Global Corporations Expanding into Emerging Markets Need to Assess Real Estate Risks

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Cushman & Wakefield today released a comprehensive white paper entitled “Navigating Emerging Markets” that indentifies six considerations for determining the suitability of 43 countries in implementing expansion strategies. Corporate occupiers need to evaluate the ease in which day-to-day business operations will be conducted when even leading markets such as Brazil are experiencing rising political, social and economic concerns. An interactive version of the report is available at the following link:

Navigating Emerging Markets

Given the potential for both significant growth opportunities as well as the risk of instability in emerging markets, corporations must weigh their true occupancy cost in analyzing location opportunities. Costs can be impacted by a poor health and safety environment as well as the transparency of property rights and the level of corruption. Additional considerations include evaluating the quality of ownership with the professional experience, knowledge and financial capital for an occupier to partner with as well as the quality of a market’s broader infrastructure such as roads, schools and hospitals.

"Brazil has been a top market for attracting foreign capital to the real estate sector, having made significant progress over the last decade in terms of the quality of its infrastructure,” said Carlo Sant’ Albano, Executive Chairman of Cushman & Wakefield. New office inventory delivered across Brazil’s major cities in 2013 will exceed 2011 and 2012 levels combined.

However, the nation’s recent economic slowdown is expected to negatively impact the commercial office market. Rio de Janeiro and Sao Paulo, which boast some of the highest rents in the global market with prime office space leasing for up to $65 per square meter/month, have already seen a pullback in corporate leasing activity and the market is expected to struggle over the next few years to fill the new inventory scheduled to come on-line, which at this point stands at only 30% pre-leased.

“Peru tops the list for corporations looking to gain a foothold in Latin America”, added John Santora, President & Chief Executive Officer, Corporate Occupier & Investor Services for Cushman & Wakefield.

Asking rents in Lima hover around $19 per square meter/month. Peru is also one of the most business friendly emerging markets according to the World Bank’s Ease of Doing Business (EODB) ranking, with positive long term prospects and expected real GDP growth of 6.5% in 2013.

Risks and opportunities abound in other regions as well. In Asia-Pacific, the highest rents are in Myanmar and Mongolia due to the high costs of developing and operating in markets where there is inadequate infrastructure. However, occupiers will need to mitigate real estate risks in developing markets such as in Africa, which presents a significant consumer demographic opportunity arising for multinationals with 16 of the top 20 global countries in the world for population growth.