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News release

Chicago and Panama City

Six Cities to Propel Economic Progress in Latin America

Fast-growing Lima, Bogota and Panama City vie with leaders Mexico City, Sao Paulo and Santiago as engines of commerce and commercial real estate investment

CHICAGO and PANAMA CITY, April 1, 2014 — Leaders from the world’s most influential economic, public service and businesses communities will descend into Panama City for the World Economic Forum’s meeting on Latin America this week to address issues related to the Forum’s theme, “Opening Pathways for Shared Progress.” Research from JLL demonstrates that Latin America’s independent and diverse cities make it a hotbed for future real estate opportunities, both in the largest and fastest-growing markets.

JLL experts identified six cities at the forefront of economic expansion in Latin America: three “established” cities, Mexico City, Sao Paulo and Santiago; and three “emerging,” Lima, Bogota and Panama City. “Real estate in these cities represents a balance of large-market stability, and smaller but fast-growing commercial centers, that will catapult demand for office space,” said Zach Cheney, Director of Latin America Regional Operations who is participating in the Forum meeting in Panama City.

Massive volumes of office construction in the region’s three largest office markets will create near-term oversupply problems in Sao Paulo, while meeting existing demand in Mexico City and easing a shortage of modern office product in Santiago. Three smaller office markets generating outsized office construction and intensive direct foreign investment are Lima, Bogota and Panama City. But despite headwinds, these markets promise to fuel record foreign investment and economic growth that will create a ripple effect of commercial activity throughout Latin America in 2014 and beyond.

Mexico City: Latin America’s largest, most active office market reflects the city’s employment gains and impressive growth in Gross Domestic Product (GDP), which could accelerate to 3.4 percent this year.

  • Progression: office-using businesses are proliferating, especially in the central submarkets. With an office vacancy rate of 11 percent, Mexico’s capital city will welcome the addition of 415,000 square meters of new offices in 2014, equivalent to the volume of space that tenants soaked up last year.


Sao Paulo: With the highest per-capita GDP in the region and second-largest office market in 2013, Sao Paulo’s rapidly increasing demand for office space spurred prodigious office construction - perhaps more than is needed - pushing vacancy rates up from 16 percent to 18.4 percent.
  • Progression: soft conditions from 2013, coupled with rising inflation and economic volatility, creates enticing acquisition opportunities for investors with a long-term horizon and elevated risk tolerance. More than 1 million square meters of additional space under construction will increase vacancy over the next several years and drive down rents.

Santiago: Economic optimism is high in Chilean’s capital city, where employment numbers are strong, wages continue rising and there is increased lending volume. Recent completions of new office buildings increased vacancy to 5.2 percent, providing much-needed room for growth, while rents held steady in terms of Chilean pesos, dropping slightly in absolute terms due to inflation.

  • Progression: economic stability and a favorable business climate set the stage for more than 500,000 square meters of office construction by the end of 2015. This is equivalent to nearly 20 percent of current inventory, which will add some 500,000 square meters to its office market by the end of 2015, equivalent to 46 percent of existing inventory and nearly equal to the construction pipeline in the far larger Santiago.

Lima: Identified as one of the world’s 20 “Most Dynamic Cities” in JLL’s 2014 Cities Momentum Index, Lima dominates Peru’s business and economic scene by accounting for nearly half of the national GDP. The retail and office real estate markets, along with pro-business policies and significant economic growth, drove market vacancy to 2.8 percent market vacancy. In fact, buildings under construction are typically 80 percent leased before completion.

  • Progression: Lima has an additional 200,000 square meters of office space in its pipeline for delivery by 2016 and stock is forecasted to expand by 40 percent in the next two years. Office rents and prices have been rising, but will stabilize and come down as new space delivers.

Bogota: Foreign direct investment skyrocketed to USD $16.8 billion in Bogota in 2013, barely topping 2012’s record FDI total, the vast majority of which went into petroleum, hydrocarbons and mining.

  • Progression: despite strong demand for office space (and particularly for those 500 square meters or larger) and 3 percent vacancy, construction will add less than 180,000 square meters of new supply in 2014. Despite high unemployment, expected 4.5 percent annual economic growth promises to drive further office demand.

Panama City: Panama’s real GDP growth of 7.6 percent in 2013 was the highest in Latin America, and will remain strong due to public infrastructure spending. Yet tax incentives and speculation triggered a flood of construction that added 175,000 square meters last year.

  • Progression: looking ahead, developers place tremendous and optimistic bets on the impact the Panama Canal expansion will have on the city – and entire Latin American region. Researchers believe the Canal will generate a surge in office demand, as more than 400,000 square meters are in the pipeline for completion by 2016, which will cause supply to swell by 47 percent. The office vacancy rate has already reached a staggering 37.3 percent, pressuring down rents. Despite overbuilding, prospects for sustained economic growth look promising.

“Heated investment in the Panama City office market and infrastructure country-wide is a mirror for the anticipation building around the globe,” Cheney said. “This is a new chapter in international commerce, starting in Latin America with the Canal’s completion and connecting business communities to advance economic progression.”

For more information on Latin American cities and market trends, and how they compare with others across the world, please visit JLL’s new Cities Research Center, launched last week.

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