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A Good Time to Invest in Latin American Logistics Assets?

5 MIN READJune 23, 2020

Invest in Latin American Logistics Assets?
Short answer: Yes, but with Caution 

The light industrial and logistics sectors have been growing in the last years in Latin America. COVID-19 has most certainly accelerated its growth and although the region is undergoing a crisis, this asset class presents opportunities for funds and developers.

There are many firms encountering liquidity problems, and are using a sale-and-lease-back scheme to increase their wallet. That is where institutional investors will find opportunities helping out those with financing issues. There is a possibility of portfolios being put on sale and there are also tenants and users that are in need of liquidity. These opportunities generated by the pandemic will create more competition in the market, racing next to Amazon and Mercado Libre, and looking to up their infrastructure. The real estate sector will have to help the retail sector adapt and survive this crisis. 

But, although there will be opportunities ahead, right now there are no transactions being made. Members expect more distress and willing sellers to appear later on, but there is a heed of caution from leaders: each country and market is in a different phase of e-commerce adoption, and therefore must be analyzed thoroughly. 

Light and Logistics in LATAM: Not all Markets are the Same 

E-commerce started to enter the Latin American region in 2015 with Amazon in Mexico. Although MercadoLibre was already operating in Mexico for the past 15 years, when Amazon entered the game, it changed the rules of the game in deliveries. Amazon started with books and videos, but when it introduced Prime, the obstacles in the Mexican market began to clear. Then with the telecommunication reform, more obstacles were lifted as more people had access to internet connection. Payment platforms grew more robust, and the e-commerce expansion began to further expand into medium cities, followed by small cities in its third phase. The fourth phase of the expansion will be to increase the services offered and decrease the delivery times in the last mile. 
Brazil is undergoing a similar transformation, but it is behind two to four years behind. Amazon has just entered the market and this will push other players to compete.

The COVID Effect and LATAM’s Response 

The logistics sector has not stopped during the pandemic, nevertheless it has decelerated due to the closing of the borders throughout Latin America. There has been a change in how products are handled and distributed in the region. 
  • In Mexico, the pandemic has obligated many consumers to use online sources for the first time and now that they have had a taste of the efficiency and convenience, there will be no going back. Nevertheless, not all logistic assets are for e-commerce. The next few months we will see a higher pull in demand and it will push for better logistics infrastructure and to boost the entire supply chain. 
  • Sales in Brazil, Uruguay and Argentina have increased their online channels and have multiplied four or five times what was sold before COVID. Nobody was prepared to handle this spike in demand. Many industries had to instantly increase their production as demand also reached levels not seen before. The explosion of the online world in Latin America will push for the need for more last mile assets in the region, which it was also not prepared to provide. Members agreed that although there are warehouse and industrial spaces in the region, last mile assets are a completely different animal and have their own complexities. 
  • As for the Central American and the Caribbean market, players had prepared for this trend with land banks that would provide them with more space to develop in the future. Players believe that this will increase competition in Central America as clients demand for more m². Colombia has also seen an increase in e-commerce demand and is preparing to tackle the new demand. 

What are Tenants Looking For? 

Real estate players will have to understand the true needs of retailers and develop products according to demand. At the moment many countries experienced a boom in consumer demand, but this will stabilize, especially due to the economic crisis. Retailers will look for projects closer to city areas where the m² are more expensive. Developers and investors will also need to innovate and get creative with brownfield developments and retrofitting to create successful products. 

Land is one of the most important challenges for developers in this sector. The lack of available and usable land for logistics assets near to cities will test developers’ creativity and ability to adapt. The most important thing is that it will allow for more cost efficiency to have a large quantity of trucks going in and out of the distribution center. A prime location must be near a central artery of the city, with access to sub-arteries that will facilitate distribution. 

Although multi-story projects are rising in various US cities, LatAm cities are not quite ready for these types of assets. The design however will start changing drastically to adapt technology and more efficiency. The markets are accustomed to horizontal distribution, but as spaces are reduced in size, developers will need to explore technology for vertical distribution and smaller spaces. Players share that in LatAm there have been more requests for build-to-suit assets, with more detailed requirements including larger racks, but with robots. Latin American countries are evolving at different rates, and it is important to adapt to each. Regardless, technology will be vital in every step of the way, as well as infrastructure which is a hurdle for the entire region. 

This conversation was part of our GRI LATAM eMeeting:
La Nueva Era Logística: ¿Cómo han evolucionado los sectores inmobiliarios latinoamericanos para adoptar e-commerce? Some of the leaders that participated in the discussion were: Luis Gutiérrez G (Prologis), Alfredo J. Rizo (TERRANUM), Juan Lucas Vega (Grupo Éxito), Eduardo Guemez (Walton Street Capital), Aida Michelle Ureña De Maduro (Azofrap).
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