Americas: Structural shifts shine a light on select geographies
Focusing on favourable developments in Brazil
In most cases, farmland investments are affected by factors such as rainfall amount and soil type. Brazilian farmland, however, has recently been affected by different factors: local political developments and global trade issues. While climate risks will continue to affect farmers, we believe current developments can potentially create opportunities — if investors know where to look.
We expect an acceleration in an already solid Brazilian farmland sector
Although Brazil’s economy has experienced slow growth in recent years, recent developments provide a spark of hope. The country has been enacting a series of economic and regulatory reforms that we believe will help boost overall economic growth that should provide meaningful benefits to the agricultural sector.
Brazil’s agricultural industry has long been a bright spot for that country’s economy. Brazil has been able to produce enormous volume and diversity of crops and has shown an impressive ability to increase productivity. Soybean production in Brazil, for example, has grown from 20 million tons to 120 million tons in the last 30 years. This sort of strength has helped Brazil sustain employment levels and the country’s trade balance. Our local farmland investment team in the region believes Brazilian farmland is well positioned for future growth and expects political reforms to help accelerate growth in Brazil’s agricultural production.
The growing U.S./China trade disputes have rattled global financial markets, but we think this sort of disruption can also create opportunities.
Brazil may be one of the few beneficiaries of the escalating global trade war
The growing U.S./China trade disputes have rattled global financial markets, but we think this sort of disruption can also create opportunities. Consider: As a result of higher tariffs and growing uncertainty, soybean prices fell in the U.S. in the second half of 2018, but actually climbed in South America and in Australia.
Trade disputes have meant that China has been reluctant or unable to import from the United States. This has provided a boon to Brazilian farmers. As shown in Figure 3, soybean prices have been falling in the U.S. while appreciating in Brazil, a trend that is benefiting Brazilian farmers and farmland investments in the country.
Americas real estate
Demographics, urbanization and technology: Key U.S. cities and sectors appear poised for growth
Cities with youthful populations tend to be more influential, enjoy greater productivity and stronger-than-average economic growth. According to the United Nations, more than half of the world’s population live in urban areas, and it is expected to rise to 68% by 2050. Additionally, we think cities that are able to benefit from technological disruptions like e-commerce are particularly attractive. Our research suggests several U.S. cities, such as Los Angeles, fit this description; Los Angeles is well positioned for long-term growth, and real estate investors should watch L.A. as younger populations from around the world flock to the city.
Los Angeles benefits from both well-known and “hidden” real estate opportunities
The Port of Los Angeles recently experienced lower levels of imported goods in the last year due to the U.S./ China trade tariffs as shown in Figure 4. However, the U.S./China tariffs have not affected warehouses located on the West Coast yet, as many U.S. importers have substituted goods from China with goods from Southeast Asia and other parts of the world. Unless the tariffs remain in place for years, and U.S. importers and businesses begin shifting their supply chains away from Asia, we believe the impact on West Coast warehouses will remain minimal.
Industrial demand over the last several years has been driven much more by secular shifts in supply chains (e-commerce) than by overall growth in consumption and trade. The long-term growth trend of e-commerce could insulate warehouse demand from some of the risks associated with tariffs. There is a growing need for freight storage in Los Angeles, which in our opinion makes warehouse capabilities a particularly attractive investment idea.
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