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Shopping Centers Today -> May 2007
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Developers rue Latin American data drought
Elliot Bross, president of Planigrupo, knows instinctively that there are untapped retail real estate development opportunities in many small and midsize cities in his native Mexico. But without data to back him up, he cannot convince potential anchors of the same.
In Venezuela, Mario Castro, vice president of operations at the Fondo de Valores Inmobiliarios development firm, can only hope to get it right when he sizes stores in new malls, because there are no benchmarks for his country’s mall industry. Further, in the firm’s first overseas retail real estate investment, a mall in the Dominican Republic, it found no local data. Instead, the firm was forced to conduct numerous studies and surveys to determine mall size, tenant mix and leasing rates.
Chilean retailer Casa e Ideas has entered the Peruvian market with three stores in Lima, despite that country’s lack of retail data. Company founder Mauricio Russo Calderón is relying on an internal market study, his observations of the successes of bigger Chilean retailers and his general faith in the country’s economic and sociopolitical stability.
This lack of reliable statistics on Latin America’s shopping center and retailing industries and of up-to-date demographic and macroeconomic data effectively blindfolds retail executives. They do not know how well or how badly they are performing relative to competitors, whether their leasing rates are competitive, which markets offer the best opportunities, or little of anything else.
“Like other countries in the region, in Venezuela there is a business culture of not sharing information mainly because of taxation concerns,” said Castro. “Many malls and retailers are family-owned businesses that prefer to keep their numbers private.”
Like other Latin American mall executives exposed to the benchmarks used in such developed mall markets as the United States, Castro would like to see local and regional indicators on operations and cost-effectiveness. “To give you an idea, we have no idea if our common-area maintenance charges are within our industry’s average and what is the ideal size for some of the tenants,” he said.
Lack of information has not held up development, however, thanks to pent-up demand for mall space on the part of rapidly expanding retailers who are in turn scrambling to serve a growing middle class. But once supply catches up to demand, the information gap could lead to overbuilding, underperforming malls and other problems, sources say.
“Our industry [in Mexico] faces two main problems: the lack of information and the quality of information,” said Paulo Gomes, vice president of research and underwriting at Prudential Real Estate Investors Latin America, a major investor in Mexico’s retail real estate market. “When we do find the information, we have to be careful with its reliability and quality.”
Gomes acknowledges that the data shortage has not stopped foreign investment into Mexico, Brazil and other growing economies. In Mexico foreign investors are expected to invest $3 billion over the next three years. “People are making decisions based on the information that they can live with, but I do believe more investments would be possible eventually with more transparency in the market,” said Gomes.
At least when it comes to government data, says Gomes, the Mexican government is moving in the right direction by joining the Organisation for Economic Co-operation and Development, a group formed by 30 countries to establish standards for statistics. Mexico is the only Latin American member, according to the organization’s Web page.
Such stats as do exist are often hard to compare to those of other countries, because each uses a different standard, sources say. “Decision making, without the right information, affects reaching the proposed goal and forces businesses to take the longest, most expensive and difficult route, delaying growth and losing competitiveness to companies that can afford to conduct their own market studies,” said Chilean retail consultant Renato Figueroa, a partner at Santiago, Chile-based FigueroaRoig, which has offices in several Latin American countries.
Figueroa faults Latin America’s retail industry for not contributing to the generation of statistics and for “worrying more about how not to strengthen the competition than on how to make the entire market grow.”
This complaint echoes throughout the region. Brazil’s retailing industry is blessed with detailed socioeconomic information issued by Instituto Brasileiro de Geografia e Estatística, which allows developers to assess potential markets with confidence. But the industry lacks data on sales per square meter or on occupancy or leasing rates, says Adriana Colloca, the economist for Abrasce, Brazil’s mall trade group.
For one thing, most malls in Brazil are family-owned and are fiercely competitive with one another, she says. Moreover, she adds, there is a lack of uniform criteria — malls follow their own systems to classify mall size, for example. “For these reasons, players have no interest in disclosing real numbers, especially when it comes to financial and investment matters,” she said.
Argentina and Chile boast the most complete retail information, followed by Colombia, while Venezuela, Peru and Ecuador still have a long way to go, says Colombia-based retail consultant Leonidas Oyaga.
Colombia’s saving grace has been its long tradition in the field of statistics, dating back to the creation 50 years ago of the highly regarded Departamento Administrativo Nacional de Estadística, which has assisted sister agencies in Latin America. Colombia has long been one of the few countries in Latin America offering bachelor’s and postgraduate degrees in statistics, says Rafael Antonio España, director of economic issues at the Bogotá, Colombia-based Federación Nacional de Comerciantes, Colombia’s retail trade association. But though the agency collects and publishes monthly retail information, it does not break it down, so the industry does not even know the percentage of retail sales generated on the mall side, he says. Worse, because most malls sell rather than lease space to retailers, center operators have no access to tenants’ information.
“Right now someone sees a nice lot and decides it is ideal for a mall — but without the certainty of whether it should have a gym or a spa, two or more anchors and if the market can handle more movie theaters,” said España. “It is all based on intuition, and that could be harmful for investors in the medium term.”
Even in Mexico, which boasts one of the region’s biggest and most sophisticated shopping center industries, there is a lack of basic information about the number of malls, sales per square meter and mall-generated retail sales. Developers have refused to share the information, citing a highly competitive market and security concerns. One fear they have is that disclosing information about leasing rates will unleash cutthroat competition that will bring rates down, sources say.
With 27 shopping centers in Mexico and six more slated to open this year, Planigrupo, which has offices in Mexico City and Monterrey, could certainly use market data and more-detailed socio-demographic information. “When we build a new mall, we don’t know how much GLA [gross leasable area] we should build, or if we are constructing too many small and medium-size locales,” said Bross. “Unlike the U.S. market, our market does not have detailed studies that show information such as a neighborhood’s income per capita, the number of children, and consumption patterns. And our demographic census comes out five years later.”
His company now relies on the information compiled on a particular market by two of its anchors: HEB and Wal-Mart. Other feasibility indicators used for new developments are the sales of existing retailers and whether or not there is another mall within 5 kilometers of the proposed site, says Bross.
“But we do not have the information to convince an anchor to set up shop with us in, say, Linares, instead of Monterrey, where the market is saturated,” said Bross. “We are fighting it off in big cities while missing opportunities in second- and third-tiered cities because of lack of information. It’s too costly to make a mistake.”
The good news is that the retail real estate industry in Latin America is committed to long-term investment — developers are holding onto the centers they build, rather than selling them off immediately — and an information infrastructure will form, predicts Eric Rey de Castro, managing director of Colliers International’s Peru office.
“The lack of information is one of the big limitations to the entry of foreign capital to many countries in Latin America,” said Rey de Castro. “In general, available funds are unlimited, but to invest in a particular market, these investors need to quantify their risk.”
Argentina’s mall industry has at its fingertips detailed information on retail sales and the performance of malls, thanks to the government’s Instituto Nacional de Estadísticas y Censo. By law, a sample of 30 malls (half of the country’s total) must submit monthly information on sales and operations. The malls supply this information confidentially, says Santiago Blaskey, president of the Cámara Argentina de Shopping Centers. In exchange, the agency issues each participating mall a confidential report that details how they performed that month in different areas, versus the other 29, which are unidentified. The information, which includes occupancy rates, tenant mix and movie theater attendance, comes out two months after it is calculated, but Blaskey says it has been published long enough (over a 10-year time frame) to enable retailers and malls to make projections.
Though Colombia, Peru and Venezuela have mall trade groups, keen competition stops executives from sharing this information. But retail real estate executives say they would welcome efforts by an outside party such as ICSC to collect data and create industry benchmarks. Consequently, ICSC’s Mexico office has published Mexico’s and Central America’s first shopping directory, containing such information as mall GLA, total construction area, number of movie screens and size of anchor stores. ICSC plans to prepare a global mall directory that will include Latin America.
“ICSC is aware of the lack of information and data on Latin America’s mall industry, and this is why it has created a consulting committee called the Latin American Research Group,” said Jorge O. Lizán, ICSC’s director of business development. “Different groups of developers, retailers and retailing chains conduct research and analysis but, unfortunately, the information is not shared by industry players.”
The purpose of LARG is to discuss ways to get more-reliable statistics covering all aspects of the industry’s work, says Michael P. Niemira, ICSC’s chief economist and director of research. The group was formed two years ago, but held its first full-fledged gathering in Mexico City in March. LARG plans to offer Latin America’s first ICSC research seminar next year.
The challenges are many, and they include “winning the confidence and support of the industry that we will keep information confidential and use methodology to provide reliable industry benchmarks,” Niemira said. “The research train is moving, and there seems to be a lot of excitement about this.”
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