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6 ways the new Panama Canal is going to change the world

The key themes of this year’s World Economic Forum on Latin America may have been determined months ago, but “Opening Pathways for Shared Progress” couldn’t be more timely given current events and the outlook for the region. By resuming operations on the Panama Canal Expansion project earlier this year, we overcame a major hurdle to making headway on a project that will open pathways for global markets’ trade operations, improve supply chains, as well as connect Latin American economics to those a world away. While the Canal extends just 50 miles, the savings and benefits it opens for Latin America’s diverse markets extends far beyond.

Our research shows that the Canal expansion will double its throughput shipping capacity after completion in 2015 and make tremendous improvements to efficiencies in the global supply chain. Vessels three times the size of current Panamax ships will pass through on their ways between Asia and the United States, sharply increasing container volumes at port calls along the way. This will be particularly evident on Northeast Asia to U.S. Gulf and East coast shipping routes. Additionally, ports in Panama and the Caribbean where these ships stop and refuel will likely become more critical to the supply chains, functioning as “hub-and-spoke” type systems deploying cargo to both the U.S. and Latin America.

The real estate industry is already taking advantage of the ripe growth opportunities the Canal opens for local, regional and even global industrial markets. Panama’s real GDP growth was the highest in all of Latin America last year, making it a hotbed for infrastructure and construction spending to prepare for the increased shipping traffic. In 2013 alone, the spike in office demand triggered construction across Panama City, and speculation added 175,000 square meters to the city’s office supply.

Looking ahead at the impact of the Canal’s expansion, real estate research forecasts growth across Panama City’s office market. By 2016, 400,000 square meters will be added to the office supply, swelling the market by 47 percent. Already, vacancy rates have reached a staggering 37 percent and will pressure rents downward.

The Canal, and Panama City, is one pathway that opens shared progress by 2016. JLL’s research has identified five other cities, two other “emerging” and three “established”, that will also propel Latin America’s broad progress:

Joining Panama City, the two other emerging cities are:

  • Lima: we identified Lima as one of the world’s 20 “Most Dynamic Cities” earlier this year, thanks to its pro-business policies and, significant economic growth. The retail and office real estate markets are thriving and typically 80 percent leased before completion. There are another 200,000 square meters planned or under construction for delivery by 2016 and stock is forecasted to expand by 40 percent.
  • Bogota: the 4.5 percent speculative economic growth will continue driving office demand. Bogota is a magnet for foreign direct investment: 2013 levels increased 87 percent from the previous year to US$16.8 billion, 90 percent of which went to petroleum, hydrocarbons and mining – which will only increase in importance to the global and regional industrial markets with the Canal completion.

Serving as the foundation to support the three emerging cities’ growth are Latin America’s mature real estate markets, which also have promising forecasts:

  • Mexico City: office-using businesses will continue thriving in the region’s largest and most active office market. Mexico’s capital city will welcome the addition of 415,000 square meters of new offices in 2014 alone, equivalent to the volume of space that tenants soaked up last year.
  • Sao Paolo: today’s soft market conditions, coupled with rising inflation and an unpredictable economy, bode for enticing acquisition opportunities for foreign investors in the coming years. Sao Paolo boasts the highest per-capita GDP in the region and the second-largest office market, and will continue stable growth as cross-border capital flows into the city in the coming years.
  • Santiago: Chile’s capital city benefits from the low national unemployment, high wages and stable economic conditions. These factors create the city’s favorable business climate, which has more than 500,000 square meters, equivalent to nearly 20 percent of current inventory, of office construction due for completion by the time of the Canal’s expansion.

The Canal’s 50 mile-long stretch represents a pathway to global progress and connectivity. Strong investment opportunities in these six “propelling cities” serves as a mirror for pent-up anticipation around the globe. This is a new chapter in international commerce, starting in Latin America with the Canal’s completion and connecting business communities to advance economic progression.

Author: Zach Cheney is Director of Latin America Regional Operations for JLL.

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