Mexico Violence Also Assaults Commercial Success
MEXICO CITY—As violence wracks most towns
in Mexico, including the capital Mexico
City and affluent Monterrey, there is still
commercial real estate activity. However,
most firms acknowledge the drug gang violence is having an impact on investor and
corporate tenant interest. About 35,000
people have reportedly been killed in drug-related violence since 2006.
In September, both Home Depot and
vacancy rate in Monterrey was at 3%, push-
ing developers to build new properties. The
recession hit the country hard, however,
and the vacancy rate is now closer to 20%.
“We saw late last year and early this
200,000 square feet.”
Emerging Americas Markets Outpace US Growth
Commercial real estate transaction activity in the Americas has
increased following a drop-off generated by the 2008-2009 recession. Growth is projected to continue in the near future—albeit
at slower rates than during 2010 and early 2011—with robust
activity in developing economies but comparatively slower growth
in more developed nations.
The United States currently dominates the
Americas CRE market in terms of transaction
flow and capital market capabilities; however,
following the 2008-
2009 recession and
emergence of Latin
American countries as the Americas’ growth
engine, investor interest in Brazil and Mexico
has increased. Brazil will likely continue to
attract investors as it develops its capital markets and increases regulatory transparency. Canada’s economic
recovery has outpaced the US, and its well-developed and transparent capital markets make CRE opportunities attractive to investors.
However, the US remains the most mature commercial property
market and should continue to experience increased investments.
Gradual economic recovery and increased capital availability
have resulted in favorable price discovery, cap rate compression
and increased transaction activity. In 2010, transaction volume rose
130.9% year-over-year to $135.7 billion, led by the US, which
accounted for 82.9% of the total, according to Real Capital
Analytics. While year-over-year investment volume grew in Canada
(192.5%) and Brazil (243.2%), it declined in Mexico (-12.3%).
Office CBD markets reported the highest sales volume as investors targeted core properties in gateway markets. Further, cap rates
By Robert T. O’Brien
market. In Canada, cap rates were stable, as the financial system was
relatively less affected by the recession. For the remainder of 2011,
growth in the Americas overall will likely continue, although perhaps at a slower pace, due to higher inflation in emerging economies and slow GDP growth in developed economies.
More developed markets such as the US have mature financial systems which offer varied financing options. In contrast,
emerging markets such as Mexico rely heavily on traditional
sources (banks and equity issuances) to meet their funding
requirements. However, increased investor interest in Brazil and
Mexico resulted in government efforts there to develop alternative CRE financing sources, such as Certificates of Real Estate
Receivables (a form of mortgage-backed securities) and Capital
Development Certificates (trust securities with variable returns
linked to the underlying assets of the trust). Given the Americas’
anticipated high capital flows, the US and Canada are likely to
see a recovery in structured financing and Latin America is
expected to continue to deepen its capital markets.
The US is currently experiencing a rapid, but uneven, recovery. Canadian commercial real estate has performed relatively
well through the downturn and into the subsequent recovery
due to conservative lending practices and stronger economic
growth than in the US. Investor interest in Brazil and Mexico is
increasing and this trend is expected to continue, with further
development of their capital market capabilities. In addition,
Brazil’s CRE markets are expected to benefit from significant
infrastructure build-up associated with the 2014 FIFA World
Cup and 2016 Summer Olympics.
Robert T. O’Brien is a partner and vice chairman, US Real Estate Services
Leader, for Deloitte & Touche LLP in Chicago. He may be contacted at
email@example.com. The views expressed here are the author’s own.
Vital Signs...Asian countries saw almost double the office rent growth as the rest of the world, at 13.4% in Q2.—CBRE