death, malls in Mexico are thriving.
In all, there are 34 shopping mall projects under construction in Mexico right now comprising a total of 15.8 million square feet of leasable retail space expected to be completed in 2018. That is roughly twice the amount of mall square footage delivered last year, according to MAC Arquitectos, a Mexico City design firm and consultancy.
Workers at Parque Las Antenas, a shopping mall being built by Fibra Danhos, located on the limit of the Iztapalapa and Xochimilco boroughs in Mexico City. Portal San Angel, a shopping mall built by MRP - Mexico Retail Properties, in the San Angel neighborhood in Mexico City.
In the U.S., by contrast, one quarter of the country’s roughly 1,200 malls are expected to close over the next five years, according to a recent Credit Suissereport.
Part of the reason is simple supply and demand. The U.S. is vastly over-retailed, with nearly 2,751 square feet for every 1,000 people in 2017, compared with just 210 square feet per 1,000 inhabitants in Mexico, according to brokerage JLL.
What’s more, a growing middle class in Mexico is gravitating toward more formal retail—shops and malls instead of the urban outdoor markets, also known as tianguis, that dot the cities across the country.
The retail industry is undergoing another major shift -- to e-commerce. How did we get here? Photo: Associated Press Meanwhile, online shopping has barely penetrated here, as low credit-card usage and challenging shipping logistics keep the Amazon.com effect at bay.
Perhaps most important, Mexican mall developers learned long ago—partly by watching the struggles in the U.S.—that shopping centers do better with a diverse mix of tenants. Instead of relying on department store anchors to drive foot traffic to smaller apparel shops, a shopping mall should also have a grocery store, play areas for children, sit-down restaurants, and yes, even roller-coasters.
“The U.S. has had a very different philosophy of development than we have here,” said Elias Mizrahi Daniel, head of investor relations for Fibra Danhos, the large Mexican real-estate investment trust that is building Parque Antenas. “It’s much more urban here. You would never build a mall in Mexico far away from a city on the side of a big highway. And you always have a big focus on entertainment.”
In December, Mexico Retail Properties, a large private developer backed by Denver-based private-equity firm Black Creek Group, sold 17 shopping malls to Fibra Uno, Mexico’s largest real estate trust, for more than $400 million. Among them was Portal San Ángel, a 645,000-square foot mall in southern Mexico City, anchored by a Walmart grocery store and a Sam’s Club location that hadn’t even opened to customers when the deal was struck.
“In the U.S., it was always, ‘If you build it, they will come,” said Eduardo Guemez, MRP’s chief financial officer. “Here, we build it where you know people already come.”
The healthy market has begun to attract U.S. investors. Thor Urbana, a division of New York-based Thor Equities, owner of several ultraluxury storefronts on Fifth Avenue, is building six shopping malls ranging from the Yucatán Peninsula to Tijuana, all expected to open in the next two years.
This week, Thor closed fundraising on a $130 million investment vehicle sold to Mexican public pension funds and traded on the Mexican stock exchange, as well as $130 million raised from institutional investors, to fund its Mexico development pipeline.
“I’m reallocating all my ground-up development money to the Latin American market because I don’t see the need in the U.S. for another new mall or shopping center,” said Joseph Sitt, Thor’s founder and chief executive.
Another major factor in malls’ appeal is cultural: Mexicans see malls as community gathering places, especially in cities with public security problems like those along the U.S. border. Last year was the deadliest in at least two decades here, as violence related to drug-trafficking escalated and more than 25,000 people were murdered. Many Mexican families spend hours at the mall every weekend, eating, shopping and socializing in the safe, well-maintained spaces.
The Parque Tezontle shopping mall, built by Fibra Danhos and located in Iztapalapa, a borough in Mexico City with a population of almost two million people. Kids play an arcade claw machine inside Parque Tezontle shopping mall, built by Fibra Danhos and located in Iztapalapa, a borough in Mexico City.
“In all the border cities especially, the shopping centers have unfortunately taken the place of the traditional Mexican town square,” said Elliott Bross, president of Planigrupo, a family owned Mexican mall developer that went public in 2016.
Gonzalo Cuellar, 58 years old, said he visits Parque Tezontle, another mall in Iztapalapa built by Fibra Danhos, at least once a week to use the ATM, because it is safer than using a machine on the street.
“Basically, we like that there’s more security here,” Mr. Cuellar said recently while waiting for a pizza with his wife and niece in the mall’s food court. “It gives you a feeling of safety that you don’t have in the rest of the neighborhood.”
A balloon seller is in front of Portal San Angel, a shopping mall built in Mexico City.
Write to Robbie Whelan at firstname.lastname@example.org
Appeared in the February 14, 2018, print edition as 'In Mexico, Shopping Centers Flourish.