2017 has been a good year for the Costa Rica real estate market, with aggressive expansion from companies like Amazon and Convergys positioning the country high in the Nearshore rankings.
Thanks primarily to the country’s strong human talent and large bilingual labor force (approximately 20,000 bilingual graduates per year), Costa Rica has already attracted over 200 multinational companies – more than any other Central American country.
The question is, what is this growth doing to the local commercial real estate market in terms of availability and cost?
Expansion, Expansion, Expansion
With such a large influx of companies, you’d expect real estate availability to diminish, where in fact there is still a national 8-9% vacancy rate, according to John Kartman, Owner of Kartman & Associates and a commercial real estate consultant based out of San Jose.
This rate has remained stable over the last few years and is allowing companies that already operate in the country to continue expanding on a regular basis.
“Most of the companies that I have worked with in Costa Rica have expanded, expanded, and expanded,” he said. “Very few companies leave the country — around 1-2% — as the majority stay and continue to expand here.”
Kartman has been operating in the industry for over 25 years and was a key collaborator in the original arrival of Amazon, Experian, and Convergys, as well as assisting in IBM’s site consolidation and Hewlett-Packard’s lease renewals.
“When I first entered the Costa Rica real estate market there were only two office complexes, but now there are around 25-30,” he said. “Sure, there was an initial boom of new arrivals, but now there are more expansions than market entrants.”
Prices, Benefits, and Options
Costa Rica real estate prices run from US$18 to US$24 per square meter. While this is not the cheapest in the world, it is certainly not the most expensive either – if you go to nearby Panama, for example, you’ll face higher rates.
When it comes to purchasing land, it’s possible for a company to purchase a green site and create their own free zone, but that’s a US$2 million investment for a 7 year ownership. There are also a variety of permitting and environmental studies to be done beforehand, so companies are heading straight into existing free zone parks, which provide a number of benefits.
“Normally, companies would enter a free zone that has space to expand and the park operators would build them a new building — this is by far the simplest and quickest way to get space and approvals,” said Kartman.
Like anywhere, there is some bureaucracy in the process of expansion of market entry. Once the permits have been applied for and filled out, companies have to bring a minimum investment of US$200,000 to operate in an existing free trade zone. Also, anything over 5,000 to 10,000 square meters has to be built from scratch, as many of the parks don’t yet have the buildings.
Continuous Free Zone Growth
The main free zone parks are continuously expanding to meet demand. America Free Zone in Heredia, for example, is constructing another new building that is rumored to be for Amazon. Ultra Park II, also in Heredia, has just constructed a brand new building of 15,000 square meters.
The facilities themselves are top quality and are constructed as offices buildings, not refurbished warehouses, according to Kartman. The locations that are best suited to shared services centers and back offices are Heredia, San Antonio, Santa Ana, and Escazú, which tends to have more expensive facilities due to higher land values.
Costa Rica real estate development group Garnier & Garnier has been operating the La Lima Free Zone and Business Park in Cartago since December 2014. La Lima covers 79 hectares (195 acres) and is an ongoing development with lots of space for new companies.
Garnier & Garnier also has a successful project called El Cafetal in Belén, Heredia, which is primarily leased to Citibank, Deloitte, and 3M. El Cafetal is expected to have four buildings with a combined total of 40.510 m2 (434969.6 sq ft) of office space constructed by 2020.
Limited Downsides and Bright Future
Despite the attractiveness of great labor, modern facilities, and reasonable prices, Costa Rica still suffers from poor roads, which chokes the country with traffic problems.
Even so, the benefits far outweigh this issue, with excellent telecommunications from the underground cables on both sides of the coast, half a dozen internet providers, a dependable and affordable electric service, and the Costa Rican colon has remained very stable against the dollar.
When you assess these clear benefits, it’s understandable why many companies are setting up their Latin American headquarters in Costa Rica. Walmart, for example, is the largest employer in Costa Rica right now because of their Central America back office HQ.
If the ongoing development of free zone parks can continue to match the growth rate of commercial expansion, it’s highly unlikely that real estate availability will diminish in the next 3-5 years.