RELÁTORIO ANUAL 2015

The Brazilian Mall Sector

ABOUT BRMALLS

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 early 90's, when the pace 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, in addition to the 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.

The number of malls grew very fast until the year 2000, when the sector reached a total of 281 malls. Despite the returns over investment, 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 decrease in the 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.

By 2006, the sector was once again facing a favorable scenario. Foreign real estate and local investors were attracted by improved macroeconomics and better market funding conditions.

Over time, the number of malls increased: if we compare the total number of malls in 2000 (281) and 2014, there was a 91.4% growth. By the end of 2015, there were 538 malls in Brazil.

Nowadays we observe a slowdown in developments and inaugurations in the sector. It has become increasingly hard for new players to venture in the sector amidst the challenging macroeconomic scenario, high inflation and interest rate. New players that lack the experience and expertise struggled to lease their new projects and, especially in 2014, we observed projects opening with high vacancy rates.

Nowadays we observe a slowdown in developments and inaugurations in the sector. It has become increasingly hard for new players to venture in the sector amidst the challenging macroeconomic scenario, high inflation and interest rate. New players that lack the experience and expertise struggled to lease their new projects and, especially in 2014, we observed projects opening with high vacancy rates.

Number of Shopping Malls in Brazil

Number of Shopping Malls in Brazil

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. The 4 main Brazilian players hold approximately a 20% market share. From 2006 to 2015 the shopping center sector grew 95.7% in terms of GLA, representing 18.9% of the national retail and 2.6% of Brazil's GDP.

Growth of total GLA in Brazil's Shopping Mall Sector

Growth of total GLA in Brazil's Shopping Mall Sector

Even though the total gross leasable area grew 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.

The total Gross leasable area for the sector, is divided geographically in the following manner: 54.3% in the Southeast region, region with the country's largest GDP; 16.7% in the South region; 14.9% in the Northeast region; 9.3% in the Middle - West region; and 4.8% in the North region.

GLA per region in Brazil

GLA per 1,000 inhabitants (m²)

GLA per 1,000 inhabitants (m²)

GLA per 1,000 inhabitants (m²)

In a more detailed analysis, approximately 35.1% of the total GLA lies in the State of São Paulo and 11.7% in the State of Rio de Janeiro, which are historically the States with solid economical basis and higher demographic concentration.

Together with the growth in the number of malls came the growth in its sales. The mall industry's total sales tripled from 2006 to 2015, as shown below:

Sales Growth in Malls

Sales Growth in Malls

Throughout the years, Brazil reached its economic stability, controlled inflation levels and a reduction in interest rates. Therefore, there was an increase in consumption with the rise of the middle class driving the increase in retail sales.

Sales growth of Retail / Shopping Malls BRMALLS

Sales growth of Retail / Shopping Malls BRMALLS

Brazilian shopping centers attract consumers not only for their stores, but also for the wide range of services in a single location, parking spaces and air conditioning. The sense of security and protection against tropical rains during the Christmas shopping season (the peak of retail sales 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, reaching 18.9% in 2015, which is still low when compared to countries such as Canada and USA, in which malls' sales represent more than 50% of total retail sales.

% of Retail Sales in Shopping Malls

% of Retail Sales in Shopping Malls

The growth in the mall sector also has an important role in the country's economy, generating many jobs and helping the development of small communities through social works. In 2014, the sector offered more than one million jobs, an increase of 5.5% over 2014.

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 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 a wide range of services as well as leisure and cultural activities. According to Alshop, in 2014 only 40% 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:

Main reasons cited by consumers for visiting shopping centers

Motivos que levam os consumidores aos Shoppings no Brasil