Will Latin America’s Commercial Real Estate Market Rise From the Ashes?

Depreciation, nearshoring, and call centers have a lot to do with the resurgence of a sector that was pummeled during the pandemic

Latin America’s Commercial Real Estate Market is Rising From the Ashes
August 22, 2023 | 11:43 AM

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Bogotá — Latin America’s commercial real estate market has faced an uphill battle since it was rattled by the coronavirus pandemic and governments’ quarantine measures. The first signs of recovery appeared only in 2022, although rising interest rates and inflation are presenting additional barriers.

Between the first quarters of 2020 and 2021, unlet space rose by 1.034 million square meters across the region, according to figures provided by the commercial real estate services firm JLL.

The uptick in 2022, driven by markets like São Paulo, Mexico City, Bogotá, and Medellín, took place despite external shocks and the reluctance of some companies and their employees to return to work in-person.

“At the end of 2021 and the beginning of 2022, the office rental segment in Latin America began to show signs of incipient recovery, as most markets started to see indicators improve. This trend continues into 2023,” stated Guido Ariel Mosin, JLL’s Research Director, in an interview with Bloomberg Línea.


While the availability and inauguration of new offices stabilized, halting their decline, lost ground is yet to be regained, while important questions hover over the future of the business. The return to in-person work, project reconfigurations and new labor demands are making it hard to plan ahead and return to historical occupancy levels.

Real estate management firm MTS Consultoría told Bloomberg Línea that Latin America “is currently going through a crucial moment in the real estate cycle, a post-pandemic recovery. It has experienced growth over the few last years but also challenges related to economic and political instability, varying levels of infrastructure development, and market volatilities.”

The firm says there are few new projects under development, and that consumers in Latin America are more cautious when making investment decisions in countries like Chile, Colombia, or Peru. However, MTS believes there are special cases like Monterrey, Mexico City, and São Paulo, where the development of corporate projects has remained consistent.


“Historically, countries like Brazil, Mexico, Colombia, and Chile have had very active commercial real estate markets due to their economies and attractiveness for foreign investment. Lima and Santiago have increased their inventory and have entered the real estate rankings in recent years,” they noted.

From Mexico to Buenos Aires: How the Office Business is Shifting

JLL pointed out a particular dynamic that is unfolding in Buenos Aires, where companies are investing in real estate to safeguard their capital amid the country’s deteriorating economic situation, as well as restrictions to access and operate freely in the foreign exchange market.

In such a dollarized market, this allows companies to navigate macroeconomic risks (currency depreciation, inability to repatriate dividends, etc.). In the last two years, operations worth more than $500 million have been registered, an historically anomalous occurrence for a market traditionally focused on rentals.

In general, capital cities have recorded positive demand levels in the past year, with Mexico and Brazil leading the way in terms of demand for square meters, according to real estate investment firm Colliers. Demand has been driven mainly by coworking companies, call centers, and the technology sector.

The growth of inventories has primarily focused on the premium segment, indicating companies’ focus on high-spec spaces to generate efficiencies. Mexico, for example, is also influenced by the nearshoring phenomenon, which is perceived as a source of sustained demand for corporate office space in the coming years.

Furthermore, in markets like Colombia and Peru, the office market is being propelled by companies engaged in business process outsourcing (BPO), which has become a significant factor of demand in corporate building occupancy.

The regional trend reflects a gradual recovery in occupancy levels after a period of mandatory lockdowns between 2020 and 2021, when availability rates reached more than 20%, Colliers said.


What Impact Do New Employment Dynamics Have on Urban Configuration?

The office market is being reconfigured in the region not only due to the remote work boom but also as a response to each market’s economic conditions and organizational efficiency needs.

“New employment dynamics have led to changes in the geographical distribution of the population. If more people work from home or have flexible schedules, they opt to live in suburban areas or smaller cities instead of concentrating in the urban center. This can have effects on population density and housing demand in different parts of cities,” analyzed MTS Consultoría.

Some of the main changes resulting from this new urban configuration involve reduced demand for assets in densely populated urban centers, increased valuation of outdoor spaces, suburban areas, decreased use of public transportation, and the growthof new forms of individual mobility (such as bicycles and electric scooters).

Additionally, there is a reconfiguration of public spaces, such as using sidewalks or pathways as part of the rentable area for commercial premises. These trends are causing cities to “analyze and adapt new labor norms and expectations,” reflected JLL’s Research Director.


If companies allow their employees to work remotely from home more frequently, the demand for traditional office spaces could decrease. Therefore, it’s essential to provide the necessary conditions for a gradual return to offices for employees.

MTS Consultoría

The characteristics specific to each market and the degree of adaptability to the new employment dynamics have varied in the region. While hybrid and remote work was widely implemented in cities that already had high-quality and fast internet, as well as suitable housing infrastructure for this type of work (Buenos Aires, São Paulo, Santiago, Mexico City), in other cities in the region, the adoption did not ocurr at the same pace.

For example, Mosin added that in cities where internet services are still deficient (such as Santa Cruz de la Sierra and Asunción, to name a few), the impact of remote work was smaller during the pandemic. Consequently, high levels of in-person work continued, and the job market continued to follow historical patterns.

As a result, “in these cities, social changes have been of a smaller scale or have not been sustained over time, so they have not warranted extensive reconfiguration so far.”


Which Segments are Gaining Momentum in the Commercial Real Estate Business?

In markets where new work modalities have found more fertile ground, Colliers highlights a latent need for more and better spaces that facilitate collaborative work, such as meeting rooms, concentration areas, and recreational spaces. Recently inaugurated buildings and future projects are focusing on high specifications oriented toward collaborative spaces.

This phenomenon, referred to as the “flight to quality,” is also reflected in a greater emphasis on factors like location, technical specifications, environmental certifications, and internal space distribution.

The JLL analyst adds that while the group of companies demanding new office spaces, thus anticipating an expansion of their operations, has been limited in recent times, there are some winners who have revitalized the market by demonstrating industry growth.


“These include laboratories, which, for example, remain active in Buenos Aires, as they are a relevant sector for the local economy and have grown as a result of the pandemic,” he noted.

On the other hand, there is evidence that companies in the consumer goods sector have seized opportunities to improve their facilities, making transactions in quality buildings at contract values lower than historical averages. The same seems to be happening in sectors like financial services, retail, technology, legal services, among others, in Latin America.

What are the Major Challenges Associated with the Office Business in LatAm and What are its Prospects?

The outlook for the office market in Latin America is not entirely clear, and markets with availability rates exceeding 20% suggest that there are still occupancy opportunities in existing properties due to a decrease in the number of new projects and construction permits for the coming years.


This has been negatively affected not only by the rise in interest rates resulting from increased inflation but also by higher land acquisition prices, creating barriers for both the consolidation of new projects and the completion of those already in progress.

Another factor is the development of new properties with higher construction costs due to adverse macroeconomic conditions in the region.

In this context, it is expected that in 2024, the dynamics in Latin America will be driven by investment funds, which, according to JJL, “traditionally conduct most transactions in markets with greater depth.” They continue to be very active in the region, seeking opportunities in markets like Mexico and Chile.


However, it is anticipated that most Latin American markets will remain conditioned, not only by endogenous factors but also by exogenous situations since “many of the companies that demand or could potentially demand and, therefore, absorb significant areas in the future, originate from other latitudes.”

“Thus, the growth of these markets depends not only on each country’s specific characteristics but also on a global context that inevitably impacts the region sooner or later. Furthermore, some uncertainties inherent to the business persist since it is yet to be determined whether companies will reduce, preserve, or expand their office space,” concluded the JJL analyst.

MTS Consultoría’s projections indicate that cities like São Paulo, Mexico City, and Santiago in Chile will have a constant demand for office space from financial institutions, multinational companies, and service firms. As the technology industry grows in the region, cities like Bogotá, Medellín, and Buenos Aires could experience an increase in demand for office space from tech companies, startups, and BPO.

In countries like Costa Rica and Panama, most investment comes from abroad, particularly in the luxury hotel and residential sector. Sectors such as tourism, contact centers, or medical device manufacturing are expected to continue their interesting growth dynamics in 2024.