Mexico City to prosper from bloom of youth
Although not yet highly ranked in the Schroders Global Cities index, Mexico City has powerful demographic drivers that we believe will generate future growth .
24 April 2018
We track a whole range of factors when compiling the Schroders Global Cities index, with demographics near the top of our list. The aging pattern of a population can help provide insights into future consumer spending habits, voting behaviour and housing needs, just to name a few.
Mexico City, ranked 31st in the index, merits consideration as a global city not just for where it stands today but where it’s heading, with one of the younger populations relative to global peers.
Schroders Global City Index ranking: 31
- Young workforce
- Political uncertainty
While Mexico finds itself in a state of uncertainty, between the current North American Free Trade Agreement (“NAFTA”) negotiations and upcoming July elections, Mexico City remains a dominant urban centre. Following our recent trip there earlier this year, we continue to believe that it is poised to prosper over the long run.
Maturing youth bolstering consumption
With Mexico - and specifically Mexico City - much of the story lies in the demographics. Over the next 10 years, Oxford Economics anticipates Mexico City’s population over the age of 15 to increase 15%, far outpacing many of the US cities we track. In addition, according to the Organization for Economic Co-operation and Development (OECD), Mexico has one of the youngest populations across the Americas and Europe. As this young population filters into working population, it has helped contribute to Mexico City seeing robust per capita income growth of 4% per annum, from 2010 through 2015. Retailers have taken notice of this trend.
Companies like Williams-Sonoma and Gap have all entered Mexico over the last few years as a means to generate growth, while operations in the US suffer from the impact of e-commerce. Consumer spending has grown 6% per annum over the last four years and is expected to grow another 6% this year according to Statistica. Clearly, these retailers want to be positioned to capture it.
E-commerce: cultural trends may lessen threat
While e-commerce has pressured shopping centre fundamentals across the US, the impact has been limited in Mexico. According to Statistica, e-commerce sales only account for approximately 2% of retail sales, versus 9% for the US.
E-commerce as a percentage of total retail sales
While e-commerce momentum is clearly on the rise, its momentum hasn’t set as staggering a pace as in the US. There are many reasons for this, but we point to two: culture and logistics. In terms of culture, the shopping centre has been viewed as a place to congregate. With many centres air-conditioned, these centres become oases during the sweltering hot days.
In addition, safety concerns remain paramount across Mexico and in Mexico City. Owners of retail real estate, such as Fibra Danhos, have invested heavily in security platforms to ensure the safety of their consumers as well as their tenants. Overall, the trip to the shopping mall is seen as an entertaining time away from the house, rather than a stressful shopping experience.
In addition to the attractiveness of spending time at a retail centre, the logistics of e-commerce have some obstacles to overcome before it becomes more widespread. For the most part, much of the industrial product is positioned outside of the city, meaning that any e-commerce fulfillment would mean transporting the goods into the city. However, the reliability of delivery is an issue given Mexico City’s traffic issues. TomTom ranked it the most congested city in the world again in 2017. Until a reliable logistics chain can develop, it may help to preserve the attractiveness of bricks and mortar retail in Mexico City for a little while longer as the robust trends in income and population growth take hold.
With a population of over 8.8 million, Mexico City’s size alone would make it a top ranked global city. The key for it going forward will be harnessing the positive demographics and potential for increased consumer spending in order for it to take the next step forward. While the political noise will persist in the near term, we remain strong believers that demographics are destiny and Mexico City is well positioned for the long term.
Our global cities team launched the Global Cities blog in 2016, which acts as a resource to track the longer term trends impacting global real estate.
For further reading please visit the Global Cities website.
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