Over the years, experience has shown that the Mexican real estate market can be a complex and sometimes unpredictable environment. But the current outlook for potential investors is excellent, with a diverse range of opportunities right across the board.

Fundamental reforms

There are a number of factors behind this. In the last decade or so, Mexico has experienced a huge change in its real estate industry, both in regulatory and economic terms. This has transformed the landscape for both foreign and domestic investors: these changes have come in the form of new regulations encouraging foreign investment, an increasing number of small and medium developers in different regions, more mixed use developments and the increasingly innovative use of financial investment instruments such as real estate investment trusts.

Clearly, one of the biggest factors currently influencing the minds of foreign investors in particular is also the strength of the dollar against the peso. It has driven a big spike in sales among investors already attracted by the country’s robust regulatory environment, its stable and trusted legal system and Mexico’s sound financial and banking framework. The country is already hugely popular with US and Canadian investors, and building on this context of a positive, supportive investment environment the number of sales to foreigners has been on the rise over the last decade or so. Between 2008 to 2015 an average of 663 real estate sales of this kind were made, while in 2016 and 2017 that figure has leapt to around 1,105 sales to foreigners each year.

So, the current picture for potential investors in the Mexican real estate market is a good one – but which areas in particular are showing the most promise?

Mixed use is on the rise

Well, one of the most interesting areas of growth in the current market is around mixed use developments, which often combine residential properties with offices,  shopping and restaurants. It’s a fascinating area for potential investors in the current climate, not least because of the rapid growth we’ve seen there in recent years, as well as the growing demands of an increasingly dynamic and youthful customer base. According to a 2017 report from KPMG, less than 15% of real estate developments were mixed use a decade ago. Today they now make up 30%.

Bringing commercial properties into new spaces in this way presents many fresh opportunities for investors and in those areas where there are increasing numbers of tourists, such as Puerto Vallarta, this sector is one that is only set to grow. For investors, it is also a unique chance to invest in projects that are changing the face of the urban environments that so many Mexicans are choosing to live and work in. All of this means that there are now more and more opportunities in this sector of the Mexican real estate market, for those investors who are willing to financially support the increasingly innovative solutions that the current market demands.

A booming retail real estate sector

The growth in popularity of mixed used developments is also being driven in part by a more confident commercial and retail real estate sector. Much of this confidence comes down to the positive moves made by the Mexican government and the institution of a number of regulatory reforms that have encouraged more investment in this sector. In addition, a big part of this new-found optimism is also due to more attractive interest rates for developers looking to finance new commercial projects. This, combined with a more innovative approach to funding these projects through different financial instruments such as real estate development trusts (Fibras) and certificates of capital development (CKDs), has fuelled a boom in commercial and retail real estate.

It’s been estimated by the International Council of Shopping Centers (ICSC) that the Mexican retail market will grow by up to 23 million square metres by 2025 – a huge jump of 35 per cent from the current market, which stands at around 17 million square metres. That’s an impressive outlook for a market that caters to the needs of Mexico’s increasingly young, commercially savvy population: around 55 per cent of the population is under 30, and is demanding more and more innovative retail experiences.

There is a huge opportunity for investors to take advantage of this growth in retail real estate and to work with developers on projects that are transforming the commercial landscape of many of Mexico’s most popular cities. In addition, the positive outlook for the mixed use sector in Mexico offers a chance to see a return on investment not just from any ultimate sale of any property, but also in terms of regular rental income from the buildings themselves.

That’s an attractive prospect for anyone, and we’re excited to see how the current market will continue to present further opportunities for investors in the coming months.