An expansion by online retailers including Arezzo Industria & Comercio SA (ARZZ3) and Walmart.com is causing warehouse space in Brazil to double in size, luring foreign investors from Prologis Inc. (PLD) to Goodman Group. (GMG)
Prologis, based in San Francisco, joined Brazil’s Cyrela Commercial Properties SA in building warehouses to lease to Walmart.com and others. Singapore’s Global Logistic Properties Ltd. (GLP) is increasing the size of its existing distribution centers by almost 100 percent, and Australia’s Goodman Group is adding four sites in Rio de Janeiro and Sao Paulo.
A surge in online shopping is straining Brazil’s warehouse capacity, spurring the push for wider distribution networks. Rio de Janeiro-based B2W Cia Digital (BTOW3), whose 2010 and 2011 holiday orders faltered when it shipped from Sao Paulo, is adding at least 10 warehouses in different states by 2015, echoing efforts such as Walmart.com’s use of 42 distribution centers in the U.S.
“Five years ago, we started with one distribution center here in Barueri, and realized we needed to expand,” Flavio Dias, president of Wal-Mart Stores Inc.’s (WMT) Brazilian online sales, said in a telephone interview. “Given the size of Brazil, distribution needs to be more regionalized than centralized.”
Brazil is the fifth largest country in the world by land area, and its shoppers are migrating to the Internet as computers reach more households in a swelling middle class.
Online revenue is set to grow 20 percent this year to 34.7 billion reais ($15.3 billion), after rising 28 percent last year, Brazilian researcher E-bit estimates. That compares with an estimated 11 percent gain in the U.S. to $291 billion, according to research firm Forrester Research Inc.
AGV Logistica SA, which is owned by Tarpon Investimentos SA (TRPN3) and Equity International, the Chicago-based investment firm founded by billionaire Sam Zell, handles Arezzo’s logistics at its warehouse space in Cajamar, about 40 kilometers (25 miles) from downtown Sao Paulo.
The facility, which is owned by Prologis, houses rows and rows of stacked white shoe boxes for Arezzo’s Schutz line, and the company plans to start shipping its other brands from the center later this year, said Daniel Mello, manager of stored products at AGV.
“E-commerce has been a huge opportunity for us,” Hardy Milsch, Prologis’s Brazil country manager, said in an interview in Sao Paulo. Online shopping is “growing well above the pace of the economy in Brazil, obviously fueled by 40 million people who have been brought into the middle class.”
Prologis has 4 million square feet (372,000 square meters) in operation today in Brazil and 1.8 million square feet under construction, plus 3.3 million square feet in its land-bank.
Press officials for Cyrela Commercial Properties (CCPR3), Equity International, Goodman and Tarpon declined to comment in separate e-mails. Arezzo didn’t return a phone call requesting comment.
Demand for more distribution centers means warehouse space will have to double from 80 million square meters today, Milsch estimates. Older facilities are often inadequate for today’s needs, including spaces that aren’t tall enough or are too small to allow trucks to maneuver, he said.
Global Logistic Properties intends to be a “market leader” and is developing 1 million square meters of warehouses in Brazil, almost doubling its existing space, said Clarisse Etcheverry, director of development and new business in Brazil. The company has another 1 million square meters in the pipeline. GLP today announced that it raised an additional 538 million reais, bringing its investment capacity for Brazil to 2.6 billion reais, including leverage, according to a regulatory filing.
“The market has the potential to double over the next five years, but it probably won’t because these are big capital projects,” Etcheverry said by telephone. Each 1 million square meters of warehouse space requires an investment of about 1 billion reais, Etcheverry said.
Private-equity firm Patria Investimentos SA, which includes Blackstone Group LP among its investors, is seeking to start its third real-estate fund with investments including warehouses.
“Certainly, 30 percent of the new fund will be directed towards industrial and retail logistics,” said Helmut Fladt, a director at Sao Paulo-based Patria who works in the real estate division. “With the change of habits to buying online, demand has surged, so regardless of whether or not the economy grows, this movement is forcing stores to change.”
Still, a slowing economy probably will hinder investments, said Angela Di Franco, a partner at Sao Paulo-based Levy & Salomao Advogados. Brazil is estimated to have expanded 2.3 percent last year and to grow 2.1 percent in 2014, according to data compiled by Bloomberg.
“What we are seeing now is a reduction because of the economy, like all of Brazil is experiencing,” Di Franco said in a telephone interview. “Many times, deals aren’t closed because of a lack of investors.”
The dip in the economy isn’t scaring off Global Logistic or Prologis. Etcheverry said one of Global Logistic’s most recent projects near the international airport in Guarulhos attracted demand for three times what was built. Prologis’s occupancy rate is at 90 percent, Milsch said.
“An important point in our strategy here has been to build speculative buildings, building it without necessarily having a tenant signed,” Milsch said. “Demand has been very healthy.”
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