Our View of the Latin American Real Estate Market in 2023/4

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An improvement is expected in 2023 in the real estate indicators for the region, mainly the offices. Hybrid and plug and -play will continue to be the trend. There will also be an increase in stability and availability of rental properties, as well as a positive absorption. In the case of industry, there will be a continuation of healthy inertia along with an optimistic projection.

According to the 2023 Outlook of the real estate markets, compiled by Newmark Latin America. This analysis highlights that Argentina, Colombia, Brazil, Costa Rica, Colombia, Chile, Peru, Panama and Mexico are expected to continue their strong performance in the industrial sector.
Below are the outlooks for 2023 by country.
Real estate market
Tenants who prefer transactions of fly-to-quality are likely to favour the 2023 office market indicators due to stability in rental rates and availability, with a downward tendency and positive absorption. In Buenos Aires, there will be a shift in the concentration of production of offices away from some parts of the CBD zone and towards the north of the city.

In the industrial sector, the indicators indicate a healthy inertia and an optimistic development projection. The availability is decreasing, while the rental prices are stable. Indeed, the exponential rise of e-commerce has positively strengthened demand. Therefore, a shortage of warehouses is expected due to low new stock levels and high demand.

The Innovation Park project is the most important one. It aims to position itself as a city centre promoting innovation, knowledge, science, technology and attraction in Buenos Aires. It also aims at promoting academic activities such as teaching, research and entrepreneurship that will result in the creation and development of new knowledge, companies, employment and an economic, cultural and social impact on the city.

Economic Outlook for Investment
As a result, a record number of transactions are expected in the real estate market due to an investment environment centred on local players. The inflationary rate, and lack of financial vehicles for protecting savings by individuals and companies, will also contribute to this. Economic sectors with high growth potential include BPOs, mass consumption (foods, cleaning products, personal hygiene), and software development. Argentina also has eight unicorns that have a regional or international presence. The current trend in replacing Peronsist candidates with progressive candidates is building up steam before the upcoming elections, which will be very positive for the economy and will encourage foreign investment. Also, the current high levels of immigration from Europe escaping the war in Ukraine is bringing in new money.

Real estate market
Offices are expected to be pretty active at the end of 2022, with the lowest number of vacancies in the last two years. Fueled by the economic recovery, a renewed sense of confidence is expected to contribute to a sustained recovery in the real estate sector by 2023. The new government’s decisions may affect the business environment and slow the dynamics.

Even though online sales will be down in early 2022, the industrial sector remains dynamic. This is what drives the expectations of the industry for the months ahead. Sao Paulo, for example, has a significant amount of inventory. It is close to two million square meters. However, there is little risk of oversupply.

Economic Outlook for Investment
2023 has a tendency to be better than 2020. As inflation stabilises, there is a general expectation that interest rates will gradually decrease. Real Estate Investment Funds, such as REITs or FIBRAs (similar in Mexico to REITs) could use this opportunity to raise capital.

Investors will be attracted to the recovering office market in Sao Paulo. The busy industrial market and logistics sector is expected to remain the main focus for investors.

Real estate market
The industrial market is expected to continue having a very low availability rate by 2023 due to the low supply of inventory and the high demand for warehouse space by logistics clients. To manage high construction costs, industrial developers are concentrating on BTS. They do not speculate much. Aside from that, free zones await tax reform in 2023. It is a request for companies in the free zone to meet the export requirement of a minimum percentage.

It is predicted that the price of office space will continue to increase due to the limited availability of representative offices in buildings A andA+. Due to the lack of inventory and decrease in constructed areas in the top buildings, it is expected that demand will increase for areas between 300 m2 and 6 000 m2. There will be an increase in office space available for sale.

Economic Outlook for Investment
To have an income and profit that is stable in the future, the investment funds see the dynamic in the warehouses in Class A industrial parks and are therefore looking to develop BTS under contracts of a minimum 8 to 10-year duration.

On the other side, funds are cautious in starting new projects. The new inventory being developed is largely a continuation of projects in which the second and third stages have been completed. Real estate investment is one of the few markets resilient to inflationary impacts. They are therefore positioned as a safe market for their long-term profitability, diversification to minimize risk, and the forecasted rise in rental income due to inflation.

In 2023 the economy will grow if the sectors of government, construction and infrastructure, tourism and hotels, and leisure continue to be active. In contrast, manufacturing, mining, utilities and other sectors will reduce their activity. The construction sector is expected to grow well, with civil works dominating the growth. However, housing construction will remain low.

Costa Rica
Real estate market
A slow reactivation and downward pressure of rental prices are expected in the corporate sector. Two short-term tendencies are also identified: the consolidation of the plug-and-play model and the adaptation of workspaces to meet the needs and new trends of the modern office. On the industrial front, the demand for developing the Life Science Industry and consolidating the Build to Suit (BTS model) stand out. In response, we have seen the first projects outside Greater Metropolitan Areas (GAM) and a significant migration towards industrial buildings with higher efficiency.

Economic Outlook for Investment
Costa Rica’s educational system and political and economic stability make it unique. Add to this its strategic position and the Free Zones Law, making it a very appealing destination for investment. In the real estate sector, companies that manage investment funds are improving the conditions of properties within their portfolios, leveraging the high level of unemployment. Most foreign investment is in the luxury hotels and residential sectors on the North and Central Pacific coastlines. In 2023, sectors like tourism, medical device manufacturing or contact centres are expected to maintain their growth dynamics.

Real estate market
In the office sector, we expect companies to continue returning to corporate offices. This will reduce office space availability, currently at around 12% as of the end of 2022. Demand, on the other hand, will be centred mainly between 400 and 800 m2.

In the industrial sector, large surfaces will continue to be limited availability for companies. The demand that has been high in the last 18 months will likely stabilize to pre-pandemic levels. This demand has a positive impact on product development.

Economic Outlook for Investment
The Chilean market protects investors from inflation because rents are fixed in UF. The devaluation of the currency and the interest rate are other factors that make Chile a good investment.

Energy, especially companies involved with renewable energy initiatives, is the economic sector with the most promising growth prospects. Demand for office spaces has also increased, especially from startups and technology companies. The mining sector, in particular lithium, is a potential growth area.

Real estate market
The industrial sector of this country is dominated by the need for warehouses and production facilities. The consolidation of BTS has been a trend in this country, as it was in Costa Rica. The office market is attractive because of the increased demand from multinationals that exploit lower income levels. Panama Pacifico’s projects of over 280 thousand square meters and the Tocumen Multimodal Cargo Zone of 75 thousand square metres are just two examples of how large the projects are currently being developed.

Economic Outlook for Investment
Panama’s legislative framework encourages new investments. Law 41, Free Zones Law, EMMA Law, SEM Law for Headquarters of Multinational Companies, EMMA Law for Manufacturing Companies, and Law 41 for Panama Pacifico all provide the country’s rules for a competitive investment environment for domestic and international investors. Most foreign investments in this country are due to consumer and telecom industry acquisitions. Corporacion Favorita (which has made strategic investments in Rey and America Mobile Supermarkets) and Liberty are two examples. It is important to not overlook sectors like logistics, mining and finance. These are expected to grow rapidly by 2023.

Real estate market
A reduction in availability, from 30% to 20%, has shown a promising development for the corporate sector towards 2022. As the hybrid work model consolidates, the design of offices will change to promote efficiency.

The industrial market has seen a significant increase in warehouses located within urban areas. The supply of industrial space in Lima is growing, especially to the south. Moreover, it is expected that the income level will increase. In Peru, major infrastructure projects are being developed.

Economic Outlook for Investment
In an environment of constant political polarization, it is true that the Peruvian Market has significant strengths that encourage investments. This constant growth in the country during the last decade is an example. International assets are also protected at the constitutional level.

Also, some sectors of the economy are expected to grow well. Most notable are accommodation and restaurant, which is favoured by a reactivated tourism sector, an extension of opening hours and flexibility in capacity, transport, storage and messenger, which is boosted by the dynamism and recovery of domestic air travel and domestic land transport services, and agriculture, livestock, and forestry, where the increase in exports and domestically-oriented crops help to grow the sector.

Real estate market
Mexico’s office markets have shown significant improvement since the beginning of 2022. A positive outlook is projected for 2023. Rents are still relatively low but not falling. Renters will also continue benefiting from the favourable market for several years.

This country has experienced a boom in the industrial sector. Rental prices continue to rise even though availability rates were never so low. The shortage of industrial space in 2023 will affect most markets. This is because not all the demands can be satisfied.

Mexico has many infrastructure projects. The Mayan train, the Interoceanic corridor, and the Tultepec Felipe Angeles Airport Highway are all projects that aim to improve the interconnection between different parts of Mexico.

Economic Outlook for Investment
Mexico is an economy with a network of free-trade agreements that guarantees access to the international market. Many sectors offer high investment potential. Investors can find great opportunities in industries such as automobile parts, machinery, chemicals and electronics. The industrial sector is a good example of this. PGIM, for instance, has invested 169.3 million dollars in 3 portfolios at multiple locations in the country.

The following sectors have recovered their production levels before the pandemic: manufacturing, wholesale, health, social care, and professional, technical, and scientific services. As the economy’s largest sector, the manufacturing industry has played a major role in the recovery. The growth rate has remained almost constant since the third quarter of 2020. The fifth-largest economic sector and about 9% share of the GDP is wholesale trade. It was among the sectors that suffered the most contraction in 2020.

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

The Gateway Team – When You are Serious About Property


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