Prime Office Market - JLL · Latin America Prime Office Market Q4 2012 Overview . Real estate funds and tenants continue to invest in Latin America as the US and EU stagnate and the

Latin America Prime Office Market Q4 2012

Overview

Real estate funds and tenants continue to invest in Latin America as the US and EU stagnate and the consumer market grows 1.9 million m2 in new construction region-wide in 2012

1.5 million m2 in net absorption region-wide in 2012

Over 5 million m2 in planned construction region-wide through 2014

Jones Lang LaSalle • Latin America Market Overview • End Year 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

Santiago, São Paulo

Latin America

Lima

Monterrey

Medellín, San Jose

Cali, Guadalajara

Guayaquil

San Juan

Medellín

San Juan

Montevideo, Quito

Cali

Buenos Aires

Panama City, Bogotá

Mexico City


3

3.3 1.3 3.4

1.4 3.7 2.5 4.3

1.7 14.5

2.7 2.2

16.6 5.9

28.9 7

30.1 9.4

40.1 13.1

46.7 8.1

3.5 2.3

112.3 20.5

4.4 4.1

193.9 19.9

11.8

0 50 100 150 200 250

UruguayMontevideo

PanamaPanama CityPuerto Rico

San JuanCosta Rica

San JoseEcuador

QuitoGuayaquil

ChileSantiago

VenezuelaCaracas

PeruLima

ArgentinaBuenos Aires

ColombiaBogota

MedellinCali

MexicoMexico City

MonterreyGuadalajara

BrazilSao Paulo

Rio de Janeiro

Population by Country and Major Markets Executive Summary

• 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.

Country Population (millions) Major Market Population (millions)


4

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

GDP (Billions ofUSD - PPP)

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%).

Major Market GDP (USD – PPP)

Country GDP (USD – PPP)

São P

aulo

Rio d

e Jan

eiro

Mexic

o City

Mo

nterre

y Gu

adala

jara

Bogo

tá Me

dellín

Buen

os A

ires

Lima

Cara

cas

Santi

ago

Quito

Guay

aquil

Sam

Jose

San J

uan

Pana

ma C

ity

Monte

video

2011

GDP

(milli

ons o

f USD

, PPP

)

2011

GDP

per

cápi

ta (

USD,

PPP

)

Cali

Country GDP Per Capita (USD – PPP)


5

Total Stock (m²), Q4 2012 Executive Summary

• 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.

Cali

Guayaquil

Guadalajara

Montevideo

Quito

Medellin

Panama City

San Jose

San Juan

Lima

Monterrey

Caracas

Buenos Aires

Rio de Janeiro

Bogota

Santiago

Sao Paulo

Mexico City

Class A & AB Office Stock (thousands of m2)


6

Vacancy Rates, Q4 2012 Executive Summary

• The highest vacancy rates are in Monterrey, San Juan, and São Paulo. The situation in Monterey and São Paulo can be attributed to high recent production while San Juan suffers from a lack of demand, as Puerto Rico is in the midst of a long and draining recession dating back to the mid-2000s.

• Lima and Santiago are demonstrating some of the lowest vacancy rates in the world among cities with at least 5 million inhabitants. This will be addressed in the next few years with record levels of office production in each city.

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

Lima

Medellin

Santiago

Guadalajara

Bogota

Quito

Buenos Aires

Montevideo

Caracas

Cali

Panama City

Mexico City

Guayaquil

Rio de Janeiro

San Jose

Sao Paulo

San Juan

Monterrey

Percent of Vacant Office Space, Class A & AB


7

Production (m2), 2012 Executive Summary

• Panama City delivered an astounding 240,000 m² to the market in 2012, evidence of the commercial construction boom currently taking place there as investors seek to position themselves for the completion of the Canal expansion.

• The top cities of Latin America’s most active economies – Mexico, Brazil, Chile, and Colombia – all saw very busy years in office construction.

• Buenos Aires and Caracas are among the major markets that saw production stall a bit in 2012.

- 50 100 150 200 250 300 350 400 450 500

San Juan

Cali

Guayaquil

Guadalajara

Medellin

Caracas

Monterrey

Quito

Montevideo

Buenos Aires

San Jose

Lima

Bogota

Rio de Janeiro

Santiago

Panama City

Mexico City

Sao Paulo

Delivered Office Space, Class A & AB (thousands of m2)


8

Absorption (m2), 2012 Executive Summary

• Net absorption was the highest this past year in Mexico City, Panama City, and São Paulo. • Lima and Bogotá saw very strong absorption in the first half of 2012 due to lots of deliveries, however both cities saw

absorption slow down in the second half of the year. • Panama City continues to show robustness as record production was met with record demand.

- 50 100 150 200 250 300

Montevideo

San Juan

Cali

Guayaquil

Caracas

Buenos Aires

Quito

Guadalajara

Medellin

San Jose

Monterrey

Lima

Santiago

Rio de Janeiro

Bogota

Sao Paulo

Panama City

Mexico City

Absorbed Office Space, Class A & AB (thousands of m2)


9

2-year Production Pipeline vs. Current Stock Executive Summary

• São Paulo, Santiago, and Mexico City have the most planned construction, with each expecting to add at least 800,000 m2 over the next two years. On a percent-growth basis, Panama City, Lima, and Rio will lead the way.

• Low demand is impeding new supply in San Juan, Montevideo, Cali, and Guayaquil. • Unpredictable governments are causing uncertainty in Caracas and Buenos Aires that is limiting new commercial

investment. These markets will see only 3% and 6% growth, respectively, from Q4 2012 – Q4 2014.

0%

11%

27%

21%

27%

20%

3%

27%

15%

6%

22%

19%

35%

55%

33%

20%

31%

32%

- 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

San Juan

Montevideo

Cali

Guayaquil

Medellin

Monterrey

Caracas

Quito

Guadalajara

Buenos Aires

San Jose

Bogota

Lima

Panama City

Rio de Janeiro

Mexico City

Santiago

Sao Paulo

Office Stock, Class A & AB (thousands of m2)

Current Stock, EY 2012Production, 2013-2014

*Data label shows percentage growth in stock, Q4 2012 - Q4 2014


10

Average Asking Rents Executive Summary

• 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 new emerging hubs: Bogotá, Lima, and Panama City.

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

Guayaquil

San Juan

Quito

Medellin

Guadalajara

San Jose

Monterrey

Panama City

Mexico City

Cali

Lima

Santiago

Buenos Aires

Montevideo

Bogota

Sao Paulo

Rio de Janeiro

Caracas

Average Asking Rent (USD/m2/month)

Average Asking Rent - Class A

Average Asking Rent - Class AB

Market Snapshots Buenos Aires, Argentina - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12

São Paulo, Brazil - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -13 Rio de Janeiro, Brazil - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -14 Santiago, Chile - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 15 Bogotá, Colombia - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 16 Medellín, Colombia - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 17 Cali, Colombia - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 18 San Jose, Costa Rica - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 19 Quito, Ecuador - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 20 Guayaquil, Ecuador - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -21 Mexico City, Mexico - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -22 Monterrey, Mexico - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -23 Guadalajara, Mexico - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 24 Panama City, Panama - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -25 Lima, Peru - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 26 San Juan Puerto Rico - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 27 Montevideo, Uruguay - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -28 Caracas, Venezuela - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 29 Comparison of Market Leasing Practices - - - - - - - - - - - - - - - - - - - - - - - 30 Contacts - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 33


12

Argentina – Buenos Aires

Macroeconomic Overview • Argentina’s GDP growth estimates for 2012 barely

exceed 1%. Consumption was the only component of the demand that registered positive growth (2.7% Y-o-Y as of Q3 2012). In the same period, gross domestic investment fell by 3.5%, and its ratio to GDP went down from 24% to 21%.

• As of November 2012, imports dropped by 6% Y-o-Y, while exports dropped by 2% Y-o-Y.

• Unemployment increased from 7.1% in Q1 2012 to 7.6% in Q3 2012.

• The regulations over the foreign exchange market imposed by the Government in 2011 are expected to continue in 2013.

Market Trends • Vacancy is very low and continues to fall in Non-CBD

submarkets. Overall vacancy has picked up 0.4% since mid-year 2012, yielding 5.5% by year-end.

• Absorption has been declining from its historically high levels in 2010.

• Production has remained steady, with 40,000 m2 delivered in the second half of 2012. Buenos Aires is expected to see approximately 57,000 m2 delivered in 2013, an increase over 2012 levels.

• Prices remained largely stable over the past year. 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.

Office Market Statistics

Total stock (m²) 1,140,000

Overall vacancy rate 5.5%

Production – 2012 (m²) 50,000

Net absorption – 2012 (m²) 30,000

Expected production – 1st half 2013 (m²) 57,000

Expected net absorption – 1st half 2013 (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

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

metropolitan area and office market, trailing only Mexico City.

• The most important submarkets in São Paulo are Berrini, Faria Lima, Itaim, Paulista, 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 • Production reached 330,000 m2 in the 2nd half of 2012,

far outpacing the 155,000 m2 in absorption. This is very active compared to the first half of the year, when 107,000 m2 were delivered and 48,000 m2 absorbed.

• Vacancy rose 4.2 percentage points from mid-year 2012 as a result of the large volume of new space introduced in the 2nd half.

• The Faria Lima area saw vacancy rise 12 percentage points, while vacancy in Alphaville is the highest in the city at 49%.

• 2013 will be another massive year for production, with 524,000 m2 expected to be delivered. About 65% of this will occur in Berrini, Marginal, and Alphaville submarkets.

• Class A rents in prime submarkets are reaching USD $110/m2/month, making São Paulo one of the world’s most expensive cities to rent prime office space.




Production – 2012 (m²) 437,000






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

Rents by Submarket (1 USD = 2.025 BR)

Class A & AB Rents by Submarket (1 USD = 2.025 BR) R$/m2/month


14

Brazil – Rio de Janeiro

Rents by Submarket (1 USD = 2.025 BR)

Macroeconomic Overview • Rio de Janeiro presents a total of 1.4 million m2,

representing 21% of the stock of Brazil’s capital cities. The main submarkets are Orla, Centro, and the Zona Sul (Leblon, Copacabana, and Ipanema).

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

Market Trends • Over 100,000 m² of office space entered the Rio market

in the 2nd half of 2012. This pushed the vacancy rate up 5.6 percentage points from mid-year 2012. Vacancy jumped especially in the submarket of Barra da Tijuca.

• Absorption was limited in the 2nd half of 2012. • Much of the empty space in Rio is already covered by

pre-leasing contracts, in particular in the Centro region. • Leasing values continue to push upwards, above the

rate of inflation. Rents for Class A space range from USD $43-135/m2/month, with the highest rents in Zona Sul and the lowest generally in Barra da Tijuca or Centro. Class AB rents are ranging from USD $32-107/m2/month.

• Over 100,000 m2 of 2012’s production was concentrated in one built-to-suit project. About 238,000 m2 are expected in 2013.

• Porto Maravilha, a redevelopment area near Centro, will receive its first corporate building in the end of 2013.

R$/m2/month Class A Class AB




Production – 2012 (m²) 159,000








15

Macroeconomic Overview • Strong economic performance in Chile in 2012 was driven

by a growth in internal consumption as well as FDI. • The volatility in the stock market as well as the increase

of profitability in office investment during the last few years have been the key drivers of large developments and transactions in Santiago.

• Las Condes (main CBD) represents close to 53% of the total market stock and will seemingly be the largest growing submarket as well.

• Rents in Chile are quoted in Unidades de Fomento (UF), a quasi-currency adjusted daily to the local CPI.

Market Trends • Close to 168,500 m2 were delivered in 2012, and

approximately 460,000 m2 will be delivered in 2013, making it the largest annual supply recorded.

• 2012's absorption levels were slightly below last year's averages, probably due to the large amount of deliveries taking place in the last weeks of the year. For 2013, over 140,000 m2 are already pre-leased and absorption levels will probably be higher than last years' figures.

• Vacancy rates closed at 3.7% at year-end and could reach equilibrium levels towards year-end 2013 due to the large amount of incoming supply.

• Rental rates currently average USD $28/m2/month for Class A and USD $22/m2/month for Class AB. Class AB rents could decrease slightly towards year-end 2013.

• Rental rates in UF have not suffered substantial variations in recent years. On the contrary, rental rates in USD have increased consistently due to a strong appreciation of the Chilean Peso.

Chile - Santiago




Production – 2012 (m²) 168,500







Historic Production and Absorption


16

Colombia - Bogotá

Macroeconomic Overview • Bogotá is increasingly catching the eyes of international

real estate funds that are looking for projects to invest in. This has the effect of introducing more unified ownership properties into a market that has traditionally been dominated by the condo ownership structure.

• GDP growth remains strong and is expected to receive a boost from the US Free Trade Agreement, which was implemented formally in 2012.

Market Trends • Production reached 148,000 m2 in 2012, continuing a

strong trend since 2009. However, this was far outpaced by absorption, which reached 189,000 m2.

• Market dynamics drove the vacancy rate down to 5.2%, its lowest point since 2008. With production expected to drop significantly in 2013, vacancy could fall to below 4% be the end of 2013.

• The most active submarkets in 2012 were Chicó (64k m2 in production, 61k m2 in absorption) and Salitre (42k m2 in production, 61k m2 in absorption).

• Rents are rising very rapidly in the northern submarkets. Landlords are beginning to ask up to $45/m2/month, whereas 2011 rents peaked at $38/m2/month.

• As a result of high rents and scarce availability in the north, companies are increasingly looking to Salitre and Northwest, two decentralized submarkets with lower rents and larger buildings. Class A rents in these corridors are 25-30% lower than “El Norte” on average.

• Most production in 2013 will happen in Chicó (37k m2), Northwest (32k m2), and Salitre (31k m2).





Production – 2012 (m²) 141,000








17

Colombia - Medellín

Macroeconomic Overview • As the nation’s second city, several large local firms

have their headquarters here, while many others have recently opened a sales or administrative office in Medellín. Firms are taking advantage of a favorable business climate, competitive work force, and low rents.

• The city has implemented an ambitious plan aimed at transforming itself into a tech hub in Latin America. Key components of this plan are a new downtown tech cluster near the Universidad de Antioquia, as well as Manantiales Free Trade Zone, which will host service sector and high value-added firms.

Market Trends • 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 began to change in the past year with the deliveries of Class A buildings Interplaza, Plaza Libertad, and Ciudad del Rio.

• Production in 2012 reached 31,000 m2, while absorption was 46,000 m2. Vacancy decreased as a result from 7% a year ago to 3.7%. Vacancy for larger spaces is even smaller, and is contained within a handful of buildings.

• 2013 will see a slight decrease in production, however it will pick up in 2014 and 2015. This should drive vacancy up to equilibrium levels and provide companies with more options.

• Rents are typically highest in El Poblado as it is the most exclusive sector of Medellín. Rents are lowest in Centro.


Total stock (m²) 488,000


Production – 2012 (m²) 31,000









18

Colombia - Cali

Macroeconomic Overview • The Cali office market is small. However, it is a large

and growing consumer market, and a low-cost option to Bogotá and Medellín.

• As the only major Colombian city with access to the Pacific coast, Cali stands to benefit the most from growing trade with Asia, US, Chile, and Peru. All goods going in and out of the Buenaventura port – Colombia’s largest – pass through Cali.

• Cali’s 154,000 m2 in prime office stock are a third of Medellín, a city that is comparable in population and GDP.

Market Trends • Prime office stock in Cali is mostly contained in 3

submarkets: Centro with 20%, Versalles with 30%, and Ciudad Jardin with 17%. Another 34% is located in decentralized and non-consolidated areas.

• No new buildings were delivered in 2012, however 2013 and 2014 point to a growing trend in office production. Over 40,000 m2 will enter the market in the next two years.

• Absorption is expected to increase in the short-term, pushing vacancy rates further down in 2013.

• Rents are currently ranging from USD $14-$26/m2/month for prime office space. Rents are highest in Ciudad Jardin and Versalles, as they are high income areas that offer competitive amenities. Rents are lowest in Centro.

• Approximately 25% of the office stock in Cali is non-speculative.




Production – 2012 (m²) 0









19

Costa Rica – San Jose

Macroeconomic Overview • The Costa Rican economy is expected to grow by about

3.7% in 2013, slowed by stagnant export markets that will likely dampen industrial production in the short-term.

• Costa Rica’s pro-business government is seeking to enhance trade relations with Asian countries, particularly China and South Korea, as well as the Pacific Alliance.

• Growing fiscal concerns have forced the government to subcontract more services to the private sector, raise taxes, and discontinue some exonerations and export incentive programs.

Market Trends • About 80,000 m2 have come online in San Jose over

the past year. However demand has been slow, with only 49,000 m2 in absorption. As a result the vacancy rate has risen to 14.7%, the highest it’s been in years.

• Rents in San Jose are very competitive right now and tenants are enjoying significant leverage.

• These market dynamics will continue into 2013, as production is expected to reach 115,000 m2, a historical high.

• 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.

• Rohrmoser and Escazu saw a majority of market activity in 2012. Santa Ana and Este will see the most growth in 2013.

Stock, Production, Absorption, and Vacancy by Submarket, 2012




Production – 2012 (m²) 81,000








20

Ecuador - Quito

Macroeconomic Overview • The Ecuadorian economy is expected to grow between

3.5-4% in 2013 and around 2.5% in 2014. • Aggressive fiscal policies will expand the deficit in the

short-term but should boost the local economy in Quito. • 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.

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. Overall, Quito will see about 150,000 m2 built through 2015.

• Vacancy is currently estimated at around 5.5%, 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.

• 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.

Stock Repartition by Submarket




Production – 2012 (m²) 40,000








21

Ecuador - Guayaquil

Macroeconomic Overview • The Ecuadorian economy is expected to grow between

3.5-4% in 2013 and around 2.5% in 2014. • Though Guayaquil is comparable in population to Quito,

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

• The Ecuadorian government is looking to implement strict environmental policies that will stifle investment in the oil sector. This will negatively affect the Guayaquil economy as most oil shipments pass through here.

Market Trends • 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.

• 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.

• Vacancy rates are down from 13.5% a year ago. • Guayaquil will see about 60,000 m2 in new office

construction through 2015. This should be on par with demand, and vacancy rates should stay between 10-15% in the medium-term.

Stock Repartition by Submarket




Production – 2012 (m²) 19,000








22

Mexico – Mexico City

Macroeconomic Overview • The economic recovery has been stronger than

expected, and economic activity remained steady through the elections process, which was handled peacefully and uneventfully.

• Transition to a new presidency will occur in December with no major changes in macroeconomic policy expected. Significant pro-business labor reform will be passed by congress before this term expires.

• Violence among drug cartels continues to be the pending issue to be solved in the country, mostly in the north along the border with the United States.

• Tourism is back to pre-crisis levels despite violence and safety issues.

Market Trends • 2012 was a strong year in terms of demand, with about

330,000 m2 of net absorption. Much of this was concentrated in the submarkets of Reforma, Polanco, and Insurgentes.

• The city's average price was $ 27/m2/month, showing a slight decline compared to 2011. Prices have been stagnant in most of the city due to the delivery of a significant amount of new supply. Now is a good time for tenants looking to relocate.

• Vacancy is at 11%, registering a slight drop from a 12% rate at mid-year 2012. Vacancy is highest in Reforma and Insurgentes.

• Expected production is expected to reach 400,000 m2 per year in both 2013 and 2014.

Stock, Absorption, and Vacancy by Submarket



Overall vacancy rate 11%

Production – 2012 (m²) 290,000








23

Mexico – Monterrey

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

hub in Mexico as well as all North America. It features prominent steel, cement, glass, manufacturing, electronics, and auto industries, and is also seeing significant growth in the back office, call center, and data center sectors.

• With these assets, along with a highly educated population, Monterrey 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.

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

absorption have been fairly equal. 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.

• Centro/Obispado will see the highest growth in stock over the short-term, with about 24,000 m² under construction.

• Approximately 30,000 of the 60,000 m2 absorbed this year were in the submarket of Valle Oriente. This area also has the highest vacancy rate at 33%.

• Some important new trends being observed in Monterrey are a growing interest in LEED-certified and mixed-use buildings, as well as growth in newer areas within the sector of San Pedro.

Stock, Production, and Vacancy by Submarket




Production – 2012 (m²) 32,000








24

Mexico – Guadalajara

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

10th largest in Latin America. Its economy is highly industrialized, with a strong electronics manufacturing sector for which it has earned the nickname “Mexican Silicon Valley.”

• 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.

Market Trends • Prime office assets in Guadalajara are a relatively new

phenomenon, but the market is poised to expand. With about 107,000 m2 expected in 2014, the city’s stock of prime office space will nearly double in one year.

• Puerta de Hierro and Lopez Mateos are the most important clusters, containing 56% of office stock. Vacancy is currently highest in Puerta de Hierro and Lopez Mateos, at 10% and 9%, respectively.

• Guadalajara will see 27,000 m² delivered by the end of 2013, matching this year’s production. This space will likely be mostly absorbed, as demand appears to be very strong at the moment.

• 43% of production over the next two years will happen in Americas and Puerta de Hierro.

• 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.

Existing and Vacancy by Submarket




Production – 2012 (m²) 28,000







Stock, Construction, and Vacancy by Submarket


25

Panama – Panama City

Macroeconomic Overview • Panama City saw 10% GDP growth and nearly $1b in

FDI in 2012. The majority of this growth and investment is being driven by massive infrastructure projects: the $5.3b Panama Canal expansion, expected to be completed in 2015; Panama City’s Metro line (Central America’s first), to be operational by 2014; and several major highway, bridge, road, airport, port, sanitation, and mining projects.

• Commercial construction has benefitted enormously from this growth, and is also being facilitated by SEM Law #41, which grants tax incentives and benefits to multinational corporations establishing their Latin American headquarters in Panama.

Market Trends • Panama is in the midst of an unprecedented

construction boom. Assuming projects finish on time, about 582,000 m2 will have been constructed between 2013-2015, nearly duplicating the current stock.

• The market is becoming infused with higher quality assets, with LEED-certified buildings especially proliferating.

• The busiest submarket in 2012 was San Francisco, which saw 90,000 m2 in production and about 76,000 m2 in absorption (though most was in one tower).

• Citywide vacancy is currently at 10%. It is especially high in Obarrio (14%) and San Francisco (10%).

• The potential for high vacancy and a drop in absorption in the next few years should place downward pressure on rents, providing tenants with added leverage.





Production – 2012 (m²) 237,000








26

Peru - Lima

Macroeconomic Overview • Peru’s economy grew at 6.3% in 2012, making it one of

the top performers in Latin America. FDI should reach about USD $6.5 billion this year, a record number.

• The Peruvian government has continued its focus on improving the business climate as well as the fiscal and monetary situation. Its effective management of the economy has cut the debt-to-GDP ratio in half since 2001 and increased GDP per capita significantly.

• These efforts were rewarded in 2011 with an upgraded bond rating of BBB.

Market Trends • 2012 saw the addition of 102,000 m2 to the market,

while absorption surpassed this at 110,000 m2. • High demand pushed vacancy down from 2.3% in 2011

to 1.1% this year, making Lima one of the world’s tightest office markets. The vacancy rate is under 2% in each of Lima’s submarkets: San Isidro West, San Isidro CBD, Miraflores, and Este.

• Companies looking for an office of over 500 m2 will almost certainly have to do a pre-lease.

• Rents are rising steadily. Class A rents are ranging between USD 22-28/m2/month – an increase of 30% on average from 2009, while Class AB are between USD $17-25/m2/month, an increase of 21% on average in the same period.

• Lima looks to be entering a construction boom from 2013-2014, with about 340,000 m2 to enter the market in this period. This should cause vacancy rates to rise and potentially stabilize around 8-10% in 2015.





Production – 2012 (m²) 102,000




Class A rental range (USD/m²/mo.)* $22-28

Class AB rental range (USD/m²/mo.)* $17-25


*For comparison purposes, rents include parking costs, which are quoted separately per market practice.


27

Puerto Rico – San Juan

Macroeconomic Overview • GDP growth in Puerto Rico was only 1%, however it

marked the first year since 2007 that there was positive growth as the economy has been in recession for several years now.

• The government focus is currently on reforming the tax code in order to stimulate domestic demand and improve its fiscal standing to avoid a credit downgrade.

• The last installments of the US stimulus package disbursements to Puerto Rico will be made in June 2013. The island is expected to see negative growth for 2013 as a result.

• Puerto Rico has a dynamic and technologically-oriented service sector that could lead the recovery with the help of new free trade agreements and growth in exports.

Market Trends • The office market in San Juan has been stagnant a few

years. Several large employers are reducing their real estate portfolio in Puerto Rico and in some cases are withdrawing operations completely.

• Vacancy rates are estimated at above 20% in Hato Rey, the banking district. They are a bit lower – 15% - in Guaynabo, a newer submarket where many multinationals are moving to. These conditions imply enormous leverage for tenants.

• Vacancy rates are expected to decline very moderately in the next two years, keeping prices stable in the absence of new construction.

• Rents are highest in Hato Rey, where companies are paying between USD $20-24/m2/month.

Historic Rents and Production

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




Production – 2012 (m²) 0


Expected production – 1st half 2013 (m²) 0

Expected net absorption – 1st half 2013 (m²) -2,000





28

Uruguay - Montevideo

Macroeconomic Overview • After registering a 5.7% growth in 2011, the Uruguayan

economy maintained its expanding pace through 2012, growing at 4%. This was mainly attributed to the increased activity in transportation, storage and communications (particularly in telecommunications and freight transportation).

• Inflation is currently at 7.5%, an increase of over 4% from last year and slightly above the target rate of 4% to 6%. Uruguay recovered the investment grade it lost a decade ago thanks to the diversification of the economy and an improved external position due to lower indebtedness in US dollars.

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 and the non-Free Trade Zones.

• 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.

• Given current market dynamics (decreasing vacancy levels and low supply of corporate quality offices), Montevideo is currently landlord favorable.

• World Trade Center 4 - a 39-story tower – was completed in 2012, adding approximately 32,000 m² to the market.

Montevideo Stock Repartition by Submarket

Centro41% Centro Norte

18%

Punta Carretas -Pocitos Nuevo

28%Carrasco13%




Production – 2012 (m²) 43,000

Net absorption – 2012 (m²) N/A


Expected net absorption – 1st half 2013 (m²) N/A





29

Venezuela - Caracas

Macroeconomic Overview • There are two official exchange rates authorized by the

government. The CADAVI rate, which is fixed at BEV 4.3/USD, applies to food and pharmaceutical imports. The SITME rate fluctuates between BEV 5.7 – 5.9/USD and applies to all other products. A devaluation is widely expected in 2013 or 2014 to boost public revenues.

• The Venezuelan economy has registered GDP growth of +4% for each of the past two years, though much of this is attributed to increased public spending in the lead-up to the 2012 election.

• The government’s policies have slowed investment in commercial real estate. Yet with the currency restrictions in place that make it difficult to move money outside the country, real estate is a relatively attractive investment.

Market Trends • Prime office stock in Caracas is contained in five

submarkets: El Rosal (35%), La Castellana (25%), Sabana Grande (25%), Las Mercedes (8%), and the suburban Southeast (7%).

• 2012 saw about 32,000 m2 enter the market. Absorption came short of production, ending the year at 26,000 m2 and pushing vacancy up to about 6.5%.

• Production will fall in 2013 but is expected to jump in 2014 when a handful of large projects will be delivered.

• Class A rents currently oscillate in the range of US $70 – 105/m²/mo., while Class AB rents stand at US $60 – 90/m²/mo. The highest rents are in La Castellana and lowest rents are in Sabana Grande.





Production – 2012 (m²) 31,000








30

Comparison of Tenant Leasing Practices Appendix

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), a 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)

Insurance policy typically requested

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 rate In UF, indexed daily Annual increases of 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


31


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.







32


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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