Colombia. A recent study indicated that only 21.28% of buyers (individuals) acquire a residential property with the aim of investing, while 78.72% do so with the purpose of living in it, data from the Haus. This is why it is important to know the panorama of the investment real estate sector, to prepare for the challenges that 2023 brings.
Before explaining this panorama, it is worth noting that real estate investments are recovering, however, in 2022 there was a fall of 12 percentage points compared to the investment preferences registered in 2021, when the real estate was positioned with 45% with respect to other opportunities such as businesses and financial investment products (data from the newspaper La República). Colliers International explains that this is due to uncertainty about the capital market and global events that affect the world economy such as the pandemic, the war in Ukraine and inflation in the US. UU, which have been relevant when investing in the real estate sector
Felipe Becerra, Director of Innovation and Market Intelligence of Colliers International Colombia states, "inflation caused central banks to increase their interest rates, thus creating pressures on currencies, thus affecting consumption, which can translate into future challenges for the retail segment."
Given the rise in interest rates, a lack of liquidity has been generated in the real estate market, as the different actors face expensive leverage figures, preventing the expansion of their investment portfolios.
In turn, investors or investment funds that acquired assets in a leveraged manner have been affected by this increase, as a result of this situation, investors are looking for liquidity with the sale of some of their properties.
Currently, the offer of stabilized properties with excellent characteristics has increased, which represents interesting opportunities for those who want to venture into this market. These new assets available in the market are striking for those investors who have a capital structure with less debt, because about 5 to 10 years ago, finding this type of stabilized assets in the sector were unlikely.
Investors who are interested in the corporate real estate market should bear in mind that these types of investments are long-term, as they are low-liquidity assets with stable profitability over time.
How are the corporate segments to invest in?
Colliers International explains that the uncertainty in the market has generated that corporate segments such as industrial, retail and offices face the following challenges and opportunities during the year:
● Industrial: the outlook for this type of assets is quite positive, close to one million m2 have been occupied, which indicates that there is a dynamic that responds mainly to e-commerce during 2021 and an increase in space for logistics operators. So it is evident that there is a favorable change for the trade balance, and there is an investment opportunity for foreign companies.
This applies especially in regions such as Barranquilla or Cali, which are strategic cities for importing and exporting companies, emphasizing that Nearshoring strategies (practice in which a company moves its commercial and manufacturing activities to a country near or near the destination market or the final consumer) have allowed a greater demand for spaces in free zones and logistics corridors.
Given the high levels of debt and construction costs, BTS (custom constructions) have slowed down and this has generated a repressed demand. For the medium term, the configuration of new industrial and logistics projects can be expected, given that this segment is in the consolidation stage, which represents an opportunity for those investors who have capital and liquidity to develop.
● Retail: according to DANE, GDP grew by 7.5%, compared to this and consequently better consumption, we can see that the availability rate takes a downward trend and consolidates at the end of the year at 5.7% nationwide.
Taking into account the global political and macroeconomic landscape, where there are inflationary pressures, there is a possibility that there is a deterioration in household consumption, so sales may fall, having a negative impact on the occupation of commercial spaces.
However, operators and managers of shopping centers have made strategic decisions in the face of an eventual fall in consumption, within these decisions it can be seen that the last three years the mix of tenants has been reconfigured to diversify user traffic.
Within the offer of investment assets are properties of this segment in consolidated locations with attractive returns, which additionally offer a variable income depending on the sales generated by their tenants.
● Offices: currently the availability rate at the national level is 10.61%. In the last year there is no substantial decrease in the availability rate, however, this does not respond only to the fact that there are releases of space, but to the entry of new corporate projects that when entering with average occupancy levels of 60% conclude in a greater supply of spaces, which infers is a positive behavior.
One of the main challenges facing this industry is that in the current economic situation, companies tend to decrease their working capital temporarily and then expand again.
This means that the demand for space may be slowed down in the short and medium term because of the above. However, it cannot be demerited that the hybrid and remote work models that occurred during the pandemic, have begun to show a change towards face-to-face attendance, both in peripheral areas and in the business centers of the main cities, this becomes more evident if we see the net absorption of the year 2022 that reached 120,000 m2.
As in the retail segment, in the offer of real estate assets you can find properties with good contractual and profitability characteristics in Premium locations within the Central Business District, something that a couple of years ago was unlikely to achieve.
Due to different challenges such as inflation and debt costs, the three segments (offices, retail, industrial), have not been able to build new projects, so in the long term it is expected that the supply of current inventory will decrease, increasing rental prices that in turn will translate into an increase in income for investors.
"It is clear that there are opportunities for the real estate sector during 2023, but you really have to see everything from a positive perspective and improvement in the short term because each challenge can generate a result that favors investment," concludes Juliana Vásquez Cañizares, Senior Investment Consultant at Colliers International.
It should not be lost sight of the fact that the real estate market is an investment focused on the long term, so in macroeconomic moments such as those raised it can be an opportunity to enter this type of investment:
- Higher interest rates positively impact discount rates, which, from a financial model, can represent decreases in asset valuations.
- The leases of the properties have a natural coverage to inflation, so the income will maintain its value over time.
- In the face of cycles of uncertainty in the political and macroeconomic markets, the advice of an expert is always recommended to identify the variables that may impact the investments to be made, and in this way ensure the best investment in accordance with the objectives and profile of the investor.
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