Latin America, Mexico Hotspots for International Investors

Latin America is certainly piquing interest from investors, judging from the crowd of over 200 attendees at Jones Lang LaSalle Inc.’s Latin American Capital Markets Perspective conference, held this morning at the Jumeirah Essex House in Manhattan. “The proportion of (foreign) investment was 25 percent in 2002, was up to 45 percent last year and is increasing rapidly,” said Colin Dyer, the company’s president & CEO, at the start of the panel discussion.Mexico has been a large part of the region’s growth, pointed out Pedro Azcue, president & CEO of Jones Lang LaSalle’s Latin America region, who noted that the country has been a pioneer in key modernization, shares elements with the Brazil-Russia-India-China model of emerging economies and is a unique space due to its geographical location, economy and political environment. The company has reported that total investment in Mexico last year rose a record 129 percent to $3.1 billion, up from $1.4 billion in 2006. Cross-border transactions in Mexico also vaulted year-over-year to $2.9 billion, a 161 percent increase over 2006’s $1.1 billion. And out of last year’s $43 billion in foreign direct investment into Mexico, $4 billion was directed to real estate. Manual Zapata, chief investment strategist for LaSalle Investment Management in Mexico, discussed the country’s solid fundamentals, which include: a downward inflation trend since 1995, currently trending at 3.8 percent; a stable exchange rate with modest depreciation; downward country risk; compressing cap rates; a modest deficit of 1 percent of the country’s gross domestic product; stable GDP and employment growth; increasing retail sales; and a decent growth of business investment. And this growth is accelerated in all sectors, due to its close proximity to the United States, its reinvestment in commodity imports and favorable economics and demographics, added Hector Klerian (pictured), executive vice president of Jones Lang LaSalle Mexico. “We’re right next to the world’s largest economy and taking advantage of it,” he said. Industrial has been seeing steady growth, especially in the aerospace, automotive, electronics and logistics industries. “As conditions become more difficult in the U.S., it’s a competitive advantage (for an industrial company) to move to Mexico,” Klerian said. Cap rates have declined from 11.5 percent in 2004 to approximately 7.5 percent last year. Overall, the office market now boasts 3.6 million square feet of product, roughly the sizes of Boston and Miami’s office market. Mexico has experienced a sharp decline in vacancy rates, and rent yields are approximately 8 percent, which is above such yields in the U.S. and Europe. A lack in quality office space also offers opportunities in some submarkets, but there is also a dearth of development sites, as many are family-owned and few decide to sell. Cap rates have compressed from 12 percent in 2004 to 8 percent this year. == Retail is also on the rise, with consumer spending rising 9.6 percent in 2007. Retailers are now embarking on aggressive expansion, and international retailers want to establish themselves in the country. Wal-Mart alone accounts for 25 percent of Mexican retail spending, Klerian noted. Cap rates have declined from 15 percent in 2002 to 8 percent in 2007.== As the eighth most popular tourist destination, Mexico remains the center of hotel development in the Latin American region. Occupancy has stabilized, and 80 percent of investors are into the hospitality market for the long haul. “Very few look to sell,” Klerian noted. And investment is estimated to surpass $1.1 billion in 2009, already growing over 1,000 percent since 2000. Residential is suffering a housing shortage, with between 4 and 6 million extra homes needed now and an additional 20 million over the next 20 year. “There’s acute demand with high employee migration,” Klerian said. And this would be an ideal sector for an investor, as the market is not crowded, he added. Despite Mexico’s growth, there are still challenges to investment, Klerian was quick to point out. These include: a limited number of development sites, especially because of family ownership; the cultural gap between buyers and sellers; a new tax regime; and the increased amount of work it takes to get a deal done. He noted that it is important to have a local contact, as it is difficult for investor to do a deal out of New York, Germany and elsewhere. == The conference also included discussion about Brazil and regional Latin American and Caribbean markets like Argentina, Panama, Costa Rica and Chile.