Office market report Northern Mexico Monterrey Metropolitan Area 4Q 2015
2 Northern Mexico office report 4Q 2015 Northern Mexico Office Market The following table shows the five most important office corridors located in Monterrey and its metropolitan area. Submarket Inventory (sf) Availability (sf) Average lease rate (USD/Sf/month) Vacancy rate Number of buildings Contry 294,393 89,932 $1.05 31% 3 Centro/Obispado 1,775,380 567,884 $1.13 32% 17 Santa María/San Jerónimo 1,572,478 329,233 $1.32 21% 16 3,907,396 531,713 $1.71 14% 74 4,025,538 558,212 $1.36 14% 48 * In Class A+, A and B buildings. All in sq.ft. TOTAL 11,575,186 2,076,974 $1.31 18% 158 * In Class A+, A and B buildings. All in sf. Santa María/San Jerónimo Contry Centro/Obispado
3 Northern Mexico office report 4Q 2015 Total inventory distribution 2% 11% 15% 29% 35% 19% 14% 10% 34% Total inventory of finished buildings 11,575,186 sf 31% Total inventory of building in construction 4,754,086 sf Supply distribution for finished buildings 4% 27% 27% 26% 16% Total Building Availability: 2,076,974 sf Santa María/San Jerónimo Contry Centro/Obispado * Includes all recorded activity during this quarter
4 Northern Mexico office report 4Q 2015 Monterrey Submarkets is Monterrey s most active market attracting a large number of national and international companies. This submarket is distinguished as the city s financial district with upscale commercial and residential areas. This area also contains the largest number of office buildings making it the submarket with the largest supply at around 4,025,528 sf of prime office space, most of it being classified as class A buildings and of which 14% is currently available. This submarket has had significant growth in 2015 for office space along with retail and entertainment and we expect that this will continue for 2016 and 2017. Property Market Clock Santa María/ San Jerónimo Centro -Obispado Contry Peaking Market Rising Market Falling market Bottoming Market has excellent amenities. Located in this area are fine local and international restaurants, bars and nightclubs, high-end stores, malls and commercial centers. This submarket is currently very active due to new class A+ construction of developments that will include office space and that is expected to attract new clients. This submarket is the most expensive with a lease average price at around $1.71 USD/sf and currently one of the most active markets. The Centro-Obispado submarket includes some of the most representative monuments and historic locations of Monterrey such as the Macroplaza, City Theater, the Governmental Palace, Barrio Antiguo, The Monterrey Cathedral, the Contemporary Museum of Art (MARCO), the Museum of Mexican History, the Convex Business Center, the new Northeast Museum (MUNE) and the new restored Paseo Santa Lucía. This market is currently at a renovation phase where there are several new office and mixed use developments underway and we expect this will continue for the next few years. Santa María - San Jerónimo has a unique location that makes it attractive. It connects with most of the main highways in the city and has been constantly growing offering new strip malls, restaurants and high rise residential buildings. This market has a current supply of 1,572,478 sf of office space and 21% availability. This market has been very active due to great quality office space and attractive rates offered by developers. Annual Forecast Submarket 2016 2017 2018 2019 Contry Centro/Obispado Santa María/ San Jerónimo Lease rates by submarket Submarket Lease / sf (USD) Forecast Contry Centro/Obispado Santa María/ San Jerónimo Landlord favorable market Neutral $0.93 - $1.08 $0.93 - $1.17 $0.93 - $1.66 $1.56 - $1.81 Tenant favorable market $1.22 - $1.52
5 Northern Mexico office report 4Q 2015 Contry is a relatively new submarket for office space but has been attracting new investment in these last couple of years. Today we can see several class A options and there are some projects still in construction. These developments will give this submarket around 430,550 sf of new class A space and it is expected that local companies will relocate to this area attracted to newer and more efficient spaces that will offer security, amenities, retail areas. Supply and demand 14,000,000 12,000,000 10,000,000 17% 16% 8,000,000 7,570,290 7,861,938 6,000,000 4,000,000 22% 8,973,721 9,691,631 22% 9,967,650 18% 11,191,959 20% 11,575,186 18% 25% 20% 15% 10% Supply It is projected that in 2016 around 10 new office buildings will be completed among those KOI, Chroma, Trebol, and Saqqara. These developments will increase inventory by 539,000 sf of prime office space. It is expected that office space inventory will continue to rise significantly for Monterrey with an estimated 20 new projects. 1,976,179 2,122,374 2,184,924 5% 2,076,974 1,789,371 2,000,000 1,320,861 1,285,738 sf - 0% 2009 2010 2011 2012 2013 2014 2015 Total Stock Available Vacancy Rate Vacancy rate by submarket (Finished buildings) 4,500,000 35% 4,025,538 31% 32% 4,000,000 3,907,396 30% Demand 3,500,000 3,000,000 25% Due to the vast supply of office space in the Monterrey Metro Area, clients located in class B and C buildings are taking advantage of this opportunity and relocating to class A spaces where they can offer better amenities and modern accommodations at a similar price. By the end of 2015, more than 60 lease transactions were recorded within these submarkets. It is estimated that demand for office space in 2016 will follow a similar trend as it did in 2015 closing around 753,473 sf. 2,500,000 2,000,000 1,500,000 1,000,000 500,000 sf - 294,393 89,932 1,775,380 567,884 1,572,478 21% 329,233 Contry Centro / Obispado Santa María / San Jeronimo Total Stock Available Vacancy Rate 14% 14% 531,713 558,212 20% 15% 10% 5% 0% Buildings in construcction (sf) Average lease rate trend (sf / month) Year Total Stock # of Buildings 2016 1,535,452 8 2017 839,280 7 2018 624,080 6 $1.95 $1.90 $1.85 $1.80 $1.75 $1.70 $1.65 $1.60 2,998,812 21 $1.55 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average
6 Northern Mexico office report 4Q 2015 2016 Trends The economic growth forecast for Mexico in 2016, according to the International Monetary Fund is 3% compared to the 2.4% in 2015. Because of this increase companies will want to take advantage of this and look to consider relocation of their corporate offices to some of the more popular submarkets in the Metro Area as well as new clients looking to establish their businesses in Monterrey. Mexico is always vulnerable to international events and commodity price influences as well as exchange rates and other financial and economic variables and because of this, Mexico s economy and more specifically Nuevo Leon s, will always depend on how the economy of the United States will react to current events such as in China, Russia, Brazil and Europe. Mexico and the United States are constantly interrelated and because of this any change in their economy will be reflected on Mexico s as well. These factors will affect directly and indirectly with the development and sale of new constructions and price for projects in the Monterrey area. About JLL JLL (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. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 230 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $56.4 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com. JLL - Northern Mexico Andrés García +52 81 8153 0415 andres.garcia@am.jll.com Larry Mejía +52 81 8153 6906 larry.mejia@am.jll.com Calzada del 112 Ote, Col. del, San Pedro Garza García, NL, Mexico 66220 +52 81 8153 6900