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Latin America Prime Office Market Q2 2012

Overview

Jones Lang LaSalle • Latin America Market Overview • Q2 2012

2

Bogotá

Monterrey

Mexico City

Guadalajara

San Jose

Panama City Caracas

Rio de Janeiro São

Paulo

Montevideo Buenos Aires

Santiago

Lima

Location Map and Market Clock Introduction

Peaking market

Falling market

Rising market

Bottoming market

Guayaquil Quito

Rio de Janeiro

Caracas, São Paulo

Santiago

Latin America, Panama

Bogotá

Lima

Buenos Aires, Mexico City,

Monterrey

Medellín, San Jose Guayaquil, Quito

San Juan

Medellín

San Juan

Montevideo, Guadalajara


3

Population by Country and Major Markets (millions) Executive Summary

• Several Latin American countries have one large market 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. These countries each have several cities with over one million inhabitants.

3.3 1.3

3.4 1.4

3.7 2.5 4.3

1.7 14.5

2.2 2.7

16.6 5.9

28.9 7

30.1 9.4

40.1 13.1

46.7 8.1

3.5 112.3

20.5 4.1 4.4

193.9 19.9

11.8

0 20 40 60 80 100 120 140 160 180 200

UruguayMontevideo

PanamaPanama CityPuerto Rico

San JuanCosta Rica

San JoseEcuador

QuitoGuayaquil

ChileSantiago

VenezuelaCaracas

PeruLima

ArgentinaBuenos Aires

ColombiaBogota

MedellinMexico

Mexico CityMonterrey

GuadalajaraBrazil

Sao PauloRio de Janeiro

Population in Millions

Country Population Major Market Population


4

GDP by Country and Major Markets (USD – PPP, 2011) Executive Summary

• Brazil and Mexico are Latin America’s largest economies, however on a GDP per capita basis the best performers are Puerto Rico, Chile, and Argentina.

• The cities that account for the largest share of their national GDP are Montevideo (70%), Panama City (55%), Lima (48%), San Juan (40%), San Jose (40%), and Santiago (40%).

Brazil

Mexico

Colombia

Argentina

Peru

Venezuela

Chile

Ecuador

Costa Rica

Puerto Rico

Panama

Uruguay

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

Major Market GDP (USD – PPP) Country GDP (USD – PPP)

Country GDP Per Capita (USD – PPP)

São P

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Rio d

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Mexic

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Mo

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Bogo

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Buen

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ires

Lima

Cara

cas

Santi

ago

Quito

Gu

ayaq

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Sam

Jose

San J

uan

Pana

ma C

ity

Monte

video

2011

GDP

(milli

ons o

f USD

, PPP

)

2011

GDP

per

cápi

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USD,

PPP

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5

Total Stock (m²) Executive Summary

Guayaquil

Guadalajara

Montevideo

Quito

Medellin

San Jose

Panama City

San Juan

Lima

Monterrey

Caracas

Buenos Aires

Rio de Janeiro

Bogota

Santiago

Sao Paulo

Mexico City

Class A & AB Office Stock, m2, Q2 2012

• The largest office markets in Latin America are Mexico City, São Paulo, and Santiago. This is consistent with their reputations as the primary business hubs in the region.

• The fastest growing markets over the past two years have been Bogotá, Lima, and Panama City due to a large pent-up demand and a favorable investment climate.


6

Vacancy Rates Executive Summary

0% 5% 10% 15% 20% 25%

Montevideo

Lima

Santiago

Buenos Aires

Caracas

Medellin

Bogota

Quito

Rio de Janeiro

San Jose

Sao Paulo

Mexico City

Guayaquil

Panama City

San Juan

Guadalajara

Monterrey

Vacancy Rate, Q2 2012

• The highest vacancy rates are in Monterrey and Guadalajara, which reflect the slow pace of demand in keeping up with production that has been very high in recent years.

• Lima and Santiago are demonstrating some of the lowest vacancy rates in the world. Vacancy in these cities should increase moderately in the next two years as production will be very high; however due to significant levels of pre-leasing, vacancy will stay relatively low.

N/A


7

Absorption – 1st Half 2012 Executive Summary

-20,000 - 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

San Juan

Guadalajara

Montevideo

Guayaquil

Buenos Aires

Medellin

Caracas

Quito

Monterrey

San Jose

Mexico City

Sao Paulo

Santiago

Lima

Rio de Janeiro

Bogota

Panama City

m² of Class A & AB Space Absorbed, First Half 2012

• First half net absorption has been highest in Panama City, Bogotá, Rio, and Lima – four cities that are striving to become new business hubs in Latin America.

• San Juan, Puerto Rico has seen negative net absorption in the first half of the year, as many multination enterprises are downsizing or moving their Puerto Rican operations back to the US altogether.

N/A


8

Production – 1st Half 2012 Executive Summary

- 50,000 100,000 150,000 200,000 250,000

San Juan

Guayaquil

Monterrey

Buenos Aires

Montevideo

Medellin

Caracas

Quito

Guadalajara

Lima

Rio de Janeiro

Santiago

San Jose

Sao Paulo

Bogota

Mexico City

Panama City

m² of Class A & AB Space Delivered, First Half 2012

• Panama City delivered an astounding 215,000 m² to the market in the first half of the year, evidence of the commercial construction boom currently taking place there.

• Mexico City, Bogotá, and São Paulo all registered significant production in the first half of the year as well. • San Juan, Buenos Aires, and Caracas are three major markets that have seen production slow so far this year.


9

18-month Production Pipeline Executive Summary

San Juan

Guadalajara

Caracas

Guayaquil

Montevideo

Buenos Aires

Medellin

Quito

San Jose

Monterrey

Bogota

Lima

Panama City

Rio de Janeiro

Mexico City

Santiago

Sao Paulo

Forecasted Production of Class A & AB Office Space, Q3 2012 – Q4 2013 (m²)

• Latin America’s three largest markets will see the most production over the next 18 months. • Rio and Panama are in the midst of construction booms as investors seek to capitalize on large infrastructure

improvements that could enhance the returns of their product (Olympics in Rio, Canal expansion in Panama). • High vacancy rates and low demand are impeding new supply in San Juan and Guadalajara, while unpredictable

governments are causing friction in Caracas and Buenos Aires that is limiting new commercial investment.


10

Average Asking Rents (USD/m²/month) Executive Summary

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90

Guayaquil

San Juan

Quito

Medellin

Guadalajara

San Jose

Monterrey

Panama City

Mexico City

Lima

Santiago

Buenos Aires

Montevideo

Bogota

Sao Paulo

Rio de Janeiro

Caracas

Average Rental Rates (USD/m²/month)

Average Rent - Class A

Average Rent - Class AB

• Prices in Caracas have soared for 2 main reasons: 1) a political environment that has discouraged investment and therefore limited supply, and 2) currency restrictions that make transactions in USD more expensive.

• High prices in Rio can be attributed to geographical impediments that limit new supply, while the main factor in São Paulo is simply the very high demand for office space there.

• As demand grows, prices are on the rise in Latin America’s newly emerging hubs: Bogotá, Lima, and Panama City.

Market Snapshots Buenos Aires, Argentina - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12 São Paulo, Brazil - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -13 Rio de Janeiro, Brazil - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -14 Santiago, Chile - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 15 Bogotá, Colombia - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 16 Medellín, Colombia - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 17 San Jose, Costa Rica - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 18 Quito, Ecuador - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 19 Guayaquil, Ecuador - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -20 Mexico City, Mexico - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -21 Monterrey, Mexico - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -22 Guadalajara, Mexico - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 23 Panama City, Panama - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -24 Lima, Peru - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 25 San Juan Puerto Rico - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 26 Montevideo, Uruguay - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -27 Caracas, Venezuela - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 28 Comparison of Market Leasing Practices - - - - - - - - - - - - - - - - - - - - - - - 29 Contacts - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -32


12

Argentina – Buenos Aires

Market Overview • Quality office stock in Buenos Aires is contained

primarily in 8 districts, though the most concentrated in office developments are Catalinas, Puerto Madero, and Zona Norte GBA.

• Class A rents are generally ranging from $28-33 while Class AB are between $23-27 and Class B+ are at $16-21. The highest rents can be found in Catalinas, Plaza Roma, and Puerto Madero. The most affordable submarkets are Zona Norte CABA (inside city limits) and GBA (outside city limits) along with Macrocentro Sur.

Market Trends • Steady growth in GDP over the past few years has led

to expansion in office demand. However, demand is showing signs of stagnation from 2011 levels.

• There are a few projects currently in the pipeline, however only 51,000 m² are expected to be delivered in 2012 – all of which is happening in Zona Norte.

• The Northern Suburbs have been the most dynamic submarket in recent years, adding 90,000 m² in 2010 and 21,000 m² in 2011.

• Demand for Class A product has outperformed estimates; current stock in Class A is running low for top quality space needs.

• Vacancy has been declining since 2010, and is now at 4.8% overall. This indicator is falling rather sharply in the Non-CBD area relative to the CBD, illustrating the relocation of many firms to suburban areas.

Office Market Statistics

Total Stock (m²) 1,100,000

Overall vacancy Rate 4.8%

Production – 1st Half 2012 (m²) 11,730

Net Absorption – 1st Half 2012 (m²) 12,000

Expected Production – 2nd Half 2012 (m²) 39,544

Expected Net Absorption – 2H 2012 (m²) 30,000

Class A rental range (USD/m²/mo.) $28-$33

Class AB rental range (USD/m²/mo.) $23-$27

Average purchase price range (USD/m²) 2,800 – 3,500

Historic Production, Absorption, and Vacancy


13

Brazil – São Paulo








Class A rental range (USD/m²/mo.) $50-110

Class AB rental range (USD/m²/mo.) $35-60

Average purchase price range (USD/m²) $5,000 - $8,000

Rents by Submarket (1 USD = 2.025 BR)

Market Overview • São Paulo is home to Latin America’s second largest

metropolitan area and office market, behind only Mexico City.

• The most important submarkets in São Paulo are Alphaville, Barra Funda, Berrini, Centro, Faria Lima, Itaim, Jardins, Marginal, Moema, Paulista, Verbo Divino, and Villa Olimpia.

• Rental averages are currently between $50/110 /m² /month for Class A and $35-60/m²/month for Class AB. The highest rents are generally found in Faria Lima while the lowest are in Alphaville, Barra Funda, and Verbo Divino.

Market Trends • Vacancy stands at 11.9% with the highest vacancy

rates currently in Alphaville (47%) due to a large amount of stock delivered in 2011 that remains empty.

• Net absorption for the year is at 48,000 m² with most of this coming in Q1. The highest absorption rates are happening in Berrini, where nearly 25,000 m² were absorbed in Q2.

• São Paulo is witnessing a record in supply, delivering 107,000 in the first half of the year with another 415,000 m² expected in the second half. 200,000 m² have already been pre-leased, showing very strong repressed demand.

• More than 60% of new stock to be delivered in 2012 will happen in Villa Olimpia, Itaim, and Marginal. About 80% of stock to be delivered in 2013 will occur in Berrini, Marginal, and Alphaville submarkets.

Rents by Submarket (1 USD = 2.025 BR) R$ 240

R$ 220 R$ 200 R$ 180

R$ 160 R$ 140

R$ 120

R$ 100

R$ 80 R$ 60

R$ 40

R$/m2/month


14

Brazil – Rio de Janeiro








Class A rental range (USD/m²/mo.) $50 – 125



Rents by Submarket (1 USD = 2.025 BR)

Market Overview • Rio de Janeiro presents a total of 1.3 million m2, 21% of

the stock of Brazil’s capital cities. The main submarkets are Orla, Cinelandia, Castelo, Centro, Rio Branco, Microcentro, Cidade Nova, Pres. Vargas, Praça Maua, Barra da Tujica, and the Zona Sul (Leblon, Copacabana, and Ipanema).

• Leasing values continue to push upwards, above the rate of inflation. The highest rents are in Zona Sul while the lowest are generally in Barra da Tijuca or Centro.

• The Brazilian government is decreasing the interest rates to avoid an economic slowdown; this should help spur investment in real estate.

Market Trends • About 113,000 m² of the total 2012 production will occur

in the third quarter. • Over the remainder of 2012, rents will continue to see

upward pressure. However, the rate of increase should moderate somewhat as a large influx of new supply comes online. Rental growth is expected to be more moderate for lower quality space.

• Vacancy dropped 2.2 percentage points in Q2 over Q1 2012. The largest drop in vacancy came in the Barra submarket. Much of the empty space in Rio is already subject to pre-lease contracts.

• Net absorption in Q2 totaled 41,000 m² – a 12.6% increase on Q1. Absorption has been highest in Orla, as a large amount of new development has been filled quickly. Total space occupied in Rio is up 3.5% with positive net absorption in all submarkets.

R$ 100

R$ 80

R$/m2/month

R$ 120

R$ 140 R$ 160

R$ 260

R$ 240

R$ 220

R$ 200 R$ 180

Class A Class AB


15











Market Overview • The Chilean economy has exhibited positive

macroeconomic trends throughout the year. Several indicators – including GDP growth rates, FDI, and employment – will likely perform over the market’s initial expectations.

• Santiago’s office market is divided into five submarkets: Las Condes, Providencia, Vitacura, Centro, and Huechuraba. Las Condes (the main CBD) holds 52% of the stock.

• The volatility of the stock market as well as the profitability of office rents have attracted investors into commercial real estate, which will see remarkable development over the next few years.

Market Trends • Approximately 225,000 m² will be delivered in 2012 – the

majority in Las Condes and Huechuraba. • Strong demand and scarce production in recent years

have driven vacancy rates to 2.7%. While production in 2012 is considerable, it is not expected to increase vacancy dramatically due to a large amount of space being pre-leased.

• Absorption in the first half of the year reached 63,000 m². This number is expected to exceed 100,000 m² in the second half of 2012.

• Rents have been escalating due to low vacancy and high demand. Class A rents are between USD $25-34/m²/month while Class AB are at $17-25. The highest rents are generally found in Las Condes while more affordable rents can be found in Huechuraba and Santiago Centro.

Historic Production and Absorption

Chile - Santiago


16

Colombia - Bogotá

Market Overview • Growing import and export sectors, facilitated by several

recent trade agreements, have contributed to rising foreign investment and a forecasted GDP growth rate of 4.7% for 2012.

• Since the office boom in 2009, average annual production has been just over 200,000 m² and average annual absorption at 175,000 m². Rents have been steadily climbing as a result of this increased activity, though vacancy has generally remained stable.

• Bogotá is divided into the northern submarkets of Avenida Chile, Andino/Nogal, Chico, Calle 100, and Santa Barbara; as well as Salitre and Centro Intl.

Market Trends • High production has been met by equally high demand,

thus driving vacancy down to below 6% and putting upward pressure on prices.

• The highest rents are in the northern submarkets, due to low availability and high amenities. Lower rents can be found in Salitre, where lack of consolidation and large future supply are keeping prices stagnant.

• Several government agencies have been competing with private companies for some of the newest and largest spaces – in one case taking all of a brand new 30,000 m² building. If this trend continues, it will put upward pressure on prices.

• New projects in non-traditional sectors such as El Dorado airport and the Northwest suggest a decentralization of the office stock in the coming years due to the lack of available lands in traditional sectors.













17

Colombia - Medellín

Market Overview • Medellín’s prime office market has benefitted greatly

from Colombia’s steady economic growth. As the nation’s second city, several large local firms have their headquarters there; others have back office/ administrative center here with their primary office typically in Bogotá.

• Much of the market consists of owner-occupied or small, condo-style properties. The availability of spaces between 250-1,000 m² is very limited, though this should change in the years to come as the market matures.

• Medellín’s best quality office space can be found in the “Golden Mile” in El Poblado. However, with high saturation and very little available land there, most new construction is happening in the old downtown (El Centro) and North Poblado.

Market Trends • About 55,000 m² will be delivered in 2012. Production

will fall to 11,000 m² in 2013 before rising to 40,000 m² in 2014.

• Vacancy should decrease over the next 2 years as production looks to be insufficient to accommodate the growing demand. Tenants seeking spaces larger than 250 m² will typically need to do a pre-lease at a building under development.

• At USD $20-25/m²/month, rents are typically highest in El Poblado as it is the most exclusive sector of Medellín.


Total Stock (m²) 481,000









Stock and Vacancy by Submarket


18

Costa Rica – San Jose

Market Overview • Costa Rica has experienced stagnation lately, as much

of the local economy depends on demand for products in the US and Europe. However, the office market in San Jose remains exceptionally stable with very infrequent variations in supply and demand, vacancy, and prices.

• The main submarkets in San Jose are Santa Ana, Escazu, Rohrmoser , Heredia, and Este. The largest concentration of stock is in Heredia (37%), Escazu (22%), and Santa Ana (21%).

Market Trends • Annual production and absorption are typically in the

range of 50,000 – 80,000 m². Production in 2012 – at 97,000 m² – is a historical high. It is forecasted at 60,000 m² in 2013 and 80,000 m² in 2014.

• Vacancy as of July 2012 was at 11.75%, however this likely represents a temporary spike as much of 2012’s new stock came online in the first half of the year. Vacancy should fall to around 9.5% by year-end 2012.

• A significant proportion of stock in San Jose consists of office space located in Free Trade Zones. This allows tenants to consolidate their administrative and industrial operations while simultaneously taking advantage of tax benefits.

• Tenants will generally pay more for spaces in Santa Ana and Escazu, which are oriented more toward financial operations. More affordable spaces can be found in Heredia (a more industrial sector), Rohrmoser (the old downtown), and Este – a decentralized area.













19

Ecuador - Quito

Market Overview • Quito is considered to be the cultural, administrative,

and financial center of Ecuador. A key segment of prime office occupancy consists of government agencies who have grown in recent years.

• Quito’s main office clusters are Amazonas Norte and Amazonas Sur, Republica, Republica el Salvador, 12 de Octubre, and Cumbaya.

Market Trends • Quito’s prime office stock consists mainly (~70%) of

spaces that are less than 400 m². The market for large spaces is a small segment of the demand, though it is growing.

• New production is mainly concentrated in the newer sectors of Cumbaya and 12 de Octubre.

• Vacancy in Quito is currently estimated at around 6%, continuing a steady increase over 2011 (4%) and 2010 (3.5%). Vacancy rates are currently highest in Cumbaya, as this is the newest submarket with the most recently constructed stock. Its high vacancy illustrates the difficulty that landlords have had filling these new spaces.

• The highest rents can be found in Cumbaya, where tenants can expect to pay around USD $17-24 /m²

/month for Class A space and $13-18 /m² /month for Class AB. Quito’s lowest rents are typically found in the oldest office sectors of Amazones Norte and Amazones Sur, where tenants are paying around USD $15-20 /m²

/month for Class A space and $11-16 for Class AB.



Overall vacancy Rate 6%








Stock Repartition by Submarket


20

Ecuador - Guayaquil

Market Overview • Though Guayaquil is the most populous city in Ecuador,

its office stock is much smaller than Quito. This can be attributed to the fact that much of its economic activity is derived from its ports and logistical sectors.

• Guayaquil’s main office districts are Kennedy, Centro, Urdesa, and La Puntilla. Kennedy has the largest portion of prime office stock, while Centro is mainly composed of older private and government buildings. Urdesa contains Parque Empresarial Colon, the largest office consolidation in Ecuador.

Market Trends • Many developers are building office space that is

connected to hotels and shopping centers, such as Mall del Sol.

• A significant component of Guayaquil’s office supply is spaces that are located adjacent to industrial operations. The main cluster for these types of offices is along Via Daule in Urdesa.

• Urdesa currently has a vacancy rate of approximately 40%, while vacancy in the rest of the city is around 6-8%. The glut of available space in Urdesa is straining future production as developers are reluctant to launch new projects at the moment.

• The highest rents can be found in La Puntilla, which is a more exclusive and primarily residential area. More affordable rents can be found in Centro (owing to its older stock and fewer amenities) and Urdesa (owing to a high vacancy rate).











Stock Repartition by Submarket


21

Mexico – Mexico City

Market Overview • Mexico City contains Latin America’s largest class A

and AB office stock at over 4 million m². The most important submarkets are Reforma, Polanco, Lomas, Lomas Altas, Bosques, Santa Fe, Interlomas, Insurgentes, Perisur, and Norte.

• Most of the new construction is occurring in Reforma, Polanco, and Insurgentes.

• The highest rents can be found in Reforma, Polanco, and Lomas while more affordable areas are Norte, Perisur, Interlomas, and Santa Fe.

Market Trends • In the next year prices should start to show a slight

decrease in some sub markets due to the delivery of a significant amount of new supply. It will be a good opportunity for tenants looking to relocate.

• Market activity to the first half of 2012 has remained stable, and most transactions were around 1,000 m².

• Many new buildings, particularly in Reforma, are under pre-lease.

• Submarkets witnessing the highest absorption of new space are Insurgentes, Polanco, and Lomas.

• Production and vacancy have been rising steadily in parallel since 2007.

• Vacancy rates are currently highest in Reforma (~16%), Insurgentes (16%), Perisur (15%), and Santa Fe (14%). Vacancy is lowest in Lomas Altas (~3%).











Stock, Production, and Vacancy by Submarket


22

Mexico – Monterrey

Market Overview • Monterrey is the capital of Nuevo Leon, a key industrial

hub in Mexico as well as all North America. With prominent steel, cement, glass, manufacturing, electronics, and auto industries, as well as a highly educated population, it consistently ranks as one of the best Latin American cities for doing business.

• Monterrey office stock is primarily divided among the submarkets of Centro/Obispado, Santa Maria/San Jeronimo, Valle, Valle Oriente, and Country.

• The highest-rent submarkets are Valle and Valle Oriente, as these are some of the wealthiest neighborhoods in the city. More affordable rents can be found in Centro/Obispado, as the stock here is typically older with less amenities.

Market Trends • Rents have remained stable in 2012 as production and

absorption have been fairly equal. • Centro/Obispado will see the highest growth in stock

over the short-term, with about 24,000 m² under construction.

• Valle is showing the strongest absorption recently, evidenced by vacancy rates around 2%. Centro/Obispado has strong absorption as well due to more production.

• The highest vacancy rates are currently in Valle Oriente (30%) and Centro/Obispado (29%).

• Monterrey is seeing significant growth in the back office, call center, and data center sectors.










Average Purchase Price Range (USD/m2 ) $3,000 - $4,000

Stock, Production, and Vacancy by Submarket


23

Mexico – Guadalajara

Market Overview • Guadalajara is the second largest city in Mexico and the

10th largest in Latin America. Its economy is highly industrialized, with its primary sectors being shoes, textile, and food processing.

• It consistently ranks among the top cities for economic potential, not only in Latin America but for North America as well. This is due to a business-friendly environment, a young and growing consumer market, a skilled and educated workforce, and low unemployment.

• The Guadalajara office stock is contained in five major submarkets: Puerta de Hierro, Americas, Vallarta, Lopez Mateos, and Chapultepec.

Market Trends • Puerta de Hierro and Americas are by far the most

important submarkets, with 76% of office stock between them. Americas will see the most future growth, with 43% of all projects to be located in this sector.

• Office production in Guadalajara is on a much smaller scale than Mexico city and Monterrey, with only 6 buildings and 68,000 m² scheduled to be delivered by the end of 2014.

• Of the 30,000 m² in production for 2012, about half of it has been leased already.

• The highest rents can be found in Puerta de Hierro and Americas, where tenants should expect to pay between USD $20-25/m²/month. Lowest rents can be found in Chapultepec and Vallarta, where tenants are paying as low as $15/m²/month.








Average purchase price range (USD/m²) $2,800 – $3,500

Existing and Vacancy by Submarket


24

Panama – Panama City

Market Overview • Highly dependent on revenues generated from global

shipments passing through the Canal, Panama’s economy is experiencing headwinds from a stagnant global economy.

• Several infrastructure investments will be completed in the next few years, providing a positive outlook for growth. Some of these include the expansion of the Panama Canal and Tocumen Intl Airport, and a 14 km metro line in Panama City to be completed in 2014.

• Important office clusters in Panama City are Avenida Balboa, Obarrio, San Francisco, Panama Pacifico, and Corredor Sur (which includes Costa del Este).

Market Trends • Panama City is in the process of an office construction

boom that will see its prime stock double between 2011 and 2013. This is due to investors seeking to position themselves for an expected economic boom resulting from the expansion of the Panama Canal.

• Several future pockets of development are beginning to consolidate: Corredor Sur between Tocumen Airport and Costa del Este, as well as the mixed-use community of Panama Pacifico, are expected to see considerable growth in the next few years.

• Absorption is reaching record levels, though it is still outpaced by production. As a result, vacancy has been on the rise for the past two years and should keep rising until 2014 when production should slow somewhat.

• Rents are highest in Corredor Sur (i.e. Costa del Este) and San Francisco, and they are cheaper in Obarrio.













25

Peru - Lima

Market Overview • The Peruvian economy has experienced dynamic

growth recently, with GDP growth over 5% for 4 of the last 5 years. Growth is slowing, however, as Peru is heavily dependent on a decelerating China.

• The office market stagnated in the period leading up to the presidential election of 2011. Now that it has passed, and president Ollanta Humala seems to be continuing the pro-business policies of the previous administration, the market is recovering.

• Office stock in Lima is distributed in four submarkets: San Isidro CBD with 47%, San Isidro West with 23%, Este with 19%, and Miraflores with 11% of the stock.

Market Trends • Production for 2012 will reach about 90,000 m²,

continuing a steady decline from 2009 levels. • Both production and absorption are expected to hit

record levels in 2013 and 2014. • Q2 vacancy is extremely low at 0.9%. Companies

looking for space will almost always have to arrange a pre-lease before construction is completed.

• Absorption should reach record levels in the next few years as there is a pent-up demand and growing production. However, demand will likely fall short of production, thus pushing vacancy levels up moderately over the next few years.

• With land values growing to previously unforeseen levels, expect to see new projects in non-traditional sectors of the city as investors and developers begin to look for more affordable options, especially in Este.













26

Puerto Rico – San Juan

Market Overview • Puerto Rico’s economy is currently in a recession

highlighted by the contraction of the manufacturing sector and budgetary shortfalls as a result of slumping incomes. This situation is reflected in San Juan’s office sector as construction has been very limited to non-existing for the past few years.

• San Juan’s most prominent office submarkets are Hato Rey (the financial district) and Guaynabo, a newer submarket that has come into favor with multi-nationals due to low rents, abundant parking, and better accessibility. Other clusters include Caparra, Rio Piedras, Miramar, Santurce, and Kennedy Ave.

Market Trends • With vacancy rates exceptionally high and demand

stagnant, production has been at a standstill for the past few years. This is unlikely to change in the near future as no new projects have been delivered since 2010 and none are scheduled for 2012 or 2013. .

• Absorption has decreased considerably as some of the island’s most important multi-national companies are reducing their office space and in some cases moving their operations back to the US. This behavior has been observed especially in Hato Rey, Puerto Rico’s most prominent financial center.

• These conditions are putting downward pressure on rents, which have been declining for almost six years.




Production – 1st Half 2012 (m²) 0

Net Absorption – 1st Half 2012 (m²) -3,000

Expected Production – 2nd Half 2012 (m²) 0

Expected Net Absorption – 2H 2012 (m²) -2,000




Historic Rents and Vacancy

*Rents in San Juan are quoted in ft2, but are stated in m2 in this report for consistency and comparative purposes.


27

Uruguay - Montevideo

Market Overview • Montevideo’s office market is primarily contained in four

submarkets: Centro, Centro Norte, Punta Carretas – Pocitos Nuevo, and Carrasco.

• Free Trade Zones (FTZ) buildings are subject to differentiated rents and customs benefits. These are mainly present in Carrasco and Pocitos Nuevo.

• In Montevideo there is an exceptionally large gap between Class A office buildings and the rest. The Class AB market is almost non-existent.

• Prime rental rates (Class A and B+) have not varied considerably since 2011.

• World Trade Center 4 - a 39-story tower - is expected to be completed before the end of the year, adding approximately 32,000 m² to the market.

Market Trends • Premium office space is available in each of

Montevideo’s submarkets, as there is a general oversupply in the market. Vacancy levels remain high in both the Free Trade Zone (~33%) and the non-Free Trade Zones (12%).

• Over the past two years about 50,000 m² of premium space entered the office market, with another 32,000 m² of space scheduled before the end of the year. We estimate that it should take at least two years for this to be absorbed, as vacancy is already quite high.

• Based on the current market situation the Montevideo office context is tenant favorable due to low demand and a consequent oversupply of stock.



Vacancy Rate N/A



Expected Production – 2013 (m²) 18,000




Montevideo Stock Repartition by Submarket

Centro41% Centro Norte

18%

Punta Carretas -Pocitos Nuevo

28%Carrasco13%


28

Venezuela - Caracas

Market Overview • The unpredictable policies of the current administration

are stifling private investment in real estate. The recent reelection of Hugo Chavez should guarantee the continuation of the same policies for the foreseeable future.

• The economy seems to have recovered from the 2009 recession with GDP growth estimated at 4% for 2012; much of this growth is the result of large influxes of government spending and high oil prices.

• Inflation, hovering around 30%, has been a powerful deterrent to investments in the construction sector.

• The Caracas office market is primarily divided into five submarkets: El Rosal, with 35% of the inventory, La Castellana with 26%, Sabana Grande with 25%, Las Mercedes with 8%, and Southeast with 6%.

Market Trends • Production was highest in the 1990s (see graph), and

has for the most part been stagnant for the past 12 years with the exception of 2007 when the 42,000 m2 Galipan Towers were completed.

• 2012 will see about 31,000 m² delivered to the market. Most of this is in La Castellana and Southeast.

• Two main factors have driven rents up drastically in recent years: the first is stagnant production that has not kept up with demand. The second is the currency policy that limits the purchase of US dollars. This has created a black currency market in which most real estate prices are quoted. As a result, sale and rent prices quoted in USD at the official exchange rate are much higher.











Historic Production and Stock Evolution


29

Comparison of Tenant Leasing Practices Introduction

Argentina Brazil Chile Colombia

Unit Of Measurement Square meters Square meters Square meters Square meters

Rent Units USD/m²/month R$/m²/month Unidades de Fomento (UF), an inflation quasi-currency adjusted daily according to the local CPI. For more information visit www.bcentral.cl

Colombian Pesos/m²/month

Typical Lease Term 3-5 Years 5 Years 3-5 Years 3-5 years

Frequency of Rent Payment

Monthly Monthly Monthly Monthly

Deposit/Guarantee Case-by-case (typically 2-3 months depending on tenant)

Bank guarantee / guarantor / secure bail

Case-by-case (typically 1-3 months’ rent)

Case-by-case (typically 2-3 months)

Statutory Right to Renew No (unless an option to renew is agreed at outset and specified in lease)

After 3 years (case by case if agreed)

No (unless an option to renew is agreed at the outset and specified in the lease)

No (unless option to renew is agreed at outset and specified in lease)

Basis of Rent Increases or Rent Review

Case-by-case, explicit indexation by CPI is prohibited by law.

Market In UF, indexed daily CPI + (0% - 3%)

Rent Free Period 1-3 Months Case-by-case, often 1-3 months

Case-by-case, often 1-3 months

1-3 Months

Car Parking City: 1 per 100 m² Province: 1 per 60 m²

A & AB Buildings - 1:35 m² UF 3-4.5/unit/month (US $140-210)

1 per 50 m²

Service Charges- Mgmt. Fees

Additional to rental charge and payable monthly in advance

Additional to the rental charge and payable monthly in advance


Additional to rental charge, payable monthly

Service Charges- Common Areas

Payable by landlord (via tenant service charge)




Service Charges- Building Insurance

Payable by landlord Payable by landlord (via tenant service charge)


Payable by landlord

Sub-letting & Assignment

Normally yes (subject to landlord approval)

Case by case Normally yes (subject to landlord approval)

Normally yes (subject to LL approval)

Early Termination After 6 months, 1.5 months of rent penalty; After 1 year, 1 months of rent penalty

Normally tenant pays 3 month of rent penalty

Unless otherwise stipulated in lease, tenant is responsible for paying entirety of contractual obligation

Tenant is responsible for entirety of contract unless otherwise stipulated in contract

Tenant Reinstatement Responsibilities

Original condition, allowing for normal wear and tear

Original condition or case by case

Original condition Original condition, allowing for normal wear and tear


30


Costa Rica Ecuador Mexico Panama

Unit Of Measurement Square meters Square meters Square meters Square meters

Rent Units USD/m²/month Colombian Pesos/m²/month

USD/m²/month USD/m²/month

Typical Lease Term 3-5 Years 3-5 years 3-5 Years 3-5 Years

Frequency of Rent Payment Monthly Monthly Monthly Monthly

Deposit/Guarantee Case-by-case, insurance policy covering the contract is typical

Case-by-case (typically 2-3 months)

Typical deposit is two months rent Not customary to have insurance covering contract.

Case-by-case, insurance policy covering the contract is typical

Statutory Right to Renew No (unless an option to renew is agreed at the outset and specified in the lease)

No (unless option to renew is agreed at outset and specified in lease)

No No (unless an option to renew is agreed at the outset and specified in the lease)


Case-by-case, though typically some indexed percentage of CPI

CPI + (0% - 3%) US Consumer Price Index, unless rent quoted in Pesos, then Mexican Consumer Price Index


Rent Free Period Usually only the time for the build out (about 2 months)

1-3 Months Case-by-case Case-by-case, typically 1-3 months

Car Parking 1 per 25-50m², depending on submarket

1 per 50 m²

1 per 35, varies by submarket 1 per 55 m², though newer buildings offer more parking



Additional to rental charge, payable monthly

Tenant responsible, additional to the rental charge and payable monthly in advance Fixed rate base on pro-rata share Reconciled annually








Payable by landlord Payable by landlord Payable by landlord (via tenant service charge)

Payable by landlord

Sub-letting & Assignment Normally yes (subject to landlord approval)

Normally yes (subject to LL approval)

Not customary and always subject to Landlord approval for both subleasing and assignment


Early Termination Legally tenants can exit after the first year without penalty. To avoid this LL can demand fully bondable lease agreements.

Tenant is responsible for entirety of contract unless otherwise stipulated in contract

Negotiable (with termination fees) Unless otherwise stipulated in the rental contract, tenant is responsible for paying entirety of contractual obligation.







31


Peru Puerto Rico Uruguay Venezuela

Unit Of Measurement Square meter Square feet Square meters Square meter

Rent Units USD/m²/month USD/ft2/month USD/m²/month USD/m²/month

Typical Lease Term 3-5 Years 5-15 Years 5 Years 3-5 Years

Frequency of Rent Payment Monthly Monthly Monthly Monthly

Deposit/Guarantee Case-by-case, usually 2 months rent are required

Case-by-case, though it is typical Case-by-case, typically 6 to 12 months backed by bank guarantee or cash deposit (depending on tenant)

Case-by-case, insurance policy covering the contract is typical

Statutory Right to Renew No (unless an option to renew is agreed at the outset and specified in the lease)


No (unless an option to renew is agreed at outset and specified in lease)





Case-by-case, generally adjusted using Consumer Price Index

Case-by-case, though often indexed as some percentage of CPI

Rent Free Period Case-by-case, typically 1-3 months. While this often occurs, it is not standardized in Lima and is usually dependent on tenant improvement allowances provided.

Case-by-case, typically 1-6 months. While this often occurs, it is not standardized in Lima and is usually dependent on tenant improvement allowances provided.

Case-by-case Usually only the time for the build out, typically 2 months

Car Parking US $150-200/space/month depending on submarket

Paid separately; typically $80/month for surface lots and $100/month for covered space

Included in rent if building has parking spaces, additional contract is necessary otherwise

1 space per 20-35 m²












Payable by landlord Payable by landlord (via tenant service charge)


Payable by landlord

Sub-letting & Assignment Normally yes (subject to landlord approval)




Early Termination Case-by-case charming Unless otherwise stipulated in the rental contract, tenant is responsible for paying entirety of contractual obligation.

Case-by-case Legally tenants can exit after the first year without penalty. To avoid this, LL can demand fully bondable lease agreements.






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For more information including detailed market reports: • Latin America Southern Cone Martin Potito – Research Director, Latin America [email protected] http://latinamerica.am.joneslanglasalle.com • Latin America Northern Cone, Central America, Caribbean Scott Figler – Research Consultant [email protected] http://latinamerica.am.joneslanglasalle.com • Brazil Marcelo Sasaki - Head of Research, Brazil [email protected] http://www.joneslanglasalle.com.br

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