Lead indicators suggest that construction and pipeline growth is expected to continue at a strong rate. However, given the growth rates in 2013, base effects will likely result in a lower growth figure over 2014, as we anticipate that the rental market will remain flat across all sub-sectors.
In spite of new supply, absorption rates are generally holding up across the board, with record amounts of office space set to come online over the next year. In fact, an anticipated broader slowdown in pipeline activity in the medium term is good for the leasing market - particularly in the office and retail sub sectors - as new supply decreases and demand remains relatively buoyant, the competition for prime space in prime locations may well boost rental rates in the medium term. Nevertheless, abundant demand and supply is the general trend across all commercial real estate sub-sectors, and as a result, the commercial real estate market is expected to continue to blossom. The country's status as Latin America's most prosperous region has helped it retain stability and caused it to become a target destination for people looking to enter into a more predictable market than the eurozone in particular.
We believe population expansions in smaller urban areas will drive retail real estate expansions in these regions. This, in conjunction with over-saturation across all commercial real estate segments in Santiago, will encourage a corresponding increase in office and industrial real estate in these areas. We believe that rents will increase in these areas in the short term until new supply comes online. Meanwhile, we expect Santiago's rents and yields to begin to decline over the longer term as new space comes online in the city and companies move to other urban areas to seek out new markets.
- New developments include the US$36mn, 29,000m2 Arauco Quilicura in Santiago, and strip centres throughout the country in partnership with AURUS, the Chilean asset manager. Parque Arauco will have a 51% stake in the projects, while AURUS will co-invest 49%.
- Falabella previously announced plans to invest US$1.74bn in Latin America between 2010 and 2012 (US $492mn in 2010, US$620mn in 2011 and US$632mn in 2012), but has upgraded its growth plans and aims to invest US$3.51bn between 2011 and 2015, in 215 new stores and 16 new shopping centres.
- The US$75mn World Green Center office block will be constructed by the Chilean investment firm Aurus and the Ciudad Empresarial commercial real estate complex company, with six floors and floor plans up to 3,600m2.
Chile has long been one of the jewels in the South American crown in terms of a dynamic economy, abundance of resources and consistent growth. These strong fundamentals and a resilient leasing market make Chile a strong and dependable performer in the commercial real estate sector.