Shopping for the well-heeled.

Author:Ramirez, David
Position:FINANCIAL STRATEGIES: REAL ESTATE
 
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The expansion of retail chains, the appearance of exclusive boutiques and consumers' shopping habits are boosting commercial construction this year in Latin America. Investors in real estate are looking at double-digit returns.

Growth of the purchasing power of the region's middle classes has spurred commerce and an increase in opportunities for new commercial projects in construction. Consumers prefer to shop in a single area in order to save time from one to another. As a consequence, shopping centers have arisen under the leadership of major chains of supermarkets and department stores that act as poles of attraction for the independent shops that surround them. The populations increasing income in real terms, meanwhile, has drawn the opening of luxury boutiques that offer products from high fashion and jewelry to high-end automobiles.

Brazil appears to be the main magnet for luxury boutiques. Last year, 28 new malls were opened, bringing the total to 458, with a likely increase this year of 48, according to Abrasce, the association of Brazilian boutiques. The proportion of unoccupied spaces is a mere 2 to 3 percent. The rental prices of top-class spaces are the highest in the region. Real estate consultants Cushman & Wakefield reckoned that the rental per square foot in Sao Paulo for such locations stood at $309 toward the middle of last year, the most recent estimate available. By comparison, the rentals per square foot in the Chilean capital, Santiago, were $97, in Lima $94, and in Mexico City $97. Bogota was much closer to Sao Paulo at $250 per square foot.

In Bogota, intense competition for land has soared, pushing up the costs of rentals and real estate purchases in general, as it has in other Latin American capitals. A similar phenomenon has persuaded boutiques in Mexico City to opt to set up in already-established luxury malls. In the Colombian capital, they have sought to seek out new constructions in areas where land prices are highest.

On the other hand, developers of commercial projects that target middle-class consumers have opted to tackle the shortage of land prices by building in provincial cities or on the outskirts and marginal areas, as well as underused locations of major population centers. One such expansion has been in downtwn Bogota where the development of commercial, housing and office space has been backed by the local government. Rental costs in the new development zones are about $6-$8 per square foot...

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