Office space in Chile's capital Santiago to hit record levels
Tenants are the winners as developers sweeten deals to fill office space flooding the market just two years after vacancies were at just 2 per cent
Billionaire Horst Paulmann began developing South America's tallest tower in 2006, when economic expansion fuelled by copper demand pushed Santiago office rents to a six-year high. He's completing it as vacancies soar.
The retail magnate's 62-floor Torre Gran Santiago in the city's financial hub is part of a record amount of office space about to flood the market. Santiago developers, in an effort to fill the new buildings, were sweetening terms for tenants with such perks as six months of free rent, double the norm, or by helping pay for improvements that usually were the responsibility of occupants, according to brokerage CBRE.
"The winners will be those that react first and offer incentives to lock in renters," said Marc Royer, director of the capital markets division in Santiago for CBRE. "Some companies are starting to defer their decisions to rent new offices, to see if they can negotiate better terms."
Office vacancies in the Chilean capital were expected to climb to 11 per cent in 2014 from a projected 6.6 per cent at the end of this year as the flood of newly built space became available for rent, according to CBRE. Just two years ago, the vacancy rate was less than 2 per cent following a dearth of construction.
About 850,000 square metres of new space was slated to come to market in the next two years, boosting the city's office supply by almost a fourth, the brokerage said. The upscale areas of El Golf, Vitacura and Nueva Las Condes may fare the best as purchases of top-tier, or Class A, office buildings by insurance companies and investment funds, along with postponed construction plans by some developers, stave off rent declines.
Office landlords in Providencia and downtown Santiago may be less lucky as tenants vacate older offices and move into new developments. In those municipalities, where most new projects were lower-quality Class B buildings, occupancies and rents may fall, said Augusto Rodriguez, who manages about US$1 billion of real estate investment assets for Grupo BTG Pactual in Chile.