The Island of Enchantment Charms U.S. Retail Investors

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Puerto Rico’s white sand beaches and lush green rainforests have dubbed it the “Island of Enchantment” and today, the region is attracting more than just tourists to the Caribbean island. While investors have mainly targeted their capital toward Puerto Rican office and hotel product, they’re increasingly realizing the benefits of the island’s retail offerings. JLL’s latest report launched today at the ICSC Caribbean Conference, uncovers why Puerto Rico’s buoyant retail market and strong consumer base is increasingly appealing to U.S.-based investors.

“Right now private equity funds and developers eager to diversify their allocations should consider placing capital into Puerto Rico retail real estate. The island is ripe for opportunistic buyers seeking value-add assets that they can nab at higher cap rates, remerchandise, rebrand and take back out to market in seven to 10 years,” said Andy Carlson, Vice President of Retail, JLL. “Additionally, two tax incentive laws offered by the Puerto Rican Government, Acts 20 and 22, are catching on and making it a tax haven for investors.”

Retail Sales

Retail Sales Lift

Sales of retail goods in Puerto Rico reached a 10-year high in 2014, representing a nearly 12 percent increase from when sales bottomed out in 2010. In the first half of 2015, retail sales witnessed a three percent increase and are on pace to meet last year’s levels, resulting in more store openings than closings.

While retail sales are picking up pace, JLL found shoppers are heading to fewer establishments, targeting one-stop stores for all their buying needs. Retailers like Marshalls, Shoe Carnival, Forever 21, Zara and TJ Maxx, have entered the market or expanded their presence and are providing affordable goods, and increasing accessibility to a broader spectrum of the population.

Puerto Rican Culture Lends to Aspirational Shopping

“Puerto Rico is an entrepreneurial and consumer-based society, whether it’s operating a food truck or apparel store, to lemonade and pinchos stand, the local population takes business into its own hands,” added Carlson. More than 2,000 small businesses have been established in Puerto Rico during the past 12 months, driven in part by Law 545, which requires the government to purchase products and services from companies located within the island.

Puerto Rico’s culture has a tremendous impact on the Islander’s shopping habits and consumption levels. Nearly 70 percent of population lives in owner-occupied units, due to generational living, but only 14 percent of those units have mortgages, which mean there is more disposable income for consumer expenditures. This kind of living structure affords an aspirational shopper preference. Puerto Ricans tend to be brand conscious but also favor discount and value-oriented goods, which is why you’ll find that Macy’s, Marshalls, JC Penney, and Sears stores in Puerto Rico outpace mainland sales.

“There is limited retail product, with approximately 18 square feet per capita versus 40 square feet in the U.S., which is promoting an influx of national U.S. retailers to the market.  This adds stability and credit to shopping centers on the island,” added Vanessa Perez, Retail Associate, JLL. “While Puerto Rico’s economic situation isn’t ideal by any means,  plans currently in place to stabilize the economy should allow and enable the retail sector to weather the depths of the recession and move it forward in the long-term.”

For more information on the Puerto Rico market http://bit.ly/JLLPuertoRico

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