With Occupancy Costs Three Times Higher, is it Worth Leasing an Industrial Properties Within Latin America's Largest Airport?

Developed by Brookfield and acquired by Icatu Vanguarda Gestão de Recursos Ltda., Aero I Logistics Park, situated within São Paulo/Guarulhos International Airport, has maintained full occupancy since its inauguration in the first half of this year

Bernardo Schneider Goulart de Oliveira, CEO of Icatu Vanguarda.

By: SiiLA News

09/19/2024

Despite the cost of occupying space in the Aero I Logistics Park — located within São Paulo International Airport (Governador André Franco Montoro) in Guarulhos — being up to three times higher than comparable nearby logistics parks outside the airport, the facility has had no vacancies since its opening in the first half of this year.

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Developed by Brookfield and acquired by Icatu Vanguarda Gestão de Recursos Ltda., as announced in a statement at the end of July, the asset consists of three warehouses (G100, G200, and G300) with a combined gross leasable area (GLA) of 43,200 square meters.

For the project, Brookfield entered into a 40-year agreement with GRU Airport, the concessionaire of the air terminal, to lease the land where the warehouses were built. According to the company, more than R$600 million was invested in the construction of the property.

"Our investment strategy has been a tremendous success. We completed the investment cycle for Aero I Logistics Park ahead of schedule, with very positive returns," said Victor Lopes, investment manager at Brookfield Asset Management.

The acquisition of the property was carried out through the real estate investment fund Icatu Vanguarda GRU Logístico (GRUL11). Since the deal was confirmed, the fund has attracted more than 3,600 new shareholders.

According to Lopes , pre-leasing demand exceeded expectations, driven by a shortage of premium warehouses in airport areas and increasing market demand for strategically located assets like Aero I Logistics Park. It's worth noting that, according to SiiLA’s Market Analytics, the average market price — which tracks occupancy costs — is R$86 per square meter.

“In addition to the strategic advantages of the location, such as quick access to the Ayrton Senna and Presidente Dutra highways, the existing stock of cargo warehouses within airports is quite outdated. The development of A+ class warehouses is highly attractive to clients seeking a 'flight to quality.' The higher rental price is a result of the limited supply of available space in airports across the country," Lopes added.

For comparison, the market price for leasing a similar logistics park in the Guarulhos region is R$31.31 per square meter, according to SiiLA's second-quarter data. The vacancy rate in the area was 8.4% during the same period.

The current tenants of the property include Anjun Express, Mercado Livre, Total Express, LATAM, Azul, and Power Source. The chart below shows the breakdown of space allocation among these tenants.

Source: Market Analytics/SiiLA and Icatu Vanguarda

In its latest monthly report, Icatu Vanguarda GRU Logístico (GRUL11) stated that the average lease term is 12 years.

“The medium- and long-term outlook couldn’t be more optimistic. Along with the existing demand, Brazil is projected to see the highest growth in e-commerce over the next few years. This expansion will drive additional demand, further increasing the value of these spaces,” the FII commented.

Is the Price Justified?

According to Ronaldo Paschoaloni, an expert and director at General Dock Consultoria Ltda., the high occupancy costs are justified due to the strategic nature of the location and its many advantages over other logistics parks.

The key benefits include a prime location, enhanced security, faster cargo transit times, savings on freight and product transportation, and the fact that the logistics operations are situated in a customs zone, which facilitates the flow of goods.

“Tenants in this type of facility have access to customs services that other logistics parks cannot offer, as they are not located within customs zones. These areas already have the necessary inspections in place, regardless of the type of goods. However, tenants must comply with customs regulations for goods associated with imports and exports," Paschoaloni explained.

He added that the high rents paid by companies occupying these warehouses are justified by the nature of the goods they handle. According to Paschoaloni, the sectors that most require these services include healthcare equipment, such as CT scanners, MRI machines, medications, vaccines, and diagnostic equipment, among others.

“These are high-value items that often require urgent shipping. Additionally, high-tech products like supercomputers and semiconductors typically need the speed and security that an airport warehouse provides. This justifies the higher rental costs, which are offset by preventing potential losses," the expert noted.

Aero II Logistics Park

Looking to capitalize on new opportunities, Brookfield is developing another logistics park, this time with a GLA of 165,000 square meters — four times the size of Aero I — also located at Guarulhos International Airport (GRU Airport). The new park will be called Aero II Logistics Park.

The company expects the project to be completed by the end of 2025.

A recent article published by InfoMoney revealed that the Canadian asset management company has decided to exit the shopping mall sector and focus its local real estate investments on offices, multifamily, and logistics.

“Our strategy remains focused on investing in logistics parks. The sector continues to perform well, and during the pandemic, e-commerce boomed, with warehouses being leased even before they were completed,” added the investment manager at Brookfield Asset Management, Victor Lopes.

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