Venezuela Real Estate Report Q1 2014
The Venezuelan commercial real estate sector is set for further turbulence in 2014 with pockets of sharp growth in rental rates expected across the country due to the devaluation of the Venezuelan bolivar. Increasing numbers of Venezuelan nationals are investing in property in neighbouring countries such as the US in order to achieve greater secturity. Meanwhile, we believe the ruling Partido Socialista Unido de Venezuela (PSUV) will maintain a firm grip on the country's institutions with legitimacy concerns relating to the recently-elected President Nicolas Maduro expected to maintain a high level of social and political risk.
Office rental rates in the Venezuelan capital of Caracas were up 80% year-on-year (y-oy) in the first half of 2013 to US$150 per square metre. The increase has been attributed to the devaluation of the Venezuelan bolivar, which has made the country's office rental market the most expensive in Latin America. Many businesses are now reported to be keen to purchase their offices, or are considering alternative locations; comparative spaces in the continent's other cities cost between US$20 and US$35 per square metre.
The bolivar's depreciation, in conjunction with the government's H113 introduction of a dual exchange rate system in Venezuela, will have the most tangible effect on the Commercial Real Estate sector in the short term by curtailing business activity. We also highlight that there is a level of uncertainty in the market as a whole as to what effect the currency depreciation will have upon rental levels, as there remains a chance that landlords may raise rents in bolivar terms in order to offset the loss in value relative to the dollar.
We expect high levels of political uncertainty to continue in Venezuela over the coming quarters, as recently-elected President Nicolas Maduro attempts to retain his declining popularity amid a rapidly deteriorating economy and an extremely polarised political environment. Moreover, while the escalation in social and political tensions that erupted shortly after Maduro's electoral victory in April has dissipated in recent weeks, we still believe that there are significant risks that his time in office could be cut short. In addition, while near-recessionary economic conditions increase pressure for a more investor-friendly policy mix, we see only minimal changes and expect high levels of government intervention to continue over the coming years.
Since Q4 2013 we have made substantial downward revisions to our real GDP growth outlook on Venezuela and now estimated GDP to have grown by 2% in 2013, an increase on our previous forecast of 1%. However, we have revised our growth forecast for 2014 downwards and are now projecting growth of just 1.5% in 2014, compared to 2.1% previously expected.