IT’S IN THE DETAILS
Changing regulations, market conditions, and an evolving economic climate are forcing Real Estate companies to change strategies on a yearly basis; especially since each of the country's cities have their own nuances.
We continue to work for energy and oil entities, as well as consumer goods companies. In addition, our clients include advertising agencies and marketing services agencies, as well as pharmaceuticals companies. This diversity of clients represents a major transition from the past, and over the past year we have undertaken three large projects for state entities. As you may know, our government has been ready to channel more tax revenues—themselves on the rise in a more vibrant economy—to state investment. Most of our work remains in Bogota, catering to foreign investors requiring office space upon entry to the country. Meanwhile, local companies are expanding because business is brisk. These companies need either more space, or else to optimize existing space.
In Colombia, companies located within free zones take out insurance with European or American companies, which demand strict precautions against the risk of fire. Fire safety regulations did not always exist, and the requirements initially came from insurance companies, rather than through regulations. Then in 2010, with the NSR-10, the government required all installations and buildings in Colombia to have fire protection. Hydrocarbon services are our second biggest market. We have worked with main players in the Oil & Gas industry installing fire protection systems for crude oil storage facilities. We are now trying to expand our business in the free zones where we have a pronounced advantage as industrial users of such zones. This allows us to favorably import most of our items (fire pumps, accessories, pipes, and other items) from the US, Spain, or China.
The free trade zones have had an impact on the real estate market, especially with regard to warehouses. Flex warehouses, which can be used as an office and a warehouse have become popular. In 2013, three or four office buildings became LEED-certified. Now we have many buildings that hold this certification. This makes Colombia more competitive within the wider Latin American region. The resources being used in those buildings make them more efficient. They do not use that much energy, and we obviously do not use heating, just air conditioning. Now we have less space so rents are rising again. We have so many offices that I thought rents would be stabilizing, but this is not the case. We are looking at office spaces that are $32 to $48/sqm a month. In terms of retail properties, we have numerous shopping malls where rents can be around $100 to $300/sqm each month.
The world and the global economy have changed significantly, and you have to swiftly adapt to things. Our success is going to lie in adapting to changes in the global economy, adapting to the world buyer, and staying ahead of the curve. The most obvious investors would be from the US and Spain, solely due to their knowledge of the Colombian market. Currently, we are working with American investors and for subsequent phases we will be looking towards Europe as well. Colombia is enjoying greater international prominence because of its openness to investment. Tourism is the most rapidly growing industry in Colombia, with new hotels having opened in Cartagena such as the Four Seasons or the Marriott. Investors are ever seeking fresh opportunities and markets, and especially when considering Cartagena's proximity to the US it becomes an obvious choice as an investment address.
Pension funds are a source of equity, which we use to buy long-term land, which we develop for them. I believe we are the only fund in Colombia buying land with pension fund capital, and we have done well thus far. Other funds in Colombia mostly operate with foreign or private equity. This has been a complicated process, but we are happy with the outcome, and are launching another fund this year. We have already invested the $25 million generated from the first fund, and want to increase the volume of the new one. In Barranquilla and Cartagena, we are currently in the planning stages for four projects. We anticipate these areas accounting for a significant proportion of our business within five years. New land will be bought with the fund, which allows us to co-invest. Our company equity goes into funding the land, and we leverage the fund for the actual purchase.
Middle class housing projects are what we expect to be growing in. This is quite challenging because we are designing small apartment units of about 60-70 sqm each. The units are sold here in Bogotá and although quite small, we design spacious recreational areas. The vocational housing is mostly located a 1 to 1.5-hour drive from a major city. Such projects are possible because of economic growth, and as a result of infrastructure improvements. In terms of transport, we are also interested in the Tren de cercanias project running from Fontibon through Bogotá to Zipaquirá. It is a metro style train, but a modern variation. If ConConcreto is awarded the contract, we will be there to design the stations. There is also much to do in terms of hospital design, and this, too, represents a great growth opportunity.
The real state sector in Colombia has witnessed a dynamic and vertiginous valorization process over the past few years, which has led to some questions on the causes behind this phenomenon, such as why prices have increased well above the average of previous years. However, we are not worried about this process, because if we look back to the year 2000, there was also an accelerated rise in prices and the risks of the buyers were latent and ultimately problematic. This was due to the high interests rates. Banking interest rates at one point surpassed 35-40%. Nowadays, interest rates are tightly controlled. The purchasing power of Colombian families during that time was much lower than it is today. According to the World Bank, the purchasing power of the middle class in the country has increased by 50% over the past 10 years.
Bogotá is decelerating somewhat. Despite the previous boom, developers are waiting to complete projects until they have a buyer. Even in the industrial parks around Bogotá, there has been business growth, but short of the level of supply. Barranquilla is seeing an important trend. In addition to what is happening in real estate, the market it also been driven by the city's infrastructure, including roads and bridges and so on. The trend is for industrial property and shopping centers in Barranquilla, but there are certain zoning issues to content with. The next shopping center to be opened in Colombia will be in Barranquilla, and will be realized shortly soon, and is likely to perform strongly. Cali, too, is a significant market. The general cycle goes from oversupply to low prices to high demand, low supply, and then high prices. We are starting to decline in Bogotá, Medellín, and Barranquilla, while Cali—that had seen administrative and security-related delays—is now looking to perform strongly. There is demand for significant important projects such as the World Trade Center.
IT’S IN THE DETAILS
TABLE OF CONTENTS
Interview
María Claudia Páez, Executive Chairman, Cámara de Comercio de Cartagena
TBY talks to María Claudia Páez, Executive Chairman of Cámara de Comercio de Cartagena, on developing international partnerships, what to expect from new development projects, and helping local business succeed in the global market place.
read articleInterview
Juan Pablo Córdoba Garcés, President, Bolsa de Valores de Colombia
TBY talks to, Juan Pablo Córdoba Garcés, President, Bolsa de Valores de Colombia, on investment strategies in the context of depressed commodity prices, and efforts to foster the right conditions for institutional and private investors in the country.
read articleInterview
Alberto Samuel Yohai, President, Colombian Chamber of Information Technology and Telecommunications
TBY talks to Alberto Samuel Yohai, President of the Colombian Chamber of Information Technology and Telecommunications, on the organization's role in the ICT sector, coordinating with the Ministry of ICT, and important developments in the sector.
read articleFocus: INTERNET OF THINGS
Life is a Highway
During times of unpredictable fluctuations in commodity and energy prices in Latin America and the world's emerging markets, awareness is growing about the potential of the ongoing technological revolution known as the Internet of Things (IoT), or most recently, the Internet of Everything (IoE), as a clear pathway to future development and gains in efficiency.
read articleFocus: Magdalena River Concession
The General in His Labyrinth
The River Magdalena is scheduled for a grand transformation, this infrastructural project will not only change the entire dynamic of trade domestically in Colombia, but the $1 billion megaproject will also determine how the country trades internationally.
read articleInterview
Luis Fernando Andrade Moreno, President, Agencia Nacional de Infraestructura (ANI)
TBY talks to Luis Fernando Andrade Moreno, President of Agencia Nacional de Infraestructura (ANI), on the interplay between politics and economics, 4G projects, and important new regulatory developments.
read articleFocus: Construction 4G
Can’t Stop, Won’t Stop
The pledge to improve the country's roads and intercity infrastructure was one of the most important promises made during Santos' re-election campaign. Vice-President Germán Vargas Lleras has been a force of nature in moving forward with the contracts.
read articleInterview
Aurelio Iragorri Valencia, Minister , Agriculture and Rural Development
TBY talks to Aurelio Iragorri Valencia, Minister of Agriculture and Rural Development, on integrating rural farmers into the national economy, regional disparities, and the recent success of Colombian agricultural exports.
read articleInterview
Olaf Hektoen, Director of Latin America, Yara International ASA
TBY talks to Olaf Hektoen, Director of Latin America (with the exception of Brazil) for Yara International ASA, on corporate restructuring, increasing productivity and profitability for farmers, and improving financing in the sector.
read articleColumn
Francisco De Paula Gómez, Executive President of Corporate Information, Association of Pharmaceutical Laboratories Research and Development (AFIDRO)
TBY talks to Francisco De Paula Gómez, Executive President of Corporate Information, Association of Pharmaceutical Laboratories Research and Development (AFIDRO), on clinical trials.
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Iván Enrique Ramos Calderón, Rector, Universidad del Valle
TBY Talks to Iván Enrique Ramos Calderón, Rector of Universidad del Valle, on pushing into new areas of research, development collaborations with the automotive sector, and creating a learinging environment for students.
read articleInterview
Rosalba Montoya Pereira, Andean Regional Director, Manpower Group
TBY talks to Rosalba Montoya Pereira, Andean Regional Director of Manpower Group, on their international mergers, putting the right people in the right positions, and the importance of diversity in the workplace.
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