Latin America’s real estate sector is expected to be neutral in 2023, as a weaker economic environment in some countries of the region and the potential recession in U.S. may partially impact the sector fundamentals, according to Fitch Ratings.
Elevated inflation, adverse financial conditions and policy uncertainty may also curb growth, the rating agency said in its Latin American Real Estate Outlook 2023 report published earlier this month. Fitch forecasts regional GDP growth of 2.4% in 2023, following estimated 3.7% recovery in 2022 and 9.2% 2021.
Real estate segments have mixed growth prospects in 2023. Industrial warehouses in Mexico linked to exports continue to have high demand, as do commercial/retail spaces linked to domestic markets. Near-shoring is an important opportunity for Mexico, Fitch said.
In the 2023 base case scenario, Fitch expects issuers in the industrial subsector to post mid-single-digit revenue and EBITDA growth, once the segment is more connected to the international market and exposed to the risk of slow global economic growth in 2023.
The shopping mall sector should consolidate issuers’ recoveries throughout 2023. For the LatAm office market, Fitch expects this segment will continue to face a challenging environment and to have the slowest recovery in terms of occupancy rates and rents, which will go beyond 2023.
A full recovery will likely take another 18–24 months.
Meanwhile, a global slowdown, tightening external financing conditions, dollar strength, and some weakening of commodity prices will challenge Latin America’s economic prospects in 2023. Despite the economic slowdown, Fitch Ratings believes that proactive monetary policy tightening, lower inflation, steady and adequate external buffers, prevalence of flexible exchange rates and stronger-than-expected fiscal performance in 2022 will help countries to navigate increasingly challenging global conditions.
That said, over the past few years, Latin American real estate credit profiles experienced minimal credit risk and rating deterioration, supported by strong beginning balance sheets, healthy capital access and stable net operating income, the agency concludes.