In order to size the office market in each of the cities, the ratio of square meters of offices per 1,000 inhabitants was calculated. From this analysis, it turned out that Santiago de Chile leads the ranking with a ratio of 234, followed by Bogotá with 167, Lima with 161, Sao Paulo with 151 and Buenos Aires is in the lowest position, with 96.

According to the specialists at Cushman & Wakefield Southern Cone, the number of office buildings that a city holds, is useful to measure and understand the amount of investment in long-term assets for each country, and the conditions of the financial system, since capital-intensive investments depend highly on it.

Bogotá and Lima in the footsteps of Santiago

The study shows that Santiago de Chile has an inventory of premium offices of 1.67 million square meters, which exceeds the inventory of Lima, Bogotá and Buenos Aires, given that this market offers very good conditions for long-term investment. This translates into good accessibility to financing sources and a stable market, the main attraction for making this type of investment. In addition, Chile has a very solid savings system based on the AFPs, which must be invested locally, and provides greater drive to the demand for long-term assets.

Andrea Duque, head of research for Cushman & Wakefield

However, this solid savings system is a barrier to foreign capital entrance, added to the fact that the return on investment in capital-intensive assets is still low. This could limit the growth of the market, and make local investors to look for other markets with similar investment conditions.

Lima is currently positioned as one of the most important emerging office markets in South America, behind Santiago de Chile, an established continental market. It doubled its office inventory in the last five years, reaching 1.58 million square meters. A consistent economic policy, with relatively low funding rates, supported long-term investment.

Andrea Duque, Head of Market Research at Cushman & Wakefield Colombia, says: “Bogotá shows development similar to Lima. The Class A office inventory registered a growth of 57% in the last five years, reaching 1.43 million square meters and on top of it all, the city recorded in 2018 an important demand for this kind of spaces, driven by a context of investor confidence. ”

Sao Paulo and Lima lead in built meters, and Buenos Aires in projected meters

The data collected shows that between 2014 and 2018, Sao Paulo and Lima were the cities that had the largest new surface production, followed by Bogotá and Santiago. Buenos Aires has been left behind not only by the unstable political and economic conditions of recent years, but also because financing for long-term investments is very scarce. The office market is capital-intensive and financing is required to develop new projects.

Buenos Aires has the largest volume of meters under development and planned for the next five years, which validates the potential of the office market for developers. However, although it has the largest amount projected, it is combined with the lowest amount produced, given the difficulties that investors have to carry out their projects in a market without financing.

On the other hand, when observing the market cycle, Buenos Aires is in a state of “High rental prices” with an average of US $ 33 square meters / month. This is partly preserved by the small size of the inventory of Premium offices. However, political and economic instability are impacting the income level, which begins to decline and provides future opportunities for tenants.

“Bogotá presents stable rental prices and in some cases decreases, with an average of US $ 20.2 square meters / month. This situation is ideal for tenants who need to renew their contracts, for those looking for properties to rent, to expand their offices or willing to move to a building with better features,” said Juan Carlos Delgado, Country Manager of Cushman & Wakefield Colombia.

Juan Carlos Delgado, Country Manager of Cushman & Wakefield Colombia

The markets of Santiago, with an average rental price of US $ 19.5 square meters / month, Sao Paulo, with an average rental of US $ 23.6 square meters / month, and Lima, with an average rental of US $ 17, 3 square meters / month, have slowly growing rental prices, which could lead in the future to an opportunity for investors.

Santiago and Buenos Aires have the lowest vacancies

When comparing the vacancies of each one of the cities, it can be noticed that Santiago holds the lowest vacancy rate with 4.3%, after a period of five years with little production and large developments that are still waiting to be finished. It is followed by Buenos Aires with 6.3%, a vacancy that remains low, as a result of a structurally small market. Bogotá (9.9%), Lima 20.2%) and Sao Paulo (21.6%) have higher vacancies, but with a downward trend

Additional Data

These report findings were shared with Finance Colombia by Cushman & Wakefield.

Marc Royer is responsible for the new business unit of Capital Markets for South America of Cushman & Wakefield, a global corporate real estate services company present in Colombia. This appointment seeks to potentiate the local and cross-border investment opportunities of the South America region,and the company expects Royer to lead this effort.

Royer has a degree in business administration and management with a Master in International Management from IPAG Business School, in Nice, France. He has 16 years of experience in the real estate investment industry in Europe and South America with nearly USD 2 billion in volume of transactions. He was a partner of 3Di, boutique consultancy platform, specialized in buying, selling and developing commercial assets in the region. He previously served as Director of Transaction Services and Capital Markets of CBRE Chile, advising real estate transactions by investment volume, exceeding USD 950 million in Chile and Peru, leading the sale for Walmart of the largest real estate portfolio in Chile (10 malls Urban Space ). He was also Senior Investment Manager at CBRE Spain and Investment Manager at Banco Santander, where he invested nearly 700 million in assets and real estate funds in Germany, France, Belgium, Poland, Slovakia, Czechoslovakia, among others.

Class A offices (which include sub-classes AAA and A), the only ones monitored in this study, are the highest quality of office space with premium standards that support not only issues such as sustainability, but also are attractive to multinational firms entering the Colombian market who tend to  seek this type of property, according to their commitments of quality, efficiency and safety.

• The record figure corresponds to Bogotá offices, the most internationalized market in Colombia, which is projected to continue growth in 2019.
• The increase is the highest in 8 years.
• Occupancy had its maximum and historical peak in the third quarter with 76,181 m2 (820,000 square feet).
• The Salitre corridor near the El Dorado International Airport has the highest leasable area at 41.9% of the Bogotá market.

The highest absorption index for the year was in the third quarter of 2018, when it reached a historic figure of 76,181 m2, corresponding to 41.8% of the annual total. Likewise, data on the area occupied in 2018, compared to 2017, suggest a growth of 39% in absorption, a record that shows an increase in demand and improvement in the economy from at least a real estate perspective.

Economist Andrea Duque Gaviria is the head of valuation and advisory for Cushman & Wakefield in Colombia

According to Andrea Duque of Cushman & Wakefield, 950 m2 were also released in this period, 6% less than in 2017, while inventory increased by 9.3% compared to 2017 , and the vacancy rate (area available for rent), only recorded a decrease of 4.3% percentage points, adding to the good prospects of this sector and a balanced development of transactions.

In the fourth quarter of 2018, the capital city presented an availability of 141,732 m2, located at 81% in the Central Business District, (CBD), which corresponds to the metropolitan areas of Avenida Chile, Calle 100, Centro, Chicó, Nogal-Andino, Salitre and Santa Bárbara, where the vacancy reached only 8%.

The Salitre corridor concentrated 41.9% of the available surface, followed by the Noroccidente (Northwest) corridor (18.9%), which corresponds to a non-traditional corporate zone, (NON CBD), which includes projects such as Colina Centro Empresarial or Floresta Business Center, while the sub-markets with less availability were Avenida Chile, Calle 100 and Centro (Traditional Downtown).

The net absorption of the quarter was 22,668 m2, where the Salitre submarket stood out with 47.8% of the total, supported mainly by the area taken in the Central Point and Elemento buildings.

The price rent requested, very much in accordance with the location and characteristics of the building, remained at an average of $ 64,000 pesos per square meter, which measured in dollars, shows a downward trend. It is necessary to clarify there that the price of rent requested in the zone NON CBD, is 7% less than that of the CBD zone, opening possibilities of location in non-traditional areas, but with high possibilities of development.

By 2019, the Cushman & Wakefield study projects that 319,411 m2 will correspond to 19 Class A buildings that are 83% located in the CBD, 30% in the Cll 100 submarket and 27% in Salitre.

“In addition, other future buildings are planned, which still have no delivery date, but which would add some 400,000 m2, located at 86% in the CBD area,” says Duque.

This area in project and construction phases would increase by 46.4% compared to the historical average of new annual square footage delivered, a rate expected to sustain the process of development and investment in the country.

Class A buildings (A + and A) are those buildings with high technical and safety specifications, with an age between zero and ten years; with leasable area from 1,000 m2 to 1,500 m2; between one and four offices per floor; heights up to 2.70 m, holders or in process of sustainability and environmental certifications such as LEED or AQUA and strategically located in areas with easy access and roads.