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News release

LIMA, PERU

Economic Growth Drives Office Construction, Leasing Opportunities in Key Latin American Markets

Healthy economies, business investment spur real estate investments in Peru, Colombia, Brazil, Mexico and Chile, Jones Lang LaSalle finds


LIMA, PERU, April 24, 2013 — Jones Lang LaSalle’s experts have identified real estate opportunities emerging across Latin America in response to mushrooming investment and growth by office-using companies, particularly in Peru, Colombia, Brazil, Mexico and Chile. Driven by a combination of direct foreign investment and some of the strongest Gross Domestic Product (GDP) numbers in the world, the growth stories range from a space shortage in Lima, one of the world’s tightest office markets, to a flurry of leasing to take advantage of affordable rental rates in the more mature office markets of Mexico.

  • Peru: Following economic growth of 6.3 percent last year, foreign direct investment could reach a record US$6.5 billion in 2013, establishing it as a top-performing Latin American economy. With rapid business growth, Lima’s existing office properties are near capacity, increasing competition for leases, spiking rental rates and spurring developers to build new offices.
  • Colombia: Companies are absorbing office space faster than developers can complete new projects, driving vacancy rates to low single-digits and catching investor interest in Bogotá, Medellín and the growing office market in Cali.
  • Mexico: Tenants increasingly seek energy-conserving, environmentally sustainable and mixed-use buildings in Monterrey, a key industrial hub.
  • Chile: As the country’s capital city and center of industrial and financial sectors, Santiago will add a record 800,000 square meters of office space by the end of 2014.
  • Panama: Widening of the Panama Canal ignited a construction-boom that upon completion, will add 582,000 square meters of offices to the market and nearly double its leasable office space.

“Strengthening economies, in several cases reflecting government efforts to boost stability and economic activity, are fueling demand for prime office space in a number of Latin American markets,” said Shannon Robertson, Regional Director for Jones Lang LaSalle Latin America. “As developers answer the call for additional space with new construction, a few markets, such as Mexico City have experienced a temporary softening, but most of the region’s growth markets have soaked up the new supply and still hunger for more space.”

Market highlights revealed by Jones Lang LaSalle’s Latin America Prime Office Market Overview include:

Peru: Capital city challenges

  • Lima suffers “growing pains” with office vacancy rate of just 1.1 percent spurring competition between companies that seek to rent space in the capital city, driving rents upward by 30 percent over the last five years.
  • New projects, development and construction may temper rental growth as Lima’s office market adds 340,000 square meters, a 40 percent increase, within the next two years. That additional space will likely stabilize the vacancy rate at 8 percent to 10 percent.

“The Peruvian government’s focus on the nation’s fiscal health has cut the debt-to-GDP ratio in half since 2001 and significantly increased GDP per capita.  Businesses are growing incredibly fast here and have taken every available space, and that has given landlords free rein to ramp up rents.” -- Martin Potito, Jones Lang LaSalle Research Director for Southern Latin America.

Colombia: Development and declining vacancy

  • Record levels of foreign investment in Columbia’s oil and coal sectors and carefully implemented macroeconomic policy have produced several years of healthy GDP growth and boosted the nation’s status as a growth market. Economic growth remains strong and is expected to receive a boost from the U.S. Free Trade Agreement, which was implemented formally in 2012.
  • From Bogotá, the country’s business and cultural hub, to Medellín with its growing technology cluster and to Cali, a vital Pacific port market, growing companies have compressed office vacancy rates into the single digits.
  • Low vacancy rates enable landlords to charge higher rent, and that prospect has made real estate investors and developers eager for a stake in Colombia’s office markets.
  • Despite a construction boom in Bogotá, the office vacancy rate is 5.2 percent, its lowest point since 2008, and could fall to 4 percent by year’s end to drive continued rent growth.

“Rents have been rising rapidly in Bogota’s popular northern submarkets, and we are seeing more companies look for lower-cost alternative submarkets such as Salitre and Northwest.” -- Jean Baptiste Wettling, Vice President, Jones Lang LaSalle Colombia

Brazil: Construction to slow runaway rent growth

  • Despite slower GDP growth, Brazilian developers are capitalizing on strong demand and high rental rates for office space, taking on new construction projects across many of the country’s largest markets.
  • Major construction provides tenants more options and may limit landlords’ ability to demand higher rents in some submarkets. The overall vacancy rate climbed 4.2 percentage points since mid-2012 but there is plenty of demand to sustain high rental rates in the country’s most prominent markets.
    • São Paulo, Latin America’s second-largest metropolitan area and office market, added  330,000 square meters of offices in the last half of 2012 and expects another 524,000 to will hit the market this year.
    • Rio de Janeiro office rents continue to outpacing inflation, and tenants have already committed to leasing the majority of the projects still under construction that will grow the market by 166,000 square meters. 

“Monthly rents for the best office space in prime submarkets are reaching US$110 per square meter. That makes São Paulo one of the world’s most expensive cities to rent prime office space.” -- Fabio Maceira, CEO, Jones Lang LaSalle Brazil

Mexico: A tenant’s market

  • Driven by the trade-friendly, open market policies and favorable labor costs, Mexican markets witnessed a spike in tenant- and investor-interest from manufacturers.
  • In Mexico City, developers responded to the demand for more office space, sparking construction projects across the city, and increasing supply across various submarkets this year. Office space leased to tenants in 2012 increased to 330,000 square meters, but developers delivered just 290,000 square meters of new buildings. In the first half of this year, less demand has resulted in an 11 percent vacancy rate.
  • Rents are more stable in Monterrey, where overall vacancy is 21.9 percent, and companies have shown an interest in upgrading to higher-quality space within the market. Vacancy is a low 4.6 percent in Guadalajara, where a strong electronics manufacturing sector has earned the nickname “Mexican Silicon Valley.” Some 107,000 square meters of construction to be completed by the end of 2014 will nearly double the size of Guadalajara’s office stock.

“Rents and acquisition prices have been stagnant in most of the city due to the delivery of so much supply, and we expect completion of another 800,000 square meters by the end of 2014.  That makes this a great time for tenants looking to relocate and lock in today’s low rental rates with long-term leases.” -- Hector Klerian, Director of Jones Lang LaSalle Mexico

Chile: Ripe for development

  • The national mining boom, coupled with the increased internal consumption and foreign direct investment, catapulted Chile’s GDP growth rate to 5.6 percent in 2012.
  • As a result of business growth, office vacancy in economic hubs like Santiago, where vacancy rests at 4.1 percent, tenants have already preleased 140,000 square meters under construction this year.

“Lima and Santiago are demonstrating some of the lowest vacancy rates in the world among cities with at least 5 million inhabitants, and developers will address the lack of supply with record levels of office production in each city. In Santiago, we expect to reach near-equilibrium levels as early as the end of 2013 as new supply surges into the market.” -- Aliro Franco, Research Consultant, Jones Lang LaSalle Chile

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet. Its investment management business, LaSalle Investment Management, has $47.0 billion of real estate assets under management. For further information, visit www.jll.com.