Positive Boom

How would you assess the current growth of the construction and real estate sectors in Colombia?

We have to differentiate between segments of the construction sector. For example, the housing segment is clearly experiencing a very positive boom in all echelons of society, especially in Colombia’s so called “strata” 5 and 6, where prices are growing very rapidly. Strata 4, meaning the middle class, is a segment in full swing and still establishing itself as a key social player of significance to the housing market. Regarding the lower strata, government-led programs are also driving housing market development. Meanwhile, the situation in the office, industrial, and logistics segments is essentially the same; the construction of infrastructure and new units in these segments is currently seeing excellent growth. For example, the stock of office space in Bogotá—1.6 million sqm—is twice what it was back in 2008, and we predict that it will grow by more than 50% in the next five years, reaching 2.5 million sqm. All in all, we can attribute this to Colombia being a new market in an emerging economy. The situation described above is the one we are experiencing right now in Medellí­n and Bogotá, while in other cities like Bucaramanga, Cali, and Barranquilla we are observing these trends, too. As per logistics and industrial real estate, Colombia is not an industrial country per se, except Medellí­n and Bogotá, even though the latter is more a traditional logistics and distribution center. Finally, the retail segment is slowly emerging thanks to the increasing participation of Chilean companies.

In your opinion, what infrastructure projects does Bogotá require today?

I think that in terms of corporate solutions, Bogotá needs office blocks with a single owner, as this structure is almost non-existent here. Multinational companies require an average of 700 sqm of quality office space, and Bogotá cannot meet this demand today because most of the buildings are condo-type properties with many different owners owning smaller office suites. Ideally, these offices should be located in strata 6, as this area represents more than 70% of the city’s current quality office stock. Also, I think over the next few years we might see interesting office and business projects moving outside the business center of Bogotá, which should contribute to the development of other outlying areas of the city.

What are the needs of other Colombian cities like Cali, Barranquilla, or Medellí­n?

Medellí­n is a market that also attracts the commercial offices of multinational companies that in most cases also have operations in Bogota. I would say Medellí­n is an interesting market due to the fact that it is a big city with its own economic engine. And regarding the other two cities, as well as Cartagena, I believe they will benefit from the free trade agreements (FTAs) the country has signed, with special emphasis on the industrial sector. Bogotá and Medellí­n will benefit more from the FTAs from a logistics and distribution point of view. We will start seeing the results of the FTAs during 2014 and 2015, because it takes companies an average of between two and five years from the signing of an agreement to commence operations in the related countries.

Is Colombian construction and real estate prone to the emergence of a real estate bubble?

I think this is a booming sector in Colombia’s economy and that perhaps there is already a real estate bubble today; however, if this exists, it does not reflect what happened in certain European markets like Spain. Perhaps certain cities and segments suffer from a lag in delivering completed infrastructure originating from the pre-sale financing structure that dominates the Colombian market. I also think that Barranquilla might be experiencing a speculation wave regarding prices of housing units in strata 5 and 6 due to the general belief that the city will become a major economic engine for the country and see massive growth over the coming years. This is certainly boosting sales of housing units by people keen to lease later on when the growth wave hits the city.

Which real estate products are most attractive for institutional investors and what opportunities does the construction sector offer in Colombia?

Real estate assets here have mostly fragmented ownerships and therefore there are very few assets that can generate appetite from institutional investors. They have to focus on the financing to develop new projects, but local developers are keep financing their projects through pre-sales to smaller investors. This structure offers very few risks, because construction commences only once the property is financed, and never before. This is slowly changing as the pre-sale financing structure for commercial developments is expected to come to an end within the next few years. Institutional and foreign investors will soon get more opportunities on their desks.

Since the hospitality sector in Colombia is one of the most attractive in the region, what are your expectations for the development of the Caribbean area of Colombia?

Colombia’s Caribbean area features Cartagena, Barranquilla, and Santa Marta, an area of 300 kilometers of coast. Cartagena is a very attractive tourism destination with strong maritime port infrastructure, and it has a large industrial and logistics potential. Barranquilla is traditionally an industrial city that has been growing rapidly over the past few years. Barranquilla is the third-most important maritime port in Colombia followed by Santa Marta; the latter is a smaller city and therefore the size of projects are also smaller, with lower expectations for future industrial growth. However, the entire area is also consolidating itself as a very attractive tourism destination.

What led to the arrival of Jones Lang LaSalle in Colombia?

We arrived here in 2000 and ever since have been expanding our operations in the country. At the moment, we number over 50 employees, when a year ago we were 40. Our future expectations are also highly positive; Colombia has six cities with over 1 million inhabitants and Bogotá accounts for a quarter of national GDP. This is interesting when compared to other cities such as Santiago, Lima, or Buenos Aires, which account for over half of their respective countries’ economic output. Colombia is an emerging economy that offers interesting potential, because so much remains to be done.

How does Jones Lang LaSalle differentiate itself from its rivals in the industry?

When large multinationals like Citibank, Microsoft, or Adidas look to outsource the management of their real estate portfolios, we are one of the only two companies in the world capable of offering them the right solutions. Our focus is on offering worldwide coverage and we are 100% Jones Lang LaSalle, exclusively operating everywhere with our own offices rather than through franchises. Therefore, we have more coherent processes and a more global vision than our competitors.

© The Business Year – February 2014