Latin America Office Market 2010

8/6/2019 Latin America Office Market 2010

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Latin America OfficeFourth Quarter 2010www.cbre.com/research

CB RICHARD ELLIS

Global Research and Consulting

LATIN AMERICA With a global economic crisis that seams to becoming to an end, one of the important facts tonotice, is that emerging economies, speciallyLatin American, appeared to be more stable andstronger than they were merely 10 years ago.These countries were not impacted as hard bythe financial crisis coming from stronger economies such as the United States or theEuropean Union; therefore they recovered morerapidly and efficiently. The region economicgrowth for 2010 was 5.2% with a 2011projection of +6%.

The class A/A+ office market place presentedsignificant changes in 2010. Continuing thetrend from 2009, major developments came tothe market meeting and sometimes exceedingdemand requirements, resulting in over 1 millionSQM added to the region’s inventory. Vacancyremained quite stable growing from 7.5% to7.7%, therefore in some countries, the markethas registered an increase in pre-leasetransactions. Average asking rents increasesignificantly in local currencies, specially in Brazil,and even more when measured in USD.

MEXICO CITY New spaces delivered as of the end 2010 haveexceeded the levels recorded during 2003,making Q4 the top quarter as regards squaremeters delivered since that date. During Q4,approximately 268,000 SQM of new space wasregistered, with a total of 3 class A and 6 class A+ buildings; this figure accounts for over 61%of the new space delivered. There areapproximately 912,000 SQM under construction, of which about 4% will be deliveredduring 1Q11.

Vacancy rate for class A+/A buildings showed aslight increase of 0.44% and average asking rentrose USD 0.33 over Q3, recorded at USD23.06/SQM per month. The rental price for available sublease space increased from USD26.41/sqm per month to USD 26.85/sqm per month, with the availability rate of this type of space falling considerably.

SÃO PAULO

Office spaces have been voraciconsumed in São Paulo bringing the absorption to surpass the 640,000 SQM lonly being outrivaled by the total absorptio2008. As a result, the overall vacancy reached an unprecedented 3.9 percent infourth quarter of 2010. The current vaclevel is 2.7 points lower than the vacrecorded 12 months prior. Diminishing suof available class A & A+ space is evideby a 4.3 percentage decrease recorded ilast 12 months.

Pressure on rents escalated in 2010, propethe city of São Paulo to figure in the topranking of the world’s most expensive omarkets. In light of an increased amouspaces due to come online, the pressurrents should easy in the near to medium te

SANTIAGO

Three new buildings were added to the marepresenting a total of 46,845 Class A sqmeters, bringing available space in the yea cumulative of 178,977 SQM, tripling

average for the last ten years.

Demand behaved virtually the same, net A occupancy was 166,204 SQM at year-Demand closely mirrored supply, and the ended with a vacancy of 3.8%, closed to3.4% seen in the same period in 2009. occupancy was exceptionally high this yearcompensated for the minimum occupoccurring in 2008 and 2009. Projectionsoptimistic that demand will continue tostrong in 2011, but limited by restricted supply.

The average weighted Class A rent has fslightly, not because of a general price but rather the composition of the vacahigh standard spaces--, which have fproportionally as floors are occupied. Ato this is the effect of new buildings coonline in less prime locations.

uick StatsChange from last

Current 2009

ventory (000 SQM) 10,531

et absorption (000 SQ M) 942

ccupied space (000 SQM) 9,723

acancy 7.7% + 0.16 pt

verage Asking Rent* $35.8 + $2.8

Average Asking Rent is measured in USDer SQM per month

uick Stats inventory, occupied space andet absorption figures represent yearly totals;

acancy and average asking rent representata as of year’s end. Year-over-yearhanges are represented in the right column.

Economic recovery continued fasterthan expected; 2011 forecast includegrowth rates +6% for the wholeregion

All LatAm cities grew its inventorysignificantly; Guadalajara and Buenos

Aires stand out with impressiveadditions of +35%

Year-end inventory surpasses 10million square meter milestone, over100 million square feet.

Net absorption in 2010 totaled over200,000 SQM more than its highest all time figure from 2006

Significant AAR increase that reflectsstrong local currency, specially fro

Brazil and Peru, as well as theinclusion of several prime locationsacross the region

Over the past 10 years, averageasking rent USD, has increased over4.4% per year

ot Topics


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RIO DE JANEIROOffice market recorded four consecutive quarters of improved net absorption. Confidence takes hold amongtenants fueling the overall decline in the vacancy rate to2%. 2010’s net absorption escalated to 128,700 SQM,this being a remarkable improvement compared toprevious 90,200 sqm registered in 2009. Economicimprovements yielded the demand for office space,substantially outpacing new supply during 2010. A

strong demand has kept vacancies at ultra low levelssince the majority of the recent deliveries came onlinewith high percentage of occupied spaces. As a solutionto the scarcity of land for new developments, theretrofitting process has increased mainly Downtown withnear 22,000 sqm of retrofits delivered in 2010 and other 60,000 sqm scheduled to come online during 2011.

MONTERREY

Class A+ and A office market showed a strong recoveryin 2010, with over 43,000 sqm transacted, 82% morethan in 2009. Moreover, in 4Q over 12,000 sqm weretransacted, mainly in Valle Oriente, and the highest

demand – and largest transactions – continued to be for Class A+ buildings. This caused asking prices for buildings in this class to gradually increase in 2010,widening the gap between this class and class A buildings. Due to the major absorption during the year,the vacancy rate continued its downward trend, fallingfor the third straight quarter to hit its lowest level since4Q 2008. Construction on 11 buildings continued, witha total of over 111,000 sqm, mainly in Valle Oriente. In1Q 2011 delivery of at least 2 buildings is expected, withan approximate total of 14,000 sqm.

GUADALAJARA

High levels of activity were seen in the Guadalajaracorporate market in 2010, the market expandedsignificantly through the completion of severalbuildings located in the Puerta de Hierro corridor whichgrew A+ and A inventory by 23%. The last quarter sawthe highest transaction activity of the year, after the twoprevious quarters had seen downward trends. Presaletransactions continued to have a major presence,showing that the market continues to clearly tendtowards these types of transactions. This tells us that thismarket is still considered a profitable investment option.The addition of over 35,000 sqm to the inventory of class A+ and A offices expanded the marketconsiderably, ending the year with 192,000 SQM.

LIMA In the office real estate market, vacancy rate keptdecreasing, and resulted in 3.96%, despite of the12,420 sq m delivered in Miraflores submarket.Financial San Isidro and Santiago de Surco haveremained as the most demanded areas and both werethe sub markets with higher absorption rates. However,the vacancy rate that decreased the most during the lastquarter was the one of Surco, from 17.1% to 2.7%. The

lease average rate had a light increase due to the newsquare meters added to the inventory with prices of US$18.00, and in sale, square meters have been betweenUS$ 1,450 and US$ 2,200.

CARACAS

Due to Venezuela’s persistent inflation (avg 25%annually), both rents and capital values have risen by 20-30% annually, with the result that yields have been fairlystable. Because of this, tenants are often required to re-sign leases every year. The extension of the public sector into the private sector – both through the imposition of price controls and outright nationalization – keeps

investor sentiment low. The few new commercial realestate projects under way in Caracas have been put onhold. Tenants often buy the premises that they areoccupying to maintain real capital values and create ahedge against the inflation.

PANAMA The office market in Panama City performed well duringthe second half of 2010. Vacancy rate for Class A officebuildings improved to 4.7%, compared to previousperiod (5.5%). The submarket with the highest vacancyrate along the first half 2010 was the Reverted Areas,which now is fully occupied and at present has 11,124

sqm under construction to satisfy the demand for officespaces in this area. Average lease rate slightly decreasedaround 2.2% from the beginning of this year until thislast period. Likewise, the average sales price showed areduction (less than 1%. The most expensive submarketin the city is the Banking Area due to the accessibility andinfrastructures it offers.

BUENOS AIRES As of the end of Q3, there were 154,000 sqm of Class A product under construction. More than 80,000 sqm of product came to market during the first half of 2010. Vacancy rates increased with the influx of new product,and will likely rise further as the space under constructioncomes online. Prices have been fairly stable in 2010.The Zona Norte has emerged as the premium locationgiven the area’s access and new construction.



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Country Class A/A+ Inventory (000 SQM)

Historical Class A/A+ Inventory (000 SQM)INVENTORY

Latin America’s Class A/A + officemarket had a compound averagegrowth rate of 5.4% since 2000, whichmeans that in the past 10 years, SQMinventory in the region grew over 70%.

Over a million SQM were added to themarket in 2010, up 11% from lastyear’s 9,500,000 SQM and over 40%

of the five-year average of 430,000SQM. Year-end inventory surpasses the10 million square meter milestone, over 100 million square feet.

Although Brazil and Mexico representover 66% of the region’s inventory,other countries such as Argentina andPeru, growth rates reached historicalhighs with 35% and 24% respectively,giving the whole region a dynamism notseen in the past years.

Mexico City represents over 80% of theinventory in Mexico; with a 8% growthrate and over 1 million SQM inconstruction, will certainly be the mostimportant city for A/A+ office space inLatin America.

Historical Class A/A+ Vacancy VACANCY The Latin America A/A+ office vacancyrate increased slightly to 7.7% in 2010compared to 7.5% in the previous year.

Even though leasing activity across theregion continues to increase, the highconstruction rate in most countries

clearly affects overall vacancy as mostbuildings aren’t entering the market BTSor pre-leased.

Vacancy growth rate droppedsignificantly from the impressive 60%from 2008-2009 to a merely 2% in2010.



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Country Class A/A+ Vacancy VACANCY With the highest construction rate seenin years, vacancy rates across the regionreach figures not seen in the past 5years.

Argentina had the highest vacancy rateof the region with 13%, followed byMexico with 11%, important to noticethat these two countries were the only

ones with double digit vacancy rate inthe past two years.

For Brazil, A/A+ office market reacheda record low vacancy rate of 4.2%,dropping over 3 basis points from lastyear’s 7.4%.

Historical Class A/A+ Average Asking Rent (USD per SQM per month) AVERAGE ASKING RENTThe average asking rent continued to

edge up during 2010, with an increaseof over 17% from last year, whichtranslates in more than $5.5, ending theyear close to $39 USD per SQM per month. Average asking rent has risensignificantly since the all tine historic lowin 2002 of $14.6 USD per SQM per month.

Rents will probably keep on growing for the still expanding regional market, withsignificant price differences amongcountries as shown in the next figure.

Asking rents in Brazil rose in 2010 tounprecedented levels due to strongdemand and scarce availability,reaching an impressive AAR of over $70USD per SQM per month.

Venezuela government-controlled fixedexchange rate distorts the market asmeasured in USD, but with only 50,000SQM of new construction in the past 5years, it adequately represents AAR inthat market due to scarcity of A/A+office space. Without the aboveaverage high average asking rent fromBrazil and Venezuela, the rest of theregion would have figures closer to $20USD per SQM per month

Country Class A/A+ Average Asking Rent (USD per SQM per month)


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MarketView Latin America Office Asking Lease RateAverage of Asking Lease Rates for each pweighted by the associated Available SpaIncludes Direct Available Space unless otindicated

CompletionsRentable Building Area completed duringperiod

Market CoverageExisting completed competitive properties

Net AbsorptionThe change in Occupied square meters dthe period for all Existing properties

Base Inventory, Base or BuildingSquare MetersThe sum of the Rentable Building Area focompetitive properties

Occupied Square MetersRentable Building Area less Vacant S pac

Under ConstructionBuildings that have begun construction aevidenced by site excavation or foundatioand is on-going

Available SpaceSpace being marketed to potential occupRentable square meters (direct and sublecombined, unless otherwise indicated)

Availability RateAvailable space as a percentage of the BaInventory or Building square meters.

Vacant SpaceAvailable Space that is physically vacant,Rentable square meters.

Vacancy RateVacant space as a percentage of the BaseInventory or Building square meters.

For more information regarMarketView, please

Victor LopezDirector of Latin America R

CB RichMontes Urales 470 2

Lomas de Chapultepec, Mexico DF, CT. +52 55 5284 3293 F. +52 55 2

victor.lopez@c

© 2011 CB Richard Ellis, Inc. CB Richard Ellis statistics contained herein may represent a different data set than that usedto generate National Vacancy and Availability Index statistics published by CB Richard Ellis’ Corporate CommunicationsDepartment or CB Richard Ellis’ research and econometric forecasting unit, CB Richard Ellis—Econometric Advisors.Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have notverified it and make no guarantee, warranty or representation about it. It is your responsibility to independentlyconfirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only

and do not represent the current or future performance of the market. This information is designed exclusively for use byCB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis.

Office Class A/A+ 4Q10 SnapShot

Regional Map

Inventory Absorption Added SQM Vacancy AAR

Mexico 3,347.4 64.00 268.0 10.0% $23.06

São Paulo 1,914.6 49.33 6.6 5.1% $69.74

Santiago 1,618.0 49.52 46.8 3.8% $27.57

Rio de Janeiro 898.9 13.70 3.2 2.4% $75.46

Buenos Aires 890.8 25.39 35.4 13.4% $26.80

Monterrey 624.5 12.99 0.0 14.4% $19.26

Lima 414.9 29.06 12.2 4.0% $16.00

Caracas 350.5 -4.28 0.0 5.0% $68.70

Panama 278.9 -19.90 369.7 4.7% $21.51

Guadalajara 192.1 9.21 35.6 18.1% $21.11

Total 10,530.7 229.01 777.5 7.7% $37.97

Documents

Latin America Office Market 2010