The Brazilian mall market began in 1966, with the inauguration of the first mall in São Paulo. Five years later, was the inauguration of the Conjunto Nacional de Brasília, developed by ECISA and one of the first Brazilian malls to follow the concepts and patterns of the international mall industry. In the 1970's, together with the Conjunto Nacional de Brasília, five new developments were initiated. However, it was in the 80's that this market presented its biggest growth, with the number of malls going up very fast, until the beginning of the 90's, when the rhythm slowed down due to the financial instability.
In the mid 90's, there was a new wave of investments in the sector, due to the financial stability derived from the establishment of the real as the new currency in Brazil, which controlled the Brazilian inflation thus stimulating consumption, and to the great success of investments in the mall sector during the 80's. This flow of new investments was also a result of the higher availability of funds of pension fund's portfolios, which began to invest in shopping centers and contributed significantly to the development of new projects. The pension funds, considered very conservative, were attracted by the nature of the shopping mall business, as a cash flow generator, and by the high return achieved by prior investments in the sector.
Given the high return rates of the sector, the number of malls grew very fast until the year 2000, when the sector reached a total of 281 malls. However, following 2001, there was a reduction in the number of mall openings. The main factors that explain this slowdown are the lack of available funds and funding methods and the reduction of interest of the pension funds in the mall sector, as a result of new regulations that imposed restrictions on real estate investments as a percentage of their total assets. This number increased in time and in 2012 the number of malls rose 62,6% (in comparison with the year 2000), reaching 457.
Current scenario and attractiveness of the Brazilian mall sector
The current scenario of the Brazilian mall sector is best described as a sector going through its consolidation, since it is still very fragmented when compared to other countries.
From 2006 to 2012 the shopping center sector grew 30.2%, representing 19.0% of the national retail and 2.7% of Brazil’s GIP. The total GLA of Brazil’s shopping mall sector grew 52,0% between 2006 and 2012, reaching a GLA of 11.4 million in 2012, as we can observe on the graph below:
This total Gross leasable area for the sector, is divided geographically in the following manner: 55.6% in the Southeast region, region with the country’s biggest GDP; 17.9% in the South region; 13.3% in the Northeast region; 9.2% in the Middle- West region; and 3.9% in the North region.
Even though the total gross leasable area gre enormously, when we compare the total GLA per inhabitant to other countries where the mall sector is more developed such as USA and Canada, it is still very low. This comparison shows that there is still a lot of space for new developments in Brazil.
Together with the growth in the number of malls came the growth in its sales. The mall industry’s total sales grew 139.0% from 2005 to 2012, as shown below:
With the economic stabilization, the inflation under control and the reduction in interest rates in Brazil, the per capita consumption grew a lot in the last years, pushing up retail sales. Together these factors made the search for new spaces in shopping centers grow. The growth in demand for spaces and the limited offer of additional GLA, given the reduction in the number of inaugurations in the past years, created a lack of GLA in the sector. Consequently, we observed a reduction in the industry’s vacancy level, which reached a historical low of 2.04% in 2011, according to ABRASCE.
In Brazil, shopping centers attract consumers not only for their stores, but also diversified services into a single location, parking spaces and air conditioning. The sense of security and protection against tropical rains during the Christmas shopping season (when retail sales peak in Brazil), are some of the reasons why growth in malls’ sales is bigger than the growth in retail sales in Brazil. As a result, the participation of malls’ sales in total retail sales is growing, and reached 18.3% in 2012, which is still low when compared to countries such as USA and France, in which malls’ sales represent more than 50% of total retail sales.
The growth in the mall sector has also na important role in the country’s economy, generating many jobs and helping in the development of small communities through social works. In 2012, the sector offered 877 thousand jobs.
The mall industry is also very important in the development of small and medium cities. Although the majority of malls are located in big cities, in the last five years there has been a tendency to invest in malls in these smaller cities. The developments in these cities have a different format, they are smaller and their public is the population that lives nearby.
Another observed tendency is that of enhancing the malls’ social functions, offering several kinds of services and leisure and cultural activities. According to ABRASCE, in 2009 only 37% of consumers mentioned shopping as the main reason to visit malls, the rest of consumers are attracted by other services. The chart below shows the main reasons cited by consumers for visiting shopping centers:
For 2012, Abrasce predicts an increse of 47 new malls in the whole country, indicating a healthy growth for the sector in Brazil.