2018 Q1. Buenos Aires Office Market Report

Transcription

1 2018 Q1 Buenos Aires Office Market Report

2 2 JLL

3 Introduction According to the estimates included in the 2018 national budget, the Argentine economy will grow by 3.5% this year and inflation will amount to 15.7%. However, considering the economic performance during the first quarter of the year, it is likely that at least the latter projection will not materialize, since almost half of the total annual inflation target has been reached just within the first three months (accumulated inflation as per the National Institute of Statistics and Censuses INDEC amounted to 6.8%). The International Monetary Fund adjusted its forecasts for both indicators, by reviewing and changing the growth rate estimate to 2% (against a previous projection of 2.5%) and the expected inflation to 19.2% (compared to a previous 16.7%). Furthermore, the exchange rate amounted to ARS per dollar at the end of the quarter (it had closed 2017 at ARS 18.6 per dollar), above the average rate projected for the whole year included the budget (ARS 19.30). With regard to the construction sector, the Synthetic Indicator of Construction Activity (ISAC), tracked by the INDEC, registered a 16.6% increase this February (latest available figure) compared to the same period in Moreover, the indicator shows an accumulated increase of 17.9% for the first two months of the year with respect to the same time the previous year. Economics data Country population (Millions) Buenos Aires Metro Area Population (Millions) Unemployment rate (%) GDP (Millions USD) 3 512,000 GDP annual growth (%) GDP per capita - PPP (USD) 14,000 Annual inflation (%) 15.7 Exchange rate (Pesos per USD) Source: JLL based on: 1 INDEC: official data 2010 Census 2 INDEC: official data for INDEC: official data for INDEC: official data for Ley de Presupuesto Nacional BNA: exchange rate at march 28, 2018 Buenos Aires Office Market Report 3

4 Supply The first quarter saw the addition of two new buildings to the Buenos Aires corporate stock, which amounted to 27,000 square meters of new supply. Both units were added to the Zona Norte GBA submarket. Thus, the total stock stood at 1,441,000 square meters. In terms of vacancy, the market registered a total of 5.2% (4.5% in 2017), amounting to an available area of 74,000 square meters (43% in Class A properties and 57% in Class AB units). This increase results mainly from the addition of one of the new buildings, which entered the market with a considerable available area, and the release of office space in Puerto Madero, where just to name an example a building more than doubled its available area. The Plaza Roma submarket, with just 0.6% of vacancy, is the one that registered the lowest availability within the total stock. In contrast, Puerto Madero had the largest vacancy of the market, at 7.4%. Furthermore, the available area was concentrated in 35 properties (31% of the buildings making up the stock), of which barely 6 presented more than 3,000 square meters on offer. This means that those companies looking to consolidate their operations in one location still face difficulties finding large spaces. Chart 1 Evolution of vacancy rate per district (%) 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 Regarding the projection for the upcoming years, 380,700 square meters of new supply (26% of the existing stock) are expected to be added by 2020, 57% corresponding to Class A buildings and 43% corresponding to Class AB properties. Zona Norte GBA and Zona Norte CABA will concentrate 67% of these new areas (37% and 30%, respectively). Moreover, Zona Norte CABA will more than double its corporate stock with these new units, which will expand it from 103,000 square meters to almost 218,000 square meters by the time all the projects have been completed. This renewal will be more significant once it becomes clear what kind of corporate buildings will be developed in the Tiro Federal plots, which the city government will be auctioning soon. 16% 14% 12% 10% 8% 6% 6.3% 5.2% 4% 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 CBD Non CBD Overall Historical average 4 JLL

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

6 Demand The first quarter saw a net absorption of 16,300 square meters, very close to the historical quarterly average registered since 2010 (16,600 square meters). The different submarkets experienced a very dissimilar performance. Therefore, a detailed analysis is necessary. Zona Norte GBA and Catalinas led in terms of absorption, with the former submarket registering a positive absorption of 16,100 square meters, that is, four and a half times the number recorded for Catalinas, which is the second best performing submarket (3,700 square meters). However, it should be highlighted that 79% of the absorption in the Greater Buenos Aires district corresponded to just one property, which entered the stock during the quarter with a tenant who occupied all of the building s office space. On a different note, Puerto Madero registered the lowest absorption, with a net release of 5,500 square meters, followed by the Macrocentro Sur submarket with 900 square meters. Prices The average asking rental rate amounted to USD 27.3 per square meter during the quarter, which is the highest quarterly value since 2012 (USD 26.8 in 2017). Thus the year began with the confirmation of the upward trend which has been in place since The scarcity of supply and the high rents of the better quality units are two of the factors behind this sustained rise in prices. With respect to prices according to class, the buildings rated as Class A presented an average asking rental rate of USD 31.9, the same value as in In the case of Class AB, the average asking rental rate amounted to USD 23.9, lower than the 2017 price (USD 24.3 per square meter). The Catalinas submarket, with an average price of USD 33.3 per square meter, was the highest priced area during the quarter, followed by Macrocentro Norte, at USD 31.4 per square meter. Conversely, and just like in 2017, the Zona Norte CABA submarket registered the lowest average price, at USD 22.8 per square meter. Chart 4 Evolution of production and net absorption (sq. m) 210, , , ,000 90,000 60,000 30, ,000-60, Production Absorption Chart 5 Evolution of rents (USD /sq. m) and vacancy rate (%) 40 25% % % 10% % 5% % , % 1,366,157 Occupied area Available area Class A Class AB Vacancy Chart 6 Occupied / available area and vacancy rate (%) 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 299,000 9, % ,700 3,700 0 Macrocentro Norte 100,000 3, % ,400 1,400 0 Macrocentro Sur 110,000 7, % Microcentro 70,000 1, % Plaza Roma 120, % ,100 1,100 0 Puerto Madero 290,000 22, % ,500-5,500 0 Zona Norte CABA 100,000 2, % Zona Norte GBA 352,000 28, % ,000 16,000 27,000 Total 1,441,000 74, % ,300 16,300 27,000 Key Market Indicators 1Q18 Office stock 1.44 M sqm Vacancy rate 5.2% Net absorption 16,300 sqm Monthly Rents USD 27.3 /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 Q1 Caracas Medellin Rental Growth Slowing Rents Falling Buenos Aires Monterrey Colombia Caribbean Guadalajara Rental Growth Accelerating Cali Montevideo, Santiago, San Jose Rents Bottoming Out Bogota Quito, Panama City Mexico City, San Juan, Guayaquil Rio de Janeiro, Guadalajara Guatemala City, Lima Sao Paulo Santo Domingo Buenos Aires Office Market Report 9

10 10 JLL

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

12 JLL Argentina Buenos Aires 719 Carlos Pellegrini, floor 7 C1054AAF Buenos Aires, Argentina latinamerica.jll.com Jones Lang LaSalle Todos los derechos reservados. Ningún fragmento de esta publicación puede ser reproducido por ningún medio, sea gráfica, electrónica o mecánicamente, o de cualquier otra forma, incluyendo pero no limitándose a fotocopiado, almacenamiento en soportes magnéticos o sistemas de almacenamiento de datos; sin previo consentimiento escrito de Jones Lang LaSalle IP, Inc. COPYRIGHT JONES LANG LASALLE IP, INC Buenos Aires Office Market Report 9