In the first half of 2013, vacancy rates in Chile’s competitive office market rose to their highest level in nine years.
According to a Jones Lang LaSalle report, the percentage of vacant office space increased from 3.7 percent at the end of 2012 to 4.1 percent in June. The market reports a historically higher demand for Class A spaces, where the vacancy rate at the halfway point of the year is 3.4 percent as opposed to 4.7 percent for Class AB spaces.
The country’s vacancy rate is significantly lower than that of other nations in the region; Panama has Latin America’s highest vacancy rate at 29.8%.
The amount of office space produced in Chile over the course of the first six months was roughly 67,000 square meters, which is comparable to the amount produced during the same time last year. The company does note that some projects, such as Parque Titanium II, Nueva Apoquindo I and III, and Plaza Manquehu, experienced delays and are anticipated to be delivered during the second half in addition to the scheduled supply.
Santiago, after Mexico City and Sao Paulo, is the third largest office market in Latin America, with a total stock of about 2,750,000 square meters.
The report notes that “this stock is lower than the year-end report for 2012 as a result of the downgrading to Class C of some buildings based on deterioration and floor subdivisions.” Buildings classified as Class C are not regarded as corporate-standard stock.
Two buildings in the Las Condes submarket, Patio Foster and Cerro el Plomo 6000, each with a sizeable portion of space pre-leased, contributed additional Class A space, totaling 37,000 square meters. Five Class AB buildings totaling 30,000 square meters were delivered through Las Condes, Providencia, and Santiago Centro, as well as two buildings situated in the Huechuraba submarket, according to JLL.
During the first six months, absorption totaled 59,000 square meters, with the majority of that area being pre-leased Class A office space and leases on buildings that were completed in the final two quarters of 2012.
The report also highlighted the activity in the capital markets, which was stimulated by strong demand from funds and foreign and domestic investors seeking to buy corporate-standard office space. For almost $135 million, 27,000 square meters of Class A buildings were bought. More than 22,000 square meters of Class AB office space changed hands for $80 million.
According to JLL, transactions for individual floors or offices are declining, making fully-owned buildings a more common ownership structure.
For the remainder of the year, it is anticipated that approximately 260,000 square meters of Class A and AB will be produced. Nearly 10 Class A buildings in the Santiago Centro, Providencia, and Vitacura submarkets, but primarily in the Las Condes submarket, are expected to deliver more than 170,000 square meters of supply.
In the following six months, the additional supply could turn Santiago into a tenant’s market, which could have an impact on rental rates.
According to a JLL report, “The forecasted annual supply would be the highest ever recorded for the Santiago office market, with an expected upward impact on vacancy, which could rise to close to 7 percent at year’s end, the highest in 10 years.”