2018 Q2. Buenos Aires Office Market Report

Transcription

1 2018 Q2 Buenos Aires Office Market Report

2 2 JLL

3 Introduction One of the more relevant aspects of the economic situation during the second quarter of 2018 was the behavior of the exchange rate. Following a relatively moderate increase from the start of the year up to the end of April, which took it from ARS 18.6 per dollar to ARS 20.5, May and June saw a marked acceleration of the exchange rate depreciation, closing the first half-year at ARS This amount, far above the average of ARS 19.3 projected for the whole year in the national budget, meant a devaluation in excess of 50% in 2018 so far. For its part, the accumulated inflation, according to the Consumer Price Index measured by the National Institute of Statistics and Censuses (INDEC) up to May amounted to 11.9%, that is, a figure already close to the maximum of 15% that the administration had announced as inflation target. On another note, the recently released foreign direct investment (FDI) data reveals a significant recovery in 2017, with a 253% interannual increase. Although 2016 had been the worst year with respect to FDI since 2003, it should also be noted that this recovery took place within the framework of three consecutive years of declining extra-regional investments in Latin America. In regard to the construction industry, the Synthetic Indicator of Construction Activity (ISAC), tracked by the INDEC and benchmark for the sector s level of activity and input demand, accumulates a year-on-year expansion of 12.4% over the first five months of Thus, the upward trend seen since the first half of 2017 continues, though slowing down its pace. Economics data Country population (Millions) Buenos Aires Metro Area Population (Millions) Unemployment rate (%) GDP (Millions USD) 4 608,000 GDP annual growth (%) GDP per capita - PPP (USD) 14,000 Annual inflation (%) Exchange rate (Pesos per USD) Source: JLL based on: 1 INDEC: Estimaciones y proyecciones de población Report 2 INDEC: official data for 2010 Census 3 INDEC: Encuesta permanente de hogares (EPH), first quarter of INDEC: official data for last quarter of INDEC: official data for the first quarter of Relevamiento de expectativas de mercado - Report. Central Bank of Argentina 7 Average exchange rate at june 2018 Buenos Aires Office Market Report 3

4 Supply During the second quarter of the year, the Buenos Aires corporate stock amounted to 1,458,000 square meters, of which 17,000 square meters correspond to new supply, distributed into three properties, two in the Zona Norte GBA and one in the Zona Norte CABA submarket. The vacancy figure remained at a very similar level to that of the preceding quarter. It amounted to 5.4% (5.2% over the first three months of the year). On the other hand, the time frame under analysis witnessed the end of a trend that had been in place beginning at Since then, the availability across Class A buildings had always been below that recorded for Class AB properties. The Zona Norte CABA and Plaza Roma submarkets presented the lowest vacancy rates of the market, registering merely 1.2% and 1.7% of available surface, respectively. Moreover, all the available surface was concentrated in 39 buildings, that is, 33% of the units making up the stock. It should also be noted that Zona Norte GBA is the submarket that presents the greatest number of buildings with more than 3,000 square meters on offer (only eight of the properties included in the stock have this much available area, and three of them are located in northern Buenos Aires). Chart 2 Evolution of stock and production (sq. m) 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , , F 2019F 2020F Stock Production With regard to new additions, 118,000 square meters of new supply are expected to be finished before the end of the year. Furthermore, 2019 and 2020 will see the inauguration of 232,000 square meters; therefore, within two years, the Buenos Aires corporate stock will have been enlarged by 367,000 square meters of new offer (a figure equivalent to 26% of the existing stock). The Zona Norte GBA and Zona Norte CABA submarkets will concentrate 65% of the area to be added (35% and 30%, respectively). Chart 1 Evolution of vacancy rate per district (%) 16% 14% 12% 10% 8% 6% 4% 7.2% 6.2% 5.4% 4.5% 2% 0% 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 CBD Non CBD Overall Historical average 4 JLL

5 Chart 3 Stock per district (%) 32% 68% Northern Zone CBD Non CBD CBD City of Buenos Aires Built Under construction Project Buenos Aires Office Market Report 5

6 Demand Net absorption amounted to 12,500 square meters during the second quarter of the year, below the historical quarterly average recorded since 2010 (16,800 square meters). For the purpose of illustrating this value, it is appropriate to highlight that a significant percentage of this surface corresponds to just two properties, which entered the Zona Norte GBA and Zona Norte CABA submarkets during the quarter with its office space fully occupied. Chart 4 Evolution of production and net absorption (sq. m) rentable sqm 210, , , ,000 90,000 60,000 The Catalinas and Microcentro submarkets registered the lowest values of the quarter, with 3,400 and 3,100 square meters, respectively. Regarding the former, only 2010 saw a greater release of office space than that observed during the period under analysis. 30, ,000-60, Production Absorption Prices Chart 5 Evolution of rents (USD /sq. m) and vacancy rate (%) The average asking rental rate remained practically unchanged with respect to the prior quarter, considering it amounted to USD 27.2 per square meter (USD 27.3 per square meter at the start of the year) % 20% 15% 10% Similarly, an analysis of the prices according to building class reveals a very stable trend both in the quarter-on-quarter as well as in the year-on-year comparison. Indeed, the average price for Class A units over the second quarter of 2018 was USD 31.2 per square meter (USD 31.9 per square meter in the previous quarter, and USD 31.3 per square meter during the first half of the preceding year). In the case of Class AB buildings, the average price per square meter amounted to USD 24.1 (three months before it amounted to USD 23.9 per square meter, and it was USD 24.4 per square meter in 2017) % 5% % Class A Class AB Vacancy Chart 6 Occupied / available area and vacancy rate (%) 79,400 The Catalinas submarket was the highest priced area during the quarter, with an average rent of USD 32.3 per square meter per month, followed by Macrocentro Norte, at USD 31.2 per square meter. Conversely, the lowest average prices of the period corresponded to the Macrocentro Sur submarket, amounting to USD 24.1 per square meter. 5.4% 1,378,723 Occupied area Available area 6 JLL

7 Submarket Stock (sq. m) Available Area (sq. m) Vacancy Rate (%) Rents (USD /sq. m /month) Net Absorption Q1 (sq. m) Net Absorption Acummulated (sq. m) Production (sq. m) Catalinas 298,000 13, % , Macrocentro Norte 101,000 3, % Macrocentro Sur 107,000 6, % Microcentro 67,000 4, % ,000-3,000 0 Plaza Roma 120,000 2, % , Puerto Madero 293,000 16, % ,000 2,000 0 Zona Norte CABA 110,000 1, % ,500 7,000 6,500 Zona Norte GBA 362,000 33, % ,000 22,200 10,500 Total 1,458,000 79, % ,600 27,300 17,000 Key Market Indicators 2Q18 Office stock M sqm Vacancy rate 5.4% Net absorption 12,600 sqm Monthly Rents USD 27.4 /sqm Buenos Aires Office Market Report 7

8 ubmarkets Catalinas Comprised by twelve corporate buildings located in the first district conceived solely for offices. These twelve office towers, along with one new building currently under construction, boast high construction quality and excellent image suitable for accommodating corporate users. Tenants in Catalinas come from diverse industries, ranging from banking and finances, insurance, logistics to heavy industrial. Plaza Roma This submarket is strategically located almost in the center of Buenos Aires CBD. Mostly Class A buildings scattered around Plaza Roma square, overlooking Puerto Madero and the Rio de la Plata. High quality and excellent corporate image are combined with proximity to other submarkets and abundant transport availability. Puerto Madero The second largest office submarket, this relatively new district harbors impressive buildings. This district represents almost 22% of the total corporate stock in Buenos Aires. Puerto Madero is a relatively new area, built over the old port of Buenos Aires, the district was urbanized aiming at high quality offices and luxurious residences. This submarket has been a harbor for flourishing investments in offices and residential developments for the past decade, nowadays, there are four office projects underway, one of them is a multiuse complex (offices, residential and hotel). Microcentro The oldest office submarket, this district is embedded in a historically protected area around Plaza de Mayo; political and social heart of the city. Most of the buildings in the area are over 50 years old. This area is notable for its financial and banking institutions a well as the BA Stock Exchange. Macrocentro Norte It is defined by a strip running from Corrientes Ave to Libertador Ave. Office spaces over 9 de Julio Ave. and Plaza San Martín, boasts very good corporate image yet construction quality and technical aspects fail to reach Class A standards. Corporate space in Plaza San Martín is supplied by Plaza San Martin Bldg, the remaining office space is predominantly Class B geared towards local companies with smaller operations. Macrocentro Sur Macrocentro Sur is the largest submarket in terms of size, yet corporate space options are scarce. This district includes historically protected zones, with building restrictions and some refurbished options. Zona Norte Zona Norte is the newest office submarket, massive completions in the past years have placed this district on the top of the stock office chart. Zona Norte has surged as an option to build large office buildings on inexpensive land and away from the congested metropolitan areas. Several multinationals have abandoned their CBD offices turning to larger and high quality options in this area. Chart 6 Corporate stock (sq. m) per submarket (%) Zona Norte GBA Zona Norte CABA Macrocentro Norte Macrocentro Sur Microcentro Puerto Madero Plaza Roma 4.5% 7.0% 6.8% 7.3% 8.1% 19.9% 23.9% Catalinas 20.2% 0 100, , , ,000 Class A Class AB 8 JLL

9 s Latin America Office Clock 2018 Q2 Caracas Medellin Rental Growth Slowing Rents Falling Rental Growth Accelerating Rents Bottoming Out Colombia Caribbean Buenos Aires Monterrey Cali Sao Paulo Lima, Montevideo, Santiago, San Jose Bogota Quito, Panama City Mexico City, San Juan, Guayaquil Rio de Janeiro, Guadalajara Guatemala City Santo Domingo Buenos Aires Office Market Report 9

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11 Local market practices Leasing market General Unit of measurement Square meters (sq. m) Rent Typical lease term Frequency of rent payment Typical rent deposit (expressed as per month rent) Security of tenure Statutory right to renew Basis of rent increases or rent review Frequency of rent increases or rent review Rent free period Car parking Agency fees Legal fees (payable by landlord / tenant) Quoted in USD /sq. m /month 3-5 years Monthly, in advance Case-by-case basis, typically 2-3 months. Other options are insurance letter, comfort letter Only for the duration of the tenancy, no rights beyond the original lease term No, unless an option is specified in the lease agreement Case-by-case basis, though explicit indexation is prohibited by law. Pre-escalated rent and arbitrated adjustments are typical Case-by-case basis 1-3 months. The rent free period is not standardized in the local market, however typically occurs. The length of this period is negotiated between the parties and is also a factor of how much (if any) tenant improvement allowance is provided. CABA, 1 every 100 sq.m Buenos Aires: Vicente López, 1 every 60 sq.m; San Isidro, 1 every 20 sq.m 5% of total value of lease for the first 5 years (if both parties have representative, agency fees split in halves); additional years are negotiable. Each part is responsible for its own legal costs Responsible for expenses, repairs and insurance Service charges/management fees Utilities Internal (tenant space) Common areas (reception, lift, stairs, etc.) External / structural Building insurance Local property taxes VAT on rent & service charges Additional to the rental charge and payable monthly in advance Electricity, telephone, AC, etc. paid by tenant according to consumption (sometimes separately metered, sometimes paid as a percentage of occupation) Tenant Landlord (charged back via service charge) Landlord Tenant / common area landlord Depends on jurisdiction 21% paid by Tenant Buenos Aires Office Market Report 11

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