Retail, Industrial Growth Offer Opportunity in Mexico

Although some of Mexico's oversight entities continue to face efficiency challenges, the nation's growing retail and industrial sectors offer immediate opportunities to export U.S.-style development south of the border.

Most of the industrial demand is along the NAFTA highway, according to David O'Donnell, president & CEO of Grupo O'Donnell. In the border markets, manufacturing activity is recovering, while Mexico City's needs are almost exclusively distribution related. Monterrey is seeing demand for manufacturing and warehousing, and large Mexican interior markets need mostly manufacturing space and logistics facilities, he explained.

As for retail, Equity International Properties CEO Gary Garrabrant sees strong development opportunities in the Mexico City area, Juarez, Guadalajara and Monterrey. "They're seeing robust economic activity, but they're not well serviced," he said.

To date, U.S. retail development in Mexico has meant big-box projects resembling American power centers, Garrabrant noted. Equity International's partner in Mexico City, Mexico Retail Partners, an affiliate of Black Creek Capital, lines up complementary uses and offers flexible tenancy structures, occasionally including long-term anchor ground leases. "You make the best deals you can with the anchors, then move to the junior anchors and then the outlying parcels," Garrabrant said.

So far, Americans active in Mexican property developments comprise a short list. In addition to Mexico Retail Partners, Equity International has teamed with another affiliate of Black Creek Capital, Corporate Properties of America, in Monterrey. And Chelsea Property Group Inc. and partner Sordo Madaleno & Associates are about to complete the 230,000-square-foot initial phase of the the country's first upscale outlet center, Punta Norte Premium Outlets, along one of Mexico City's major thoroughfares.

In the industrial sector, where business is logically generated from retail demand, ProLogis remains an active American pioneer, as are Corporate Properties of America, O'Donnell and Hines.

For more on business opportunities in Mexico, see the May 16 issue of Commercial Property News.