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RETAIL DEVELOPMENT GATHERS STEAM IN CENTRAL AMERICA

By María Bird Picó

Guatemalans are about to get their biggest shopping center yet: Pradera Concepción.

Anchored by a Sears (the chain’s second in Guatemala), the 484,000-square-foot regional center will also boast the first Imax movie theater in Central America and an 86,000-square-foot department store belonging to the Guatemalan Semaco chain.

The center is symbolic of mushrooming shopping center growth throughout Central America. In fact, Pradera is one of about a dozen new shopping centers in the region. The roster includes Multiplaza, in El Salvador, which opened last December; the $35 million Galería Santo Domingo, in Nicaragua; and CityMall and MetroMall, both in Honduras.

In Panama City’s downtown area, El Salvador-based development firm Grupo Roble recently unveiled the first phase of the 495,000-square-foot Multiplaza Pacific, a two-level, enclosed regional mall.

Malls already operating in Central America report occupancy rates of 95 percent or more. And many of these are expanding, often adding restaurants, movie theaters and similar entertainment tenants. One such center is the two-year-old Centro Comercial Plaza Mundo, in El Salvador, which is adding 86,000 square feet to its existing 248,000 square feet.

All this activity has attracted foreign retailers new to the region, including Spain’s Mango, Dutch retailer Mexx, and U.S. chains Office Depot and TJ Fridays.

History demonstrates that shopping centers proliferate as economies develop, of course, and Central America has been no exception. “It’s part of the natural evolution of retail,” said Ricardo Augspurg, president of Plaza Mundo, a 270,000-square-foot mall in San Salvador’s Soyapango section. “Consumers look for ways to ease their lives with one-stop shopping and service centers.”

To be sure, poverty is still rampant, but the economic scenario has been quietly improving for Central America’s 37 million residents. A hitherto stagnant region plagued with political and economic instability has turned itself into a stable, albeit modest, performer. The proposed Central American Free Trade Agreement, which also includes the Dominican Republic, could give the region a further boost.

“Central America is registering macroeconomic stability, low inflation and low interest rates, in addition to a surplus of capital,” said Javier Gasteazoro, director of Grupo Roble, the region’s main retail real estate landlord, with 18 shopping centers. “Shopping centers are one of the few profitable business sectors to invest in.”

In El Salvador foreign investment more than tripled last year to $389 million, from $103.7 million. Since El Salvador adopted the U.S. dollar as its currency in 2001, foreign investors feel more secure with their investments, says Claudia O’Farrel, general manager of Inversiones Simco, the owners of Centro Comercial Galerías, a 377,000-square-foot shopping center in San Salvador.

Last year Central America’s gross domestic product grew by 3.71 percent, according to the Secretaría Ejecutiva del Consejo Monetario Centroamericano. On an individual country basis, GDP growth ranged from El Salvador’s 1.8 percent to Nicaragua’s 5.1 percent. Regional GDP growth over the next 20 years is expected to average 4 percent, slightly higher than the 3.9 percent projected for South America. Other indicators are looking bright as well. Central America’s unemployment rate is 6.4 percent, down from 8 percent in 2001.

The rising price of coffee, a major export for Costa Rica, El Salvador and others in the region, is one factor. Tourism is growing too, says economist Eduardo Lizano, president of Academia Centroamericana, a Costa Rica-based think tank.

Economic growth has brought along the construction of new housing developments and, consequently, demand for shopping outlets closer to home than the traditional Main Street, says O’Farrel. Furthermore, as shoppers grow more affluent, they become more sophisticated and demanding, seeking new options in entertainment, merchandise and services, executives say.

“Malls are successful in our country because our people are looking for variety, comfort, security and good parking,” said Ricardo Díaz, president of Multiproyectos, the developer of Pradera Concepción and the owner of two other malls and two open-air centers. (The owners of Multiproyectos also own Pollo Campero, a very successful regional fried-chicken chain that recently entered the U.S.)

In particular, malls in Guatemala are seen as safe places to shop, given the parking and security guards they provide. Guatemala City alone now has 15 shopping centers.

The frequently rainy climate is yet another incentive to visit one destination for banking, food, shopping and entertainment needs, says José Gerardo Chavarría, general manager of Desarrollos Mega, which owns three malls in Costa Rica.

The proliferation of credit cards is also helping drive retail growth. They now account for 80 percent of the sales at Multiproyectos’ shopping centers in Guatemala, says Díaz. Credit cards were once considered a luxury, what with interest rates that ran as high as 30 percent, but this is now down as low as 10 percent, helped by some healthy competition from U.S. dollar-based cards, executives say. By the end of last year, Visa International had 5.6 million credit card holders in Central America and rang up $8 billion in cash advances and credit card purchases. Just four years ago Visa had only 2.7 million cards and provided $3 billion worth of cash advances and purchases, the company reports.

Also growing is the money Central American families receive from their relatives living overseas, mainly in the United States. Last year these family remittances contributed an average of 14.4 percent of the GDP of four Central American countries: Guatemala, Honduras, Nicaragua and El Salvador. Honduras’ percentage was the highest at 18.3 percent, according to the Secretaría Ejecutiva del Consejo Monetario Centroamericano.

Honduras’ economic ebullience is manifesting itself in high retailer demand for space at its new shopping centers. In the San Pedro Sula province, Lady Lee, a shopping center developer and owner of retail operations, is building the 377,000-square-foot City Mall, slated for an Oct. 30 opening. The center was 100 percent leased well before it was built, says architect Roberto Z. Linhares, vice president of Coral Gables, Fla.-based Beame Architectural Partnership, the project’s designer.

Beame Architectural has also designed, for the same client, the 215,000-square-foot Metroplaza El Progreso (Honduras). The city of El Progreso is about 15 miles from the center of San Pedro Sula. “This market is moving fast,” said Linhares. “Tenants are going crazy trying to get additional space in City Mall, and reservations are already in place for Metroplaza El Progreso, which opens at the end of 2006.”

In El Salvador, three centers opened last year, bringing the current total to eight. The owners of one existing lifestyle center, San Salvador’s La Gran Via, are expanding by adding restaurants and bars.

But some executives, though encouraged by all the growth and development, are expressing concerns about a glut of retail real estate across Central America.

“The most sensible thing to do now is to hit the pause button and allow the market to mature some more,” said Augspurg. Developers of Sambil Costa Rica, a regional mall planned for for the western side of San José are doing precisely that. They have put the project on hold and taking another look at changes to its format to avoid duplicating what is already present in the market. Investors in that particular project are Costa Rica’s Genesis Fund, the Venezuelan Grupo Sambil and U.S.-based General Growth. Costa Rica is still digesting the 904,000 square feet rolled out in the San José and Heredia areas last year through three new projects.

“The shopping center construction boom is due in part to the lowering of the interest rates banks offer their investors, who are finding better returns in the rental or sale of retail space,” said Pedro Véliz, director of the real estate division of Guatemala-based Marbensa & Co., which owns Gran Centro Los Próceres, in Guatemala City. That mall is currently adding 54,000 square feet.

Executives across the region agree their markets are increasingly well served. The question is, will they resist the urge to build some more as they watch competitors close in?

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