While Brazil is considered the economic and real estate powerhouse of Latin America, Peru’s star is rising among corporate occupiers seeking to establish a presence in the region, according to Navigating Emerging Markets, a new white paper released by real estate services firm Cushman & Wakefield.
The report evaluated 43 countries in Latin America, Africa, the Middle East and the Asia-Pacific region on six risk factors to determine the suitability of each market for corporation expansion. The considerations included the impact on total occupancy costs; quality of ownership; transparency of property rights and land use; investment in infrastructure; healthy and safety of employees; and level of corruption.
“Peru has rapidly made it to the top of the list for occupiers looking to expand in South America,” said John Santora, president and chief executive of corporate occupier and investor services at the firm. “The country’s business-friendly government has opened up trade and supported foreign and domestic corporate expansion.” Citing the World Bank’s Ease of Doing Business Ranking, Cushman & Wakefield noted that Peru ranked 43 out of 185 countries, compared with 130 for Brazil.
“While Brazil continues to be one of the most sought-after countries in Latin America, the nation’s recent economic slowdown and political turmoil is expected to negatively impact demand in the commercial officer market,” the report said. In fact, “the recent unrest in Brazil has benefited the occupier market in Peru.” Corporate leasing activity already has slowed in the major office markets of Rio de Janeiro and São Paulo, and filling the new inventory scheduled to come online is expected to be a challenge, as that supply currently is only 30 percent pre-leased.
Peru also ranked highest among the Latin America countries profiled in the report in terms of economic growth, achieving 6.3 percent year-over-year GDP growth in 2012, compared with 0.9 percent growth for Brazil. “Although small, strengthening demographics, a willingness to be transparent and recent strong economic performance has made Peru a force in the LatAm economy,” the paper said. Peru has a GDP of $199.5 billion, compared to Brazil’s GDP of $2.26 trillion. The report ranked Colombia, with GDP growth of 4 percent and an ease of doing business ranking of 45, as second to Peru in its growth prospects for corporate occupiers in Latin America.
“Peru presents a pretty compelling alternative,” said Rick Cleveland, managing director of research and strategy of corporate occupier and investors services, in an interview with PERE. “Both the government and the business environment are very friendly, and it’s a lot more economical as well.”
Prime office rent in Lima, Peru’s main office market, during the first quarter was $19 per square meter per month, compared with $65 per square meter in Rio de Janeiro and $61 per square meter in São Paulo, according to the white paper.
Asking rents in Peru was up nearly 3 percent year-over-year, with that growth anticipated to continue over the next 12 months, even as new supply is added to the market. Last year, 109,000 square meters of new inventory hit the Lima market, the most in the last six years, according to Cushman & Wakefield. Peru has one of the smallest office markets in Latin America, with 1.13 million square meters of space, compared with 10.8 million in Brazil.
Limited real estate supply is an issue that affects all of Latin America’s countries, although the challenge is more pronounced in smaller markets such as Peru. “Even with the available inventory that’s out there, there’s only a small segment of that inventory that is modern enough to be able to handle corporations’ demands,” said Cleveland. And “from an infrastructure standpoint and a space and efficiency standpoint, the inventory can get even smaller.”