As a successful retail real estate expert, I’m often asked for my take on the overall retail environment in Mexico, and where I see the opportunities for investors in the future. And of course, I’m always happy to give it – with a few caveats.

The first is just a reminder of how perilous these kinds of predictive exercises can be – as the saying goes, past performance is no indicator of future performance, and I don’t think it is ever that wise to make too many bold predictions about the potential in a particular sector.

Secondly, the world we live in today feels like an increasingly volatile one – economically, politically and socially – with everything from unpredictable presidential election results through to the restructuring of long established international trade agreements being thrown into the mix.

But I would also say that all of the success I have enjoyed as a retail real estate investor has come about by being well-informed, by taking each investment opportunity that arises and considering it carefully in the light of the amount of risk I’m prepared to take at that time – and by being bold when I believe I have found an opportunity that can offer a good return on my investment. And of course, all of this decision making on real estate opportunities is informed by the bigger picture of the Mexican retail sector itself.

So, what are the things I will be looking out for in the next year or so – not necessarily just in real estate, but in the broader retail sector overall? Here are my thoughts.

Consumer spending on the rise

I think a great place to start is the improving year on year retail sales figures. This indicator is probably one of the most reliable guides to how confident shoppers are feeling, out and about in the shopping centres and mixed use retail and residential developments we might be considering investing in. And that figure is now firmly heading upwards – a welcome contrast to the picture last year, in which Mexican retail sales were running at a disappointing 1.4 per cent against the forecast of 3.0 per cent. It wasn’t a great outlook at that stage but it seems that consumer confidence – and a consequent willingness to spend money – is improving. The latest figures from June show Mexican retail sales are at 3.3 per cent year on year, against the gloomy 0.8 that was originally forecast.

All of which is, I believe, a highly encouraging sign. I’ve already talked before here about the demographic advantages that Mexico has, with an increasingly youthful and dynamic population who are keen to live, work and shop in more innovative developments. That these people – who are an increasingly important part of the Mexican economy – are now able to get out and spend more is hugely positive, both for the retail sector as a whole, and for prospective investors too.

A positive outlook

There are other encouraging signs for the retail sector in Mexico, and so in turn for real estate developers and investors looking for a good return over the coming months. In a recent article, the Organisation for Economic Co-operation and Development (OECD) suggests that the overall outlook is looking positive, with a few notes of caution.

“Growth is set to pick up, underpinned by private consumption and exports,” they say. “Uncertainty will continue to restrain private investment, although earthquake-related reconstruction activities are expected to take place in 2018. However, private investment could accelerate if the NAFTA negotiations end favourably. Public investment will remain subdued. Unemployment is projected to remain at historic low levels. Inflation will continue to decline from its high level to closer to the central bank’s target.”

Most of this then is encouraging – and backed by the positive structural and regulatory reforms that are helping to transform the economy further, the picture for the next year or so is looking generally good.

But of course, the huge cloud on the horizon for all of us who have a stake in Mexico’s economy is a possible collapse of NAFTA. The North American Free Trade Agreement has been around since 1993, but US President Trump has recently been talking about renegotiating the long-standing arrangement.

If that happens – and it is a big ‘if’ – there could be huge consequences not just for the retail sector but the entire Mexican economy. Consider this – according to figures from Bloomberg, Mexico’s total exports in 2016 were worth $401.2 billion, with around 80 per cent of that going to the U.S. and Canada.

Clearly, anything that makes any of this kind of trading harder could create big problems for Mexican companies – particularly, it seems likely, in the manufacturing, real estate and retail sectors. That possibility has to be a huge concern for investors in these sectors, but at the moment it is an unknown that we will all need to try to factor into our decisions in the coming months.