Six ways the new Panama Canal will change the world

The theme of this week’s World Economic Forum meeting in Latin America, “Opening Pathways for Shared Progress,” has a very literal resonance. By resuming operations on the Panama Canal Expansion project earlier this year, those involved (including my own company in a consulting role) overcame a major hurdle to making headway on a project that will open pathways for global markets’ trade operations, improve supply chains, as well as connect Latin American economics to those a world away. While the Canal extends just 50 miles, the savings and benefits it opens for Latin America’s diverse markets extends far beyond.

Research shows that the Canal expansion will double its shipping capacity after completion in 2015 and make tremendous improvements to efficiencies in the global supply chain. Vessels three times the size of current Panamax ships – the biggest that can currently navigate the Canal – will pass through on their ways between Asia and the United States. Port calls will see a major increase in container volume, resulting from increased traffic as well as the size of ships moving through the canal. This will be particularly evident on Northeast Asia to U.S. Gulf and East coast shipping routes. Additionally, ports where ships stop to refuel in Panama and the Caribbean will likely become more critical to the supply chains, functioning as “hub-and-spoke” type systems deploying cargo to both the U.S. and Latin America utilizing smaller ships.

The real estate industry is taking advantage of the growth opportunities the Canal opens for local, regional and even global industrial markets. Panama’s real GDP growth was the highest in all of Latin America last year, attracting infrastructure and construction spending to prepare for the increased shipping traffic. Looking ahead at the impact of the Canal’s expansion, real estate research from my company forecasts growth across Panama City’s office market: by 2016, 400,000 square meters will be added to the office supply, swelling the market by 47%.

The Canal, and Panama City, is one pathway towards “shared progress”. JLL’s research identifies five other cities, two other “emerging” and three “established” that are showing strong growth and will be impacted, directly or indirectly, by the Canal expansion.

Joining Panama City, the two other emerging cities are:

• Lima: we identified Lima as one of the world’s 20 “Most Dynamic Cities” earlier this year, thanks to its pro-business policies and significant economic growth.
• Bogota: the 4.5 percent speculative economic growth will continue driving office demand. Bogota is a magnet for foreign direct investment: 2013 levels climbed to USD $16.8 billion, up 87% from 2012 – 90% of which went to petroleum, hydrocarbons and mining – all of which will only increase in importance to the global and regional industrial markets with the Canal completion.

Serving as the foundation to support the three emerging cities’ growth are Latin America’s mature real estate markets, which also have promising forecasts

• Mexico City: office-using businesses will continue thriving in the region’s largest and most active office market. Mexico’s capital city will add 415,000 square meters of new offices in 2014 alone, equivalent to the total volume of space that tenants soaked up last year.
• Sao Paolo: Sao Paolo boasts the highest per-capita GDP in the region and the second-largest office market, and will continue stable growth as cross-border capital flows into the city in the coming years.
• Santiago: Chile’s capital city benefits from the low national unemployment, high wages and stable economic conditions, combining to create the city’s favorable business climate. More than 500,000 square meters of office construction, equivalent to nearly 20% of current inventory, is due for completion by the time of the Canal’s expansion.

The Canal’s 50 mile-long stretch represents a pathway to global progress and connectivity. This is a new chapter in international commerce, starting in Latin America with the Canal’s completion and connecting business communities in the region and beyond.

Author: Zach Cheney is Director of Latin America Regional Operations for JLL.

Image: A worker walks at the Panama Canal expansion project site during an organized tour by the Panama Canal authorities in Panama City February 21, 2014. REUTERS/Carlos Jasso