As the Brazilian economy continues to grow, the logistical warehouse sector is seeing unprecedented growth. Not even the slowdown in the Brazilian economy, including GDP growth of a meager 1 percent in 2012, is slowing the demand for warehouse space in Brazil.
In the last 20 years, more than 30 million Brazilians have left the base of the economic pyramid and entered the middle class. These individuals have dramatically affected the Brazilian economy like never before, buying everything from perfumes and household appliances to their first automobile.
Additionally, Brazil’s low unemployment rate — 5.6 percent as of July 2013 — and increased purchasing power due to rising incomes, as well as its population demographics, paint a positive picture and imply that this consumption activity will remain strong. Approximately two-thirds of the country’s population, about 131 million people, is between the ages of 15 and 64, representing the most economically productive age group. This segment now has the ability to start middle-class families and purchase goods, providing enormous opportunities for businesses in the coming years.
Investments on the Rise
All of these factors directly affect the demand for logistics parks, as companies look for better and more efficient ways to serve this increased demand from their customers. This need has not gone unnoticed, as funds and global investors from around the world have cited tremendous potential in developing the Brazilian market. Global players such as Global Logistic Properties (GLP), Hines, Prologis and GTIS Partners have contributed to the supply of warehouse space that serves companies looking to streamline their operations, providing them with strategic locations, modern and efficient structures and adequate storage space to eventually distribute their goods.
Logistics parks and new industrial areas are constantly being developed along federal and state highways in Brazil. According to recent Jones Lang LaSalle research, the current inventory of industrial and warehouse space is expected to more than double in the next five years, to approximately 28 million square meters (more than 301 million square feet).
Sao Paulo and Rio de Janeiro will be the recipients of more than 70 percent of the new warehouse space, but other regions also are garnering strong interest. Some of the nation’s most recently developed logistics parks are in the southern and northeastern parts of the country. In the northeast, the region surrounding Suape Port, an international port in Pernambuco, features developments by GL Empreendimentos and Moura Dubeaux, while Hemisfério Sul Investimentos and Capital Realty have developments in the Curitiba region of Parana as well as in Fortaleza, the state capital of Ceará.
Logistics parks are becoming popular in Brazil because they offer an attractive alternative to companies that do not want or need to maintain a single-occupant warehouse. They offer advantages such as reduced real estate and maintenance costs while also providing convenience, security and the flexibility to expand or contract operations by simply adding or reducing the number of modules the company leases.
Companies looking to lease space in a logistics park should carefully consider the location, floor plan layout, clear height and security as well as highway tolls when making their real estate decisions. They often can save time and money and address operational challenges by hiring experienced industrial real estate consultants, who can provide strategic counsel, offer a number of potential alternatives and negotiate favorable terms with the landlord. Companies also should keep in mind that — unlike in the U.S. — the infrastructure and transportation system in some regions of Brazil is not very developed, so finding qualified workers able to access the sites can be difficult. Some firms even transport workers from the city to their warehouses. In addition, companies must take security issues into account when making real estate decisions — like whether they want to store expensive products in a Class A warehouse located next to a favela (shantytown).
Lastly, companies considering leasing logistics park space should understand that lease contracts in Brazil are very different from those in the United States, where lease payments usually are set for several years and cannot be readjusted until the contract expires. A typical lease in Brazil allows tenants and landlords to readjust their lease payments to market rates every three years upon request. This can be beneficial to either the landlord or tenant, depending on the market cycle.
U.S. lease contracts are difficult, if not impossible, to terminate. Tenants who break their leases in the U.S. usually have to pay hefty termination penalties. Brazilian lease law, however, is much more tenant friendly. The typical lease, which is governed by the “Lei de Inquilinato” or tenancy law, allows a tenant to terminate the lease at any time simply by giving short notice and paying a relatively small penalty. As a result, Brazilian landlords — in an effort to minimize the risk of having their tenants vacate the space — typically do not offer tenant improvement allowances in their lease agreements. With this in mind, a build-to-suit lease that includes heavy penalties for early termination and holds rental values in place for the duration of the contract has become popular with landlords in Brazil, although it is considered atypical there.