How FDI Drives the Sophistication of the Office Market in Latin America

For more than three decades, foreign direct investment (FDI) has been positioned at the center of economic and social development in Latin America. 

Benefits such as the creation of hundreds of thousands of high-quality direct and indirect jobs, the transfer of knowledge, the adoption of technologies and stronger production links with local companies are just some of the benefits that FDI has helped generate in the region.

During the last decade, annual FDI inflows into the Latin American and Caribbean region have averaged around US$175 billion. This figure is made up of both greenfield FDI (investments for the establishment of new operations) and brownfield FDI (reinvestments for the growth and expansion of operations already established in the different countries). This reinforces the solid overall performance of the companies that have made the decision to establish operations in the region.

Despite the closeness and apparent homogeneity between many countries in the region, the differences between each country have allowed the development of various levels of specialization

The region offers these companies a series of tax incentives and qualitative benefits in order to attract and retain these investments in the long term. Factors like fiscal benefits, geographic proximity to key markets, customers and suppliers in nearby countries, cultural compatibility, multilingualism, low-cost competitiveness and solid tech-connectivity, have been some of the main attractions of the countries in the area. 

Moreover, despite the closeness and apparent homogeneity between many countries in the region, the differences between each country have allowed the development of various levels of specialization in the performed operations, which has resulted in the ability to serve multiple types of operations, markets and customer profiles, boosting the competitive advantages offered by each country.

Specifically in the office-using operations of corporate services, several countries in the region – Costa Rica, Panama, Mexico, Colombia and Chile in particular – have been solidly positioned for the establishment of global shared service centers, contact centers, headquarters, cybersecurity centers, research and development centers, automation centers, and others. 

These operations are located at different levels of the global value chains and have different levels of sophistication, which are covered throughout the Latin American region. This has allowed the establishment, development and expansion of operations of multiple renowned Fortune 500 companies in various sectors including pharma, life sciences, high technology, banking and finance, mass consumption, food and beverages, software development, BPOs, financial and administrative services.

These multinational corporations are characterized by having a series of strict parameters and requirements in relation to their real estate transactions. Over the years, this has led to a gradual but constant sophistication and development of the corporate office market in the region. The increase in the positioning that the region has achieved in the different global value chains has delivered a positive impact on the development of the office real estate market in the different countries.

Benefits such as the creation of hundreds of thousands of high-quality direct and indirect jobs, the adoption of technologies and stronger production links with local companies are just some of the benefits that FDI has helped generate in the region

Currently, the total real estate office supply of premium, class A+ and A buildings in the Latin American region exceeds 25 million square meters. In countries such as Costa Rica, Panama, Mexico, Colombia and Chile, more than 50% of said inventory corresponds to spaces aimed at FDI-related multinational companies, which shows that the highly-sophisticated segment of the market is mostly focused on these companies. In line with this, global standards in terms of real estate requirements have come to sophisticate the office market in the region, leading developers to generate world-class projects that can host operations of this profile of companies in the long term.

Aspects such as state-of-the-art technical and electromechanical features, redundancy and redundancy of electricity and telecom, high efficiencies floorplans, layouts and footprints, environmental sustainability initiatives and certifications, wellness practices, work-related and leisure-related amenities on site and in the surroundings and strategic locations for talent attractions and retention are highly-demanded practices by these companies and have become must-have standards for corporate developments in the region.

Likewise, the continuous improvement that these companies seek and promote also entails the need for constant reinvestment in corporate projects in the region, in order to be up-to-date, in terms of said requirements. This implies a series of important challenges and attention areas, both for developers and investors of new projects, seeking to generate efficient, innovative, and differentiated real estate products, but also for landlords of corporate office real estate, which must design strategic reinvestment plans in their corporate real estate assets that ensure their profitability and long-term positioning.

The strategic positioning of the region represents an opportunity to continue attracting companies for the long term

In line with this progress, the growing and popular Nearshore trend that has been driven even further by the current pandemic, would lead to a greater number of companies analyzing the establishment of operations in Latin America, given the strategic positioning of the region and representing an opportunity to continue attracting companies for the long term. 

This generates a series of opportunities for the region’s countries to continue attracting foreign companies that generate the creation of direct and indirect high-quality jobs, promote the transfer of knowledge, allow the importation and adoption of modern digital technologies that strengthen productive chains with local companies and that continue to enhance the development of corporate real estate in the region.