Office Market Overview

Transcription

1 Office Market Overview Latin America Mid-year 2014 Falling exports and oversupply are leading to falling demand and rising vacancy in several Latin American cities. Nearly 800,000 m 2 in new supply and 500,000 m 2 in net absorption region-wide so far in Over 5 million m 2 in planned construction region-wide over the next 24 months. Rising Y-o-Y vacancy in 15 of the 19 markets covered. Compressed Y-o-Y rents in 12 of the 19 markets covered.

2 JLL Latin America Office Market Overview Mid year Introduction: Location Map and Market Clock Monterrey Guadalajara Mexico City San José Medellín Cali Guayaquil Panama City Quito Bogotá San Juan Barranquilla Caracas Caracas, Santiago Mexico City San José Lima Bogotá Lima Peaking market Falling market Buenos Aires Panama City Rio de Janeiro São Paulo Rio de Janeiro Monterrey Guadalajara Rising market Bottoming market São Paulo Santiago Buenos Aires Montevideo Medellín, Col. Caribbean Cali San Juan Montevideo Guayaquil, Quito

3 JLL Latin America Office Market Overview Mid year Executive Summary: Regional Highlights Argentina Inflation is on the rise and the economy is expected to contract by 1% this year in the midst of a 23% devaluation of the Peso. The overall real estate market in Buenos Aires has been stagnant with historically low transaction volumes, although the residential market has proven more resilient. Brazil After a successful World Cup hosting, Brazil will face presidential elections this October amidst high inflation and stagnant growth. Rising production and steady demand are driving vacancy rates up in both Rio de Janeiro and São Paulo Mexico Aggressive reforms in the energy sector could break up PEMEX s 75- year monopoly and usher in new channels of investment. Production is on the rise in Mexico City, Monterrey, and Guadalajara, driven by the strong performance of the Mexican economy. Panama Juan Carlos Varela won the presidential election with 39% of the popular vote. He will preside over Latin America s fastest-growing economy over the past decade. Panama City s vacancy rate will likely surpass 40% this year and could reach as high as 50% by Chile Michelle Bachelet began her second term as Chilean president after winning the 2013 election with 62% of the popular vote. Abundant new supply is pushing market vacancy up to its highest point in a decade in Santiago, close to equilibrium levels. Colombia In a highly anticipated election, president Juan Manuel Santos held off challenger Oscar Ivan Zuluaga in a 2 nd round run-off. This will ensure continuity of the peace negotiations with the FARC. Bogota and Medellin are seeing very strong demand while commercial speculation grows in Colombia s secondary cities. Costa Rica The Costa Rican economy continues to stagnate against a background of slow exports and rising public debt, as well as mass layoffs announced by Intel and Bank of America in April. Rents in San Jose have fallen 7% over the past 18 months due to slumping demand. Ecuador Ecuador has agreed to a trade deal with the European Union that will remove tariffs on most products. This should provide a significant boost to agricultural exports. Production is down in both Quito and Guayaquil. Public sector demand is driving the Quito market while oil companies have been active in Guayaquil. Peru With demand for Peru s commodity exports down in China and other markets, growth will slow down a bit this year from its torrid pace over the past decade. The Lima market will add over 900,000 m 2 by the end of 2016, threatening to push vacancy to record levels after years of undersupply. Puerto Rico High unemployment and the expiration of US stimulus package have continued to plague the Puerto Rican economy, which approaches one full decade in recession. Rents continue to slide in the midst of negative net absorption in the San Juan market. Uruguay Uruguay will elect a new president in October as the constitution forbids Jose Mujica from running again. The early front-runner is former president Tabaré Vasquez who will represent Mr. Mujica s party. The Montevideo market remains quiet, with rents having remained essentially unchanged over the past two years. Venezuela Spiraling inflation and a scarcity of goods are creating a potentially explosive situation in Venezuela, with widespread protests against the ruling government erupting earlier this year. A December decree was passed to cap all real estate rents at 250 VEF (~USD $40 at the official exchange rate) in order to contain runaway inflation. However the law has since been revoked.

4 JLL Latin America Office Market Overview Mid year Executive Summary: Population by Country and Major Markets, 2013 Montevideo Uruguay Panama City Panama San Juan Puerto Rico San José Costa Rica Guayaquil Quito Ecuador Santiago Chile Caracas Venezuela Lima Peru Buenos Aires Argentina Barranquilla Cali Medellin Bogota Colombia Guadalajara Monterrey Mexico City Mexico Rio de Janeiro São Paulo Brazil Major Market Population (millions) Country Population (millions) Source: JLL Research (2014) Several Latin American countries have one large city that accounts for a significant share of the national population. These include Uruguay, Argentina, Peru, and Chile as well as all Central American and Caribbean nations. Brazil, Mexico, and Colombia are the three countries with the most widely distributed populations. Each contains several cities with over one million inhabitants.

5 Brazil São Paulo Rio de Janeiro Mexico Mexico City Monterrey Guadalajara Colombia Bogota Medellin Cali Barranquilla Argentina Buenos Aires Peru Lima Venezuela Caracas Chile Santiago Ecuador Quito Guayaquil Costa Rica San José Puerto Rico San Juan Panama Panama City Uruguay Montevideo GDP (Billions of USD, PPP) GDP Per Capita (USD, PPP) JLL Latin America Office Market Overview Mid year Executive Summary: GDP by Country and Major Markets (USD PPP, 2013) $2,500 $30,000 $2,000 Country GDP (Billions of USD PPP) Major Market GDP (USD PPP) Country GDP Per Capita (USD PPP) $25,000 $20,000 $1,500 $15,000 $1,000 $10,000 $500 $5,000 $- $- Source: JLL Research (2014) Brazil and Mexico are Latin America s largest economies, however on a GDP per capita basis the best performers are Chile and Argentina. Puerto Rico has seen the largest dip in GDP per capita, due to the island s ongoing recession. The cities that account for the largest share of their national GDP are Montevideo (~70%), Panama City (~58%), Lima (~46%), San Juan (~42%), San José (~38%), and Santiago (~40%).

6 JLL Latin America Office Market Overview Mid year Executive Summary: Total Stock (m²), MY 2014 Mexico City São Paulo Santiago Bogotá Rio de Janeiro Buenos Aires Lima Caracas Monterrey San José Panama City San Juan Medellín Quito Montevideo Guayaquil Guadalajara Cali Col. Caribbean Source: JLL Research (2014) Rentable Area (m 2 ) The largest office markets in Latin America are Mexico City, São Paulo, and Santiago. This is consistent with their reputations as 3 of the primary business hubs in the region. The fastest growing markets over the past two years have been Bogotá and Lima due to a large pent-up demand and a favorable investment climate, as well as Panama City due to high levels of speculative production.

7 JLL Latin America Office Market Overview Mid year Executive Summary: Vacancy Rates, MY 2014 Panama City São Paulo Monterrey San Juan Rio de Janeiro Guayaquil San José Mexico City Santiago Cali Buenos Aires Montevideo Caracas Market equilibrium vacancy rate Col. Caribbean Quito Guadalajara Bogotá Medellín Lima 0% 5% 10% 15% 20% 25% 30% 35% 40% Source: JLL Research (2014) Panama City continues to show the region s highest vacancy rates, due to an explosion of speculative production fueled by tax incentives and high expectations of growth induced by the canal expansion and other large-scale infrastructure projects. Vacancy Rate (%) Both Brazilian cities are above equilibrium vacancy due to high levels of production recently that have taken time to absorb. The lowest vacancy rates continue to be seen in Lima, Medellín, and Bogotá.

8 JLL Latin America Office Market Overview Mid year Executive Summary: Change in Vacancy (m 2 ), Y-o-Y São Paulo Santiago Panama City Rio de Janeiro San José Lima Buenos Aires Monterrey Mexico City Medellín Caracas Cali San Juan Guadalajara Montevideo Quito Guayaquil Col. Caribbean Bogotá -20,000-20,000 40,000 60,000 80, , , , , ,000 Rentable Area (m 2 ) Source: JLL Research (2014) All but 4 Latin American markets have seen vacancy rise this year. Vacancy has risen sharply in São Paulo, Santiago, Panama City, and Rio de Janeiro as an abundance of new supply is hitting these markets. Bogotá and Colombia s Caribbean region have seen the largest fall in vacancy, with demand outpacing new supply in these markets.

9 JLL Latin America Office Market Overview Mid year Executive Summary: Production vs. Net Absorption (m 2 ), Y-o-Y Mexico City São Paulo Santiago Panama City Rio de Janeiro Lima Bogotá San José Monterrey Caracas Buenos Aires Quito Guadalajara Medellín Col. Caribbean Guayaquil Cali Montevideo San Juan Net Absorption Production *Net absorption figures not available for Montevideo and Barranquilla. -100, , , , , , ,000 Rentable Area (m 2 ) Source: JLL Research (2014) Mexico City has been the most active market over the past year, with approximately 350,000 m 2 of net absorption and nearly 500,000 m 2 of new supply. Absorption has been very strong in Lima and Bogota, with both approaching 150,000 m2 Y-o-Y. Demand in these cities has been on par with demand in Santiago and São Paulo, which are much larger markets. Production has outpaced absorption in the majority of Latin American markets, most notably in São Paulo, Santiago, Panama, and Rio.

10 JLL Latin America Office Market Overview Mid year Executive Summary: Production Pipeline vs. Current Stock (m 2 ) Mexico City São Paulo Santiago Bogotá Rio de Janeiro Buenos Aires Lima Caracas Monterrey San José Panama City San Juan Medellín Quito Montevideo Guayaquil Guadalajara Cali Col. Caribbean 10% 47% 6% 33% 13% 47% 0% 18% 11% 0% 15% 51% 7% 50% 25% 18% 21% 28% 19% Current Stock: Mid-Year 2014 Production: Q Q *Data label shows percentage growth in stock, Q Q Rentable Area (Millions of m 2 ) Source: JLL Research (2014) Several markets are in a moment of high growth particularly Guadalajara, the Colombia Caribbean, Panama City, Monterrey, and Lima. All of these markets will grow by over 30% in the next year and a half. Low demand is impeding new supply in San Juan and Montevideo. There is growing interest in Latin America s secondary cities since they are mostly undersupplied and many have high economic potential. Cities such as Barranquilla, Cali, Medellin, and Guadalajara are examples of this trend.

11 JLL Latin America Office Market Overview Mid year Executive Summary: Average Asking Rents, MY 2014 Rio de Janeiro São Paulo Bogotá Montevideo Caracas *Caracas rents at Parallel Exchange Rate Lima Buenos Aires Santiago Mexico City Medellín Panama City Guadalajara Col. Caribbean Cali Monterrey Quito Average Rent Class A Average Rent Class AB San Juan San José Guayaquil $0 $10 $20 $30 $40 $50 $60 $70 $80 Average Asking Rents (USD/m 2 /month) Source: JLL Research (2014) Rents in most cities are in the range of USD $20-35/m 2 /month for Class A and USD $15-30/m 2 /month for Class AB. Rio has high rents due to geographical impediments that restrict supply. Rents are high in São Paulo because the vast size of the city and its severe traffic put a premium on prime location and good accessibility. Rents are generally the lowest in Ecuador s two main cities, as well as the Caribbean and Central American cities. Caracas rents are comparable to other markets when paid for at the parallel exchange rate (~80 VEF/USD). However, multinational companies who cannot resort to this method must use the official rate (6.3 VEF/USD) which is wildly overvalued and pushes rents up into the $250 - $450/m 2 /month range.

12 JLL Latin America Office Market Overview Mid year Executive Summary: Change in Average Rents, Y-o-Y Caracas *Caracas rents at Official Exchange Rate Col. Caribbean Rio de Janeiro Mexico City Panama City Quito Lima Montevideo Bogotá Santiago Guayaquil Buenos Aires Medellín Guadalajara Monterrey San Juan São Paulo San José Percent Change: Class A Avg. Rent Percent Change: Class AB Avg. Rent Cali -50% 0% 50% 100% 150% 200% Source: JLL Research (2014) Rents in Caracas have increase dramatically Y-o-Y due to currency restrictions and extremely high inflation. Prices have risen most Y-o-Y in Barranquilla (Colombia Caribbean), Rio de Janeiro, and Mexico City. Most major markets in Latin America have seen rents fall yearon-year. This is due to a spike in new supply over the past few years that has outpaced demand in most cities. Rents have fallen hardest in San Jose, São Paulo, San Juan, Monterrey, and Guadalajara.

13 Renable Area (m2) Vacancy Rate JLL Latin America Office Market Overview Mid year Executive Summary: Regional Production and Absorption, ,200,000 1,000,000 Production Net Absorption Vacancy Rate 14% 12% 800,000 10% 8% 600,000 6% 400,000 4% 200,000 2% - Q Q Q Q Q % Source: JLL Research (2014) In the first half of 2014, Latin America saw approximately 780,000 m 2 of new supply and approximately 500,000 m 2 of net absorption. Both production and absorption are down significantly from 2012 and 2013 levels. The region-wide vacancy rate is at 12.4%. Vacancy has been steadily rising over the past two years as several markets are currently oversupplied.

14 JLL Latin America Office Market Overview Mid year Market Snapshots Buenos Aires, Argentina 14 São Paulo, Brazil 15 Rio de Janeiro, Brazil 16 Santiago, Chile 17 Bogotá, Colombia 18 Medellín, Colombia 19 Cali, Colombia 20 Barranquilla, Colombia 21 San José, Costa Rica 22 Quito, Ecuador 23 Guayaquil, Ecuador 24 Mexico City, Mexico 25 Monterrey, Mexico 26 Guadalajara, Mexico 27 Panama City, Panama 28 Lima, Peru 29 San Juan Puerto Rico 30 Montevideo, Uruguay 31 Caracas, Venezuela 32 Comparison of market leasing practices 33 Contacts 36

15 JLL Latin America Office Market Overview Mid year Argentina Buenos Aires The draining of foreign reserves over the last few months forced the Central Bank to devalue the Argentinian Peso by 23% and raise interest rates. Yields on 90-day bills issued by the BCRA have increased from 16% in January to 27% now. While this helped boost reserves, it also dampened the economy and accelerated inflation. Gains in export competitiveness from the adjusted exchange rate were eroded by rising inflation. Industrial activity is down for the third straight year, with the automotive sector hit particularly hard. The devaluation has slowed the recovery in construction and real estate by causing land and property prices to rise. The economy is expected to contract by 1% in 2014 due to these factors. The overall real estate market in Buenos Aires has been stagnant, with historically low transaction volumes, although the residential market has proven more resilient in this context. Approximately 58,000 m 2 will be added to the corporate market this year, nearly equaling the production total in About 75% of this has been delivered in the first half of the year. Absorption has been outpaced by new supply, which has led to a moderate rise in the vacancy rate this year. Vacancy has oscillated between 5.5% and 7% in the past year, and closes Mid- Year 2014 at 7.6%. Demand is estimated at about 31,000 m 2 for Rents in Buenos Aires were growing steadily up until 2013, but have been stagnant since as demand has slowed down. Class A rents are currently between USD $27 30/m 2 /month, while Class AB/B+ rents are between USD $18-24/m 2 /month. Total stock (m²) 1,238,000 Overall vacancy rate 7.6% Production 1 st half 2014 (m²) 44,000 Net absorption 1 st half 2014 (m²) 9,000 Expected production 2 nd half 2014 (m²) 14,000 Expected net absorption 2 nd half 2014 (m²) 22,000 Class A rental range (USD/m²/mo.) $27-$30 Class AB/B+ rental range (USD/m²/mo.) $18-$24 Average purchase price range (USD/m²) $3,300 4,400 Historic production, absorption, and vacancy

16 JLL Latin America Office Market Overview Mid year Brazil São Paulo 2014 has been a turbulent year in Brazil s economy. High inflation, low growth, and low investor confidence have intensified during the first semester of However, employment remains historically low and disposable income has been stable. Inflation has been above 6%, above the target range. Cuts in public spending and increases in regulated prices are planned for later this year, but they are unlikely to take place before the presidential elections. Brazil will vote in a Presidential election this October. São Paulo s real estate market remains tenant favorable, with vacancy reaching 20.5%. The São Paulo market has been extremely dynamic recently, but the high amount of space that has been handed back has led to limited net absorption. The Berrini and Feria Lima submarkets have seen the most absorption, while the Marginal submarket has seen negative absorption in the first half of the year. Rental prices fell 0.7% in the 2nd quarter 2014, however it appears that the rate of rental deflation is slowing after the past few quarters. Falling rents are having a significant effect on company relocations. The wide disparity in rents in São Paulo is due to the significant different in amenities, infrastructure, and access between the city s CBD and decentralized submarkets. Alphaville, for example, is a relatively new decentralized submarket, however due to poor access and heavy traffic, vacancy rates are currently at 46% and rents are substantially lower. Total stock (m²) 3,764,000 Overall vacancy rate 20.5% Production 1 st half 2014 (m²) 144,000 Net absorption 1 st half 2014 (m²) 39,000 Expected production 2 nd half 2014 (m²) 353,000 Expected net absorption 2 nd half 2014 (m²) 180,000 Class A rental range (USD/m²/mo.) $19-$81 Class AB/B+ rental range (USD/m²/mo.) $18-79 Average purchase price range (USD/m²) $4,800 11,400 Historic production, absorption, and vacancy

17 JLL Latin America Office Market Overview Mid year Brazil Rio de Janeiro 2014 has been a turbulent year in Brazil s economy. High inflation, low growth, and low investor confidence have intensified during the first semester of However, employment remains historically low and disposable income has been stable. Inflation has been above 6%, above the target range. Cuts in public spending and increases in regulated prices are planned for later this year, but they are unlikely to take place before the presidential elections. Brazil will vote in a Presidential election this October. For the second consecutive quarter, rental prices remained flat as rising production has forced landlords to be more competitive. Rents have fallen most in the Barra da Tijuca and Orla submarkets. The first quarter of the year saw negative net absorption of -23,000 m 2. However, demand picked up in the 2 nd quarter, driven primarily by government-linked agencies. The Porto Maravilha submarket saw its first properties delivered to the market in the past few months. This area should provide a significant boost to Rio s downtown, as it is expected to contain 25% of the market by Vacancy increased from 14.6% at the end of 2013 to 17.1%. This vacancy is driven by new developments in the Porto Maravilha dockside region that have yet to be occupied and by corporate spaces being handed back. Similar to São Paulo, there is a significant different in rents between the city s CBD and decentralized submarkets. The most notable example is Barra da Tijuca, where vacancy is above 20% and rents are among the lowest in the Rio de Janeiro market. Total stock (m²) 1,707,000 Overall vacancy rate 17.1% Production 1 st half 2014 (m²) 73,000 Net absorption 1 st half 2014 (m²) 2,000 Expected production 2 nd half 2014 (m²) 88,000 Expected net absorption 2 nd half 2014 (m²) 70,000 Class A rental range (USD/m²/mo.) $33-$120 Class AB/B+ rental range (USD/m²/mo.) $ Average purchase price range (USD/m²) $4,400 23,300 Historic production, absorption, and vacancy

18 JLL Latin America Office Market Overview Mid year Chile - Santiago The slight deceleration of the Chilean economy in the past few months is explained to a large degree by a decline in investment, internal demand, and exports. Demand for Chilean commodities in key export markets such as China has decreased during the last few semesters. Estimations of GDP growth this year have been moderately adjusted downward as the year has advanced. The 4.1% growth rate for 2014 projected by the private sector has been corrected downwards to a 2.5% 3.0%, while Chile s Central Bank estimates 2014 growth between %. These economic indicators are expected to improve in Close to 98,000 m 2 of Class A and AB product were delivered in the first half of the year, nearly 30,000 m 2 more than in the same period in This production moves Santiago s total stock up to 2,829,000 m 2. Abundant new supply pushed the general market vacancy up to 5.2% at year-end 2013, and it has been increasing steadily since. Absorption for Mid-Year 2014 was close to 33,000 m 2. Annual absorption is expected at around 155,000 m 2, mostly concentrated in the Class A segment (approximately 100,000 m 2 ). Rental rates in Unidades de Fomento escalated from UF 0.62 / m 2 to UF 0.63 / m 2 for Class A and from UF 0.46 / m 2 to UF 0.47 / m 2 for Class AB. On the other hand, the depreciation of the Chilean Peso (Y-o-Y) kept rents steady in US$. Class A rents settled at US$ 28 / m 2 and Class AB rents at US$ 21 / m 2. Rising vacancy, high forecasted production, and a softening macroeconomic environment explain why Santiago s vacancy rate is pushing toward equilibrium levels (8% - 12%). This marks a shift in market dynamics, as the past 10 years have been characterized by low vacancy and rising rents, and a generally landlord-favorable market. Total stock (m²) 2,829,000 Overall vacancy rate 7.6% Production 1 st half 2014 (m²) 98,000 Net absorption 1 st half 2014 (m²) 33,000 Expected production 2 nd half 2014 (m²) 200,000 Expected net absorption 2 nd half 2014 (m²) 118,000 Class A rental range (USD/m²/mo.) $18-33 Class AB/B+ rental range (USD/m²/mo.) $16-28 Average purchase price range (USD/m²) $3,000 $3,700 Historic production, absorption, and vacancy The decrease in stock from Q to Q is due to a requalification of some properties due to antiquity and/or considerable floor plan subdivisions.

19 JLL Latin America Office Market Overview Mid year Colombia - Bogotá After a slowdown in 2013, the Colombian economy has resumed its momentum this year, buoyed by high consumer demand, strong manufacturing and construction, infrastructure spending, and an expansionary fiscal policy in the run-up to May s presidential election. Inflation has been flat over the past year, having closed 2013 at 2.2%. It is expected to stabilize in the medium term at around 3 3.5%. Foreign direct investment is expected to reach USD $15 billion for the 3 rd straight year. In a highly anticipated election, president Juan Manuel Santos held off challenger Oscar Ivan Zuluaga in a 2 nd round run-off. This will ensure continuity of the peace negotiations with the FARC. Following a year of low production, new deliveries have picked back up in The first half of the year saw about 83,000 m 2 enter the market nearly equalling the 2013 annual total. Production is expected to top 200,000 m 2 by the end of this year. Demand has been equally strong so far this year, with about 62,000 m 2 of net office absorption in the first semester of the year. JLL forecasts that demand will reach about 178,000 m 2 this year. Vacancy reached a 5 year low at the end of 2013, and has since increased to 4.1%. The completion of several more projects by the end of this year should push vacancy up even further. Rents are rising steadily, especially in the El Norte submarkets. New developments in the city s decentralized areas, where rents are significantly cheaper, are luring tenants and expanding the market geographically. Total stock (m²) 1,719,000 Overall vacancy rate 4.1% Production 1 st half 2014 (m²) 83,000 Net absorption 1 st half 2014 (m²) 62,000 Expected production 2 nd half 2014 (m²) 144,000 Expected net absorption 2 nd half 2014 (m²) 105,000 Class A rental range (USD/m²/mo.) $34-$45 Class AB/B+ rental range (USD/m²/mo.) $28-$39 Average purchase price range (USD/m²) $3,000 - $7,000 Historic production, absorption, and vacancy

20 JLL Latin America Office Market Overview Mid year Colombia - Medellín After a slowdown in 2013, the Colombian economy has resumed its momentum this year, buoyed by high consumer demand, strong manufacturing and construction, infrastructure spending, and an expansionary fiscal policy in the run-up to May s presidential election. Inflation has been flat over the past year, having closed 2013 at 2.2%. It is expected to stabilize in the medium term at around 3 3.5%. Foreign direct investment is expected to reach USD $15 billion for the 3 rd straight year. In a highly anticipated election, president Juan Manuel Santos held off challenger Oscar Ivan Zuluaga in a 2 nd round run-off. This will ensure continuity of the peace negotiations with the FARC. Vacancy rates have been been among the lowest in Latin America, as demand has been growing and developers have long been slow to react. Office production in Medellin finally appears to be gathering momentum. Annual production will increase from 35,000 m 2 in 2014, to 60,000 m 2 in 2015, to almost 90,000 m 2 in The majority of this is Class A space, illustrating the high latent demand for quality product in this market. Demand has been on the rise, but has been restricted by limited supply. About 40,000 m 2 of net absorption are expected in 2014, and this should increase in subsequent years. Rents are highest in El Poblado, the city s most established business cluster, and are lowest in Centro, the older downtown. Total stock (m²) 534,000 Overall vacancy rate 3.8% Production 1 st half 2014 (m²) 19,000 Net absorption 1 st half 2014 (m²) 10,000 Expected production 2 nd half 2014 (m²) 16,000 Expected net absorption 2 nd half 2014 (m²) 16,000 Class A rental range (USD/m²/mo.) $19-$28 Class AB/B+ rental range (USD/m²/mo.) $15-$22 Average purchase price range (USD/m²) $2,500 - $3,500 Historic production, absorption, and vacancy

21 JLL Latin America Office Market Overview Mid year Colombia - Cali After a slowdown in 2013, the Colombian economy has resumed its momentum this year, buoyed by high consumer demand, strong manufacturing and construction, infrastructure spending, and an expansionary fiscal policy in the run-up to May s presidential election. Inflation has been flat over the past year, having closed 2013 at 2.2%. It is expected to stabilize in the medium term at around 3 3.5%. Foreign direct investment is expected to reach USD $15 billion for the 3 rd straight year. In a highly anticipated election, president Juan Manuel Santos held off challenger Oscar Ivan Zuluaga in a 2 nd round run-off. This will ensure continuity of the peace negotiations with the FARC. Cali has attracted the attention of investors because it is Colombia s only major city located near the Pacific Ocean. Rising trade with other pacific markets such as China and Australia is expected to provide a boost to the local economy. Cali s market is mostly concentrated in the submarkets of Centro, Versalles, and Ciudad Jardin, though a large proportion of the stock (about 35%) can be found in decentralized and nonconsolidated areas. About 30% of the Cali market is non-speculative (either owner occupied or single tenant buildings). Several projects have been cancelled in Cali, as they have been unable to attain financing. This demonstrates investors continued reluctance in this market. Overall vacancy is at 7.6%, yet the adjusted vacancy for speculative properties stands at nearly 10%. Total stock (m²) 164,000 Overall vacancy rate 7.6% Production 1 st half 2014 (m²) 2,500 Net absorption 1 st half 2014 (m²) 1,500 Expected production 2 nd half 2014 (m²) 15,000 Expected net absorption 2 nd half 2014 (m²) 14,000 Class A rental range (USD/m²/mo.) $21-$26 Class AB/B+ rental range (USD/m²/mo.) $14-$23 Average purchase price range (USD/m²) $1,900 - $3,100 Stock, production, and vacancy by submarket

22 JLL Latin America Office Market Overview Mid year Colombia - Barranquilla (and Caribbean) After a slowdown in 2013, the Colombian economy has resumed its momentum this year, buoyed by high consumer demand, strong manufacturing and construction, infrastructure spending, and an expansionary fiscal policy in the run-up to May s presidential election. Inflation has been flat over the past year, having closed 2013 at 2.2%. It is expected to stabilize in the medium term at around 3 3.5%. Foreign direct investment is expected to reach USD $15 billion for the 3 rd straight year. In a highly anticipated election, president Juan Manuel Santos held off challenger Oscar Ivan Zuluaga in a 2 nd round run-off. This will ensure continuity of the peace negotiations with the FARC. Colombia s Caribbean region is on the radar of many investors and developers, owing to the country's growth in external trade which should benefit these port-oriented cities. This is evident in the near duplication in stock anticipated for this region. The submarket that will see the most growth is Buenavista in Barranquilla, a neighborhood that was practically built from scratch over the past few years. By 2016 Buenavista will contain approximately one third of the Caribbean stock. The first Class A building in Santa Marta was delivered earlier this year, representing all production for this market during the first half of Rents are rising fast, with landlords looking to take advantage of the uptick in investment and buzz surrounding this area. Total stock (m²) 116,000 Overall vacancy rate 5.8% Production 1 st half 2014 (m²) 9,600 Net absorption 1 st half 2014 (m²) 8,000 Expected production 2 nd half 2014 (m²) 10,000 Expected net absorption 2 nd half 2014 (m²) 8,400 Class A rental range (USD/m²/mo.) $21-$32 Class AB/B+ rental range (USD/m²/mo.) $15-$25 Average purchase price range (USD/m²) $2,500 - $3,500 Current and future stock by submarket

23 JLL Latin America Office Market Overview Mid year Costa Rica San José The Costa Rican economy is expected to expand by 3.8% in Despite increases of 4% in public sector spending and 3% in domestic demand, the economy has slowed down from 2012 levels, with Y-o-Y GDP registering in the 3-4% range, down from 4-5% in the years prior. Costa Rican exports increased by 3.3% during Q1 compared with the same period of the previous year. In Q1, imports increased by 2.6% over the same period of The top performing sectors in the first half of 2014 were construction and financial intermediation services. San José is seeing rapid growth in residential construction, particularly in the peripheral suburbs of the city such as Heredia, Alajuela, Santa Ana, and San Pedro. The office market is concentrated in Heredia with 37% of the Approximately 34,000 m 2 of new construction were delivered to the market in the first half of the year, and by the end of the year this total should reach nearly 54,000 m 2. San José s vacancy rate of 13.1% is clearly above the equilibrium vacancy range of 8-12%. Vacancy has risen steadily over the past few years due to growing production that has consistently outpaced the demand. Landlords have lowered rents in all sectors of the city in order to more aggressively attract tenants into their buildings. As a result of the current tenant-favorable context of the market, Class A rents have fallen over 7% from Q to now, and are currently averaging about USD $19/m 2 /month. Class AB rents meanwhile have stabilized at around USD $17/m 2 /month. Total stock (m²) 914,000 Overall vacancy rate 13.1% Production 1 st half 2014 (m²) 34,000 Net absorption 1 st half 2014 (m²) 17,000 Expected production 2 nd half 2014 (m²) 20,000 Expected net absorption 2 nd half 2014 (m²) 18,000 Class A rental range (USD/m²/mo.) $15-25 Class AB/B+ rental range (USD/m²/mo.) $13-21 Average purchase price range (USD/m²) $2,500 3,000 Historic production, absorption, and vacancy

24 JLL Latin America Office Market Overview Mid year Ecuador - Quito Ecuador has agreed to a trade deal with the European Union that will remove tariffs on most products. If approved by the national assembly and the respective parliaments of all EU member countries, it should provide a significant boost to Ecuadorian exporters - especially agriculture. Oil exports are up considerably over 2013, fueled by rising demand from China. Inflation is expected to stabilize in the short-term at 3%. President Correa has reform plans to boost the non-oil economy through the attraction of new foreign investment to develop largescale mining and hydroelectric power. Also, drilling proposals in the Yasuni national park a highly controversial issue in Ecuador at the moment - should raise the oil outcome in the coming years. Improved healthcare and educational initiatives should improve labor productivity an expand the formal economy. Total stock (m²) 485,000 Overall vacancy rate 5.5% Production 1 st half 2014 (m²) 10,000 Net absorption 1 st half 2014 (m²) 12,000 Expected production 2 nd half 2014 (m²) 11,000 Expected net absorption 2 nd half 2014 (m²) 8,000 Class A rental range (USD/m²/mo.) $15-$24 Class AB/B+ rental range (USD/m²/mo.) $11-$18 Average purchase price range (USD/m²) $1,300 - $1,900 Production will decrease this year after registering over 50,000 m 2 in Demand will also fall this year. After seeing net absorption of 56,000 m 2 in 2013, only 12,000 m 2 have been absorbed in the first half of Quito s prime office stock consists mainly (~70%) of spaces that are less than 400 m². Still, the market for large spaces is a small but current growing segment of the demand. Vacancy has remained in the 5-7% range, falling 1% Y-o-Y. Top properties in Quito are commanding USD $24/m 2 /month, though pre-leased spaces are asking up to $26/m 2 /month. Stock distribution by submarket

25 JLL Latin America Office Market Overview Mid year Ecuador - Guayaquil Ecuador has agreed to a trade deal with the European Union that will remove tariffs on most products. If approved by the national assembly and the respective parliaments of all EU member countries, it should provide a significant boost to Ecuadorian exporters - especially agriculture. Oil exports are up considerably over 2013, fueled by rising demand from China. Inflation is expected to stabilize in the short-term at 3%. President Correa has reform plans to boost the non-oil economy through the attraction of new foreign investment to develop largescale mining and hydroelectric power. Also, drilling proposals in the Yasuni national park a highly controversial issue in Ecuador at the moment - should raise the oil outcome in the coming years. Improved healthcare and educational initiatives should improve labor productivity an expand the formal economy. Total stock (m²) 262,000 Overall vacancy rate 16% Production 1 st half 2014 (m²) 7,000 Net absorption 1 st half 2014 (m²) 5,000 Expected production 2 nd half 2014 (m²) 10,000 Expected net absorption 2 nd half 2014 (m²) 12,000 Class A rental range (USD/m²/mo.) $14-$20 Class AB/B+ rental range (USD/m²/mo.) $11-$16 Average purchase price range (USD/m²) $1,400 - $2,000 Vacancy has remained stubbornly high at 16%. This has kept rents stagnant and developers reluctant to add new supply to the market. The Centro (historic downtown) submarket is undergoing considerable redevelopment, highlighted by the 58,000 m 2 Swisshotel mixed-use complex. The Kennedy submarket has seen the most growth over the past few years, with large-scale developments such as Parque Empresarial Colon, Plaza Constitución, and America Centro Corporativo. Stock distribution by submarket

26 JLL Latin America Office Market Overview Mid year Mexico Mexico City 2014 expectations have been tempered due to weak internal demand, a drop in government spending, and the bankruptcy of the three largest housing development companies. However, manufacturing exports have continued to grow, driven primarily by the automotive sector. The Central Bank cut its key policy interest rate in June by 50 basis points to 3.0% due to low GDP growth and minimal inflation. In March, state-owned oil firm Pemex submitted a list of oil fields which it would like to continue operating. This represents the first concrete step towards breaking up its 75-year monopoly. The full legislation is expected to be passed soon. Mexico City s vacancy rate has remained stable at between 10-12% for the past two years, despite the addition of nearly 700,000 m 2 in this time. Expected office deliveries in 2014 will approach 300,000 m 2. The vast majority of this will come in the 2 nd half of the year. An astonishing 800,000 m 2 are expected in Absorption has been strong so far this year, with about 144,000 m 2 of demand registered in the first half of the year. JLL forecasts that annual absorption will be around 250,000 m 2 for 2014, though this will represent a significant deceleration from 2013 when nearly 400,000 m 2 of space were absorbed. The Central Business District and the Insurgentes submarket have seen increases in sale prices this year as developers are trading at higher values. However, average rents in the city have remained stable as the market is in an equilibrium state at the moment. Total stock (m²) 4,696,000 Overall vacancy rate 11.1% Production 1 st half 2014 (m²) 68,000 Net absorption 1 st half 2014 (m²) 144,000 Expected production 2 nd half 2014 (m²) 284,000 Expected net absorption 2 nd half 2014 (m²) 110,000 Class A rental range (USD/m²/mo.) $25-$35 Class AB/B+ rental range (USD/m²/mo.) $21-$25 Average purchase price range (USD/m²) $2,700 - $6,000 Vacancy and absorption by submarket

27 JLL Latin America Office Market Overview Mid year Mexico Monterrey 2014 expectations have been tempered due to weak internal demand, a drop in government spending, and the bankruptcy of the three largest housing development companies. However, manufacturing exports have continued to grow, driven primarily by the automotive sector. The Central Bank cut its key policy interest rate in June by 50 basis points to 3.0% due to low GDP growth and minimal inflation. In March, state-owned oil firm Pemex submitted a list of oil fields which it would like to continue operating. This represents the first concrete step towards breaking up its 75-year monopoly. The full legislation is expected to be passed soon. While the production of premium commercial properties has increased in recent years, demand has been slow to catch up. JLL forecasts an excess supply of spaces and, as a consequence, developers will be forced to lower their rents in order to attract tenants. Approximately 100,000 m 2 of new space will be added to the market in 2014 in 15 buildings. Net absorption for this year is forecasted at approximately 65,000 m 2. Overall vacancy in Monterrey has been very high, oscillating around 20% for the past few years. The Valle and Valle Oriente submarkets have the lowest vacancy at 7% and 16%, respectively, while vacancy is in excess of 40% in the Obispado/Santa Maria submarket. Monterrey s newest buildings are leasing on average at $24/m 2 /month. However, more exclusive submarkets such as Valle Oriente and Valle are seeing rents in the USD $27-30/m 2 /month range. Total stock (m²) 997,000 Overall vacancy rate 18.6% Production 1 st half 2014 (m²) 50,000 Net absorption 1 st half 2014 (m²) 34,000 Expected production 2 nd half 2014 (m²) 66,000 Expected net absorption 2 nd half 2014 (m²) 30,000 Class A rental range (USD/m²/mo.) $19-$25 Class AB/B+ rental range (USD/m²/mo.) $13-$18 Average purchase price range (USD/m²) $1,500 - $3,000 Stock, vacancy, and rents by submarket

28 JLL Latin America Office Market Overview Mid year Mexico Guadalajara 2014 expectations have been tempered due to weak internal demand, a drop in government spending, and the bankruptcy of the three largest housing development companies. However, manufacturing exports have continued to grow, driven primarily by the automotive sector. The Central Bank cut its key policy interest rate in June by 50 basis points to 3.0% due to low GDP growth and minimal inflation. In March, state-owned oil firm Pemex submitted a list of oil fields which it would like to continue operating. This represents the first concrete step towards breaking up its 75-year monopoly. The full legislation is expected to be passed soon. Quality space in Guadalajara is concentrated primarily in 4 submarkets: Puerto de Hierro, with 50% of the total existing supply, Lopez Mateo with 24%, Americas with 18%, and Vallarta with 9%. Over 150,000 m 2 of space are either under construction or in planning stages for the next few years. Production forecasts for 2014 have been significantly revised as many projects have been postponed for The citywide vacancy rate is currently at 5%, its lowest point in the last few years. The Vallarta submarket is showing the highest vacancy at 9%. Rents have increased steadily across all asset classes. Class A rents are currently averaging USD $24/m 2 /month, and Class AB rents are averaging USD $20/m 2 /month. These figures represent a 17% increase over the past 2 years. The highest rents are generally seen in Puerta de Hierro while the most economical submarket is typically Lopez Mateos. Total stock (m²) 186,000 Overall vacancy rate 5.0% Production 1 st half 2014 (m²) 26,000 Net absorption 1 st half 2014 (m²) 5,000 Expected production 2 nd half 2014 (m²) 9,000 Expected net absorption 2 nd half 2014 (m²) 3,000 Class A rental range (USD/m²/mo.) $19-$25 Class AB/B+ rental range (USD/m²/mo.) $15-$20 Average purchase price range (USD/m²) $2,800 - $3,500 Stock, production, and vacancy by submarket

29 JLL Latin America Office Market Overview Mid year Panama Panama City Activity at the Canal was slowed last year due to worker strikes and a cost dispute between the Canal Authority and private contractors. Having resolved these issues, cargo activity has picked up in 2014, growing by nearly 9% in the first four months of the year. The Canal is expected to be completed by Q After two consecutive years of inflation running at around 6%, the CPI index fell to 3.6% in In 2014 this figure should stabilize between 3-4%, as rising consumer demand is counteracted by moderating food and fuel prices. Panama held a presidential election this past May, which was won by Juan Carlos Varela with 39% of the electorate. Mr. Varela s stated goals for the upcoming term include restoring transparency and confidence to the public sector, and diversifying the economy particularly through the development of Panama s tourism and mining sectors. Panama continues to experience the effects of an unprecedented office construction boom. Approximately 175,000 m 2 of office space were delivered in 2013, with over 500,000 m 2 planned for delivery between 2014 and Supply has far outpaced demand in Panama City in recent years. Well over 500,000 m 2 of office space have been added to the market between 2011 and 2013, yet only 230,000 m 2 have actually been rented out. Though office vacancy actually dropped slightly to 34% from 37% between Q and Q2 2014, Panama continues to demonstrate the highest vacancy in Latin America. Average rents have fallen by 2.5% over the past six months as landlords compete to fill their vacant areas. Total stock (m²) 875,000 Overall vacancy rate 34% Production 1 st half 2014 (m²) 12,000 Net absorption 1 st half 2014 (m²) 39,700 Expected production 2 nd half 2014 (m²) 213,000 Expected net absorption 2 nd half 2014 (m²) 50,300 Class A rental range (USD/m²/mo.) $17 -$33 Class AB/B+ rental range (USD/m²/mo.) $14 -$31 Average purchase price range (USD/m²) $1,800 - $3,800 Historic production, absorption, and vacancy

30 JLL Latin America Office Market Overview Mid year Peru - Lima Though Peru continues to be one of Latin America s strongest performers, its economy has shown signs of slowing growth in the first half of The key factor has been the reduced demand for raw materials from China and other major export markets. The government, having long anticipated this scenario, is using its reserves to expand public sector spending, thus alleviating the slowdown caused by external factors. Inflation will likely stay around 3% this year. This should prompt the Central Bank to leave interest rates untouched Private sector bank lending has increased 17% Y-o-Y, which will help boost private consumption. Lima is in the midst of an unprecedented boom in office construction. Over 900,000 m 2 of new space will be added to the market between Annual demand has been strong, falling between 100, ,000 m 2 annually over the past few years. JLL estimates that absorption in a well-supplied market would cap at around 250,000 m 2. Even this conservative estimate would send the vacancy rate beyond 15%, making Lima a much more tenant-favorable market. For the moment, vacancy remains low at about 3.6%. This is currently the lowest citywide vacancy rate of all major cities in Latin America. Rents continue to rise steadily, with the highest-end properties asking $32/m 2 /month (including parking fees). More economical rents can be found in the Este submarket, which is decentralized and more suburban. Total stock (m²) 1,130,000 Overall vacancy rate 3.6% Production 1 st half 2014 (m²) 78,000 Net absorption 1 st half 2014 (m²) 66,000 Expected production 2 nd half 2014 (m²) 110,000 Expected net absorption 2 nd half 2014 (m²) 101,000 Class A rental range (USD/m²/mo.) $23-32 Class AB/B+ rental range (USD/m²/mo.) $20-29 Average purchase price range (USD/m²) $2,750 $3,500 *These rents include parking fees, which are an obligatory cost for tenants in Peru. Historic production, absorption, and vacancy

31 JLL Latin America Office Market Overview Mid year Puerto Rico San Juan Puerto Rico has a GDP per capita (PPP) of approximately USD $16,000. The unemployment rate has fallen from 15.2% in 2012 to 14% in 2013, however this likely reflects a significant share of the population that have either left the island or withdrawn from the labor pool. In February 2014, economic activity in Puerto Rico contracted 2.5% over the same month of last year, marking the 14 th consecutive negative reading. The government has taken important strides recently to shore up their fiscal position, including a reform of the tax code aimed at stimulating domestic demand. Forecasts for 2014 indicate a continuation of the contraction seen in high energy prices in the international markets will put downward pressure on the island s external accounts, while the government will have to make more difficult tradeoff between job creation policies and job cutting austerity measures. San Juan s two most important office clusters are Hato Rey - which contains about 44% of the office stock - and Guaynabo, a newer submarket that offers larger floor plates, more parking, and less traffic congestion. Vacancy is lowest among Class A buildings (around 14%) and higher for Class B (18%) and Class C (25%). The highest rents in San Juan can be found in Hato Rey. Guaynabo rents are slightly lower. The San Juan prime office market continues to be tenantfavorable. Investors, users, and corporate clients are taking advantage, using sub-leases and early contract re-negotiations Total stock (m²) 768,000 Overall vacancy rate 17.5% Production 1 st half 2014 (m²) 0 Net absorption 1 st half 2014 (m²) -7,500 Expected production 2 nd half 2014 (m²) 0 Expected net absorption 2 nd half 2014 (m²) -5,000 Class A rental range (USD/m²/mo.) $14-$20 Class AB/B+ rental range (USD/m²/mo.) $11-$18 Average purchase price range (USD/m²) $1,800 - $2,200 *Rents in San Juan are typically quoted in ft2, but are stated in m2 in this report for consistency and comparative purposes. Historic production and rents

32 JLL Latin America Office Market Overview Mid year Uruguay - Montevideo The Uruguayan economy appears to be slowing down from last year, with independent analysts forecasting 3% growth in The slowdown is primarily attributed to tighter monetary policy that has been necessary to stem rising inflation, as well as the continued struggles of key MERCOSUR export markets Argentina, Brazil, and Venezuela. Clothing and textile manufacturers have been hit particularly hard by these conditions. Inflation is currently in excess of 9% Y-o-Y, above the government's target range of 4-7%. Rising prices have been fuelled by rising energy costs and currency depreciation. The budget deficit, at 2% of GDP, remains a concern and will be strained further by pre-election spending this year. The current account deficit has also intensified, with exports having decreased over the past year by 0.8% and imports having risen by 3.8%. Uruguay will elect a new president in October as the constitution forbids Jose Mujica from running again. The early front-runner is former president Tabaré Vasquez who will represent the same political party as Mr. Mujica. Total stock (m²) 270,000 Overall vacancy rate 7.41% Production 1 st half 2014 (m²) 0 Net absorption 1 st half 2014 (m²) N/A Expected production 2 nd half 2014 (m²) 0 Expected net absorption 2 nd half 2014 (m²) N/A Class A rental range (USD/m²/mo.) $29-$35 Class AB/B+ rental range (USD/m²/mo.) $21-$27 Average purchase price range (USD/m²) $2,800 $3,500 Stock evolution, The completion of the 32,000-m 2 World Trade Center at the end of 2012 was the last significant addition to the Montevideo market. Prime rents have remained steady over the past 2 years without much change. The vacancy rate remains in the 7-8% range. While new projects such as World Trade Center have been slow to take up, the lack of new production is keeping options relatively limited for tenants. Fiscal incentives and building quality are making spaces in the Free Trade Zone more attractive. Currently, 45% of the Class A market is contained within the Free Trade Zones.

33 JLL Latin America Office Market Overview Mid year Venezuela - Caracas Despite recovering global oil prices, the economy is likely to contract this year by nearly 2%. Sustained underperformance in Venezuela s crucial oil sector is fueling a deficit in foreign exchange. This has made it difficult for companies to finance their imports and has resulted in an acute scarcity of basic goods. The shortage of goods has set up an inflationary cycle that has the current Y-o-Y CPI estimate at above 60%. Consequently, real interest rates are negative, meaning people have little incentive to place their money in the banking system since it will be eaten by inflation. Instead, people are looking to acquire material goods that will maintain their inherent vale in the face of high inflation. The government has implemented a third, market-based exchange rate system SICAD II through which they hope to address the critical shortage of dollars into the economy. A December decree passed by Maduro put a cap on all real estate rents at 250 VEF (~USD $40 at the official exchange rate) in order to contain runaway inflation. However the law has since been revoked. Office demand is increasingly concentrated in sales, as companies continue to invest in their facilities as a way to hedge against inflation and devaluation. Rents are in line with the rest of the region when quoted at the black market exchange rate. However, since foreign companies must use standardized and transparent accounting, they are obligated to use the official exchange rate. Rents at this rate can be up to $425m/ 2 /month. Total stock (m²) 1,079,000 Overall vacancy rate 6.0% Production 1 st half 2014 (m²) 22,000 Net absorption 1 st half 2014 (m²) 22,000 Expected production 2 nd half 2014 (m²) 5,000 Expected net absorption 2 nd half 2014 (m²) 27,000 Class A rental range, Official FX (USD/m²/mo.) $250-$425 Class AB/B+ rental range, Official FX (USD/m²/mo.) $225-$400 Class A rental range, ParallelFX (USD/m²/mo.) $30-$35 Class AB/B+ rental range, ParallelFX (USD/m²/mo.) $20-$31 Average purchase price range, Official FX (USD/m²) $35,000-$75,000 Average purchase price range, Parallel FX (USD/m²) $3,000-$6,500 Exchange Rate and Inflation