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Latin America Office

First Quarter 2011

Quick Stats
Change from last
Current 4Q10

Inventory (000 SQM) Net b N absorption (000 SQM) i Occupied space (000 SQM) Vacancy Average Asking Rent*

12,599 515 11,679 7.3% $38.7 - 0.60 pt + $1.7

LATIN AMERICA Favorable economic perspectives in the region continue to drive the office market and transaction activity. The regions economic growth has a 6.5% projection for 2011 and due to the on-going increase of foreign investment, g g g , further exchange rate appreciation is expected in the following months for most local currencies. Despite the fact that the first quarter is traditionally not the most dynamic, total inventory grew over 4% and vacancy rate diminished almost 8%. Scarce availability continues pressuring prices and the lack of visibility for a supply demand balance in the next few quarters could make office space in the region, the most expensive in the world. It is important to notice that we are adding two major markets to this quarters analysis: Colombia and Costa Rica, adding to the market 1.4 million SQM. MEXICO CITY, MEXICO Market activity for Class A+/A office space dropped from the previous quarter's levels despite the various deals closed both in existing spaces and spaces under construction. The completion of the buildings located at Insurgentes D95 and Corporativo Boston boosted class A+/A office inventory by 29,828 SQM. The lease asking price for class A+/A buildings increased slightly from the previous quarter, from US$23.06 to US$23.52/sqm per month as of the end of Q1. Market activity levels for subleased space continue to trend downwards. p The low demand for these types of spaces and the large supply of new space at competitive prices has meant progressively fewer of these types of spaces. Construction activity closed the quarter at 947,000 sqm of class A+/A, of which around 34% will be completed in 2011, mainly in Santa Fe, Polanco and Reforma Centro.

SO PAULO, BRAZIL Gauging from the first quarter results, the office market in So Paulo continues to strengthen with burgeoning rents, shrinking vacancies and strong demand mainly for good q quality office products. y p Overall vacancy rate stands at 3.8% which is the lowest on record. Following the downward trend, the class A vacancy rate continued to tighten by decreasing 1.1 percentage points from the previous quarter to the current record low of 4%. Net absorption for class A space registered a positive result, albeit small, much as a consequence of the scarcity of availabilities at good quality office space. The average asked lease rate continues to escalate in So Paulo driven by scarce vacancies, a relative drought in new construction and the continues growth in the creation of jobs. Furthermore, a few state of the t th art new office b ildi ffi buildings scheduled t b h d l d to be delivered in 2011 have placed additional upward pressure on pricing. SANTIAGO, CHILE The real estate market clearly reflects the overall economic growth in Chile, with a notorious increase in the number of new building permits, the speed with which work sites for new buildings crop up, and the promptness with which new spaces continue to be absorbed. The new construction supply that will enter the market during the rest of 2011 is only 32,000 m2, and therefore demand will be limited by , y the lack of available space. In other words, towards the end of the year vacancy will tend to be zero. No changes in the lease values were recorded in the first quarter in relation to the previous quarter. The available spaces offered in class A are concentrated mainly in the buildings that entered the market most recently, and stocks diminish month by month. However, lease prices have remained at an average value of UF 0.61/m2.

*Average Asking Rent is measured in USD per SQM per month Quick Stats inventory, occupied space and net absorption figures represent yearly totals; vacancy and average asking rent represent data as of years end. Year-over-year changes are represented in the right column.

Hot Topics
Recovery is now considered a fact and investment in the region is expected to rise as economic growth continues Buenos Aires A+/A inventory continues growing at +25% rates Construction is expected to keep on growing, but not fast enough to compensate the existing gap with current demand Even though 515,000 SQM were absorbed this quarter, this figure was 170,000 SQM less than 4Q10 AAR for the region as whole will most likely reach $40 USD in the next quarter AAR keeps growing and cities such as Rio de Janeiro, Sao Paulo and Caracas are now amongst the most expensive locations in the world

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BUENOS AIRES, ARGENTINA The Buenos Aires office market is emerging quieter as far as investment is concerned, for the first half of 2011. Given that we are in an election year, with a very volatile local and international economy, we believe that investors in estors will be ca tio s and companies will not cautious increase its installed capacity, postponing their investment plans until they can get higher returns. In the rental market, as no major office projects have been launched so far and much of the new supply of 2010 was absorbed, we estimate that prices will start a recovering process. The Lease Rate Average for offices class A and A + is 26.9 USD AAR, which represents a small decrease from the average value of the end of 2010. Possibly, this variation is because the first months of the year did not generate large movements, and therefore, prices are stable or even lower until the demand move up. RIO DE JANEIRO, BRAZIL The Rio de Janeiro office market recorded a fast growth in rents during the first quarter of 2011. This can be g q attributed to continuous low availabilities across all submarkets. The South Zone submarket lead the growth in rents due to limited new development and tight vacancy rate even considering the increase recorded in the first quarter of 2011. Despite the growing vacancy, the citys grade A office effective rents got more expensive in the first quarter of 2011. The average asking rent rose almost 8% highlighted by strong rental growth in b h the Flamengo and the South Zone h both h l d h h submarkets. The growth in rents was lead by new class A developments, such as both the Ventura towers, and the tenants willingness to pay for quality spaces given landlords room to increase rents. BOGOTA, COLOMBIA New construction added +100,000 SQM in the past 12 months, causing double months ca sing do ble digit vacancy rates at the end of acanc 2010, but diminishing to less than 9% for 1Q11. Supply continues to grow, not as strong as last year, Class A inventory will grow +6% by years end. Rents decreased slightly in the course of 2010, but are expected to grow to match the decreasing vacancy and no new meters to enter the market until later 2011. Calle 100 and Santa Barbara submarkets have emerged as the most popular for Class A+/A buildings and tenants due tenants, to their accessibility, local services and amenities. LIMA, PERU The Peruvian Real Estate market has reflected the past few years of economic stability , with a constant demand and a sustainable growth of office spaces. Vacancy recorded 1.51% during 1Q11 and AAR reach US$ 16.71, which is slightly lower than last quarter, because , g y q , the most expensive spaces had already been occupied.

MONTERREY, MEXICO Class A+/A office market showed a dynamic activity in 1Q11, with over 21,000 sqm transacted, which is half of 2010's total absorption. It is noteworthy that 85% of the total was concentrated in the five major transactions. The preference for Class A+ office space keeps p shing up pushing p asking prices of the buildings in this class, widening the price gap with respect to Class A buildings. Meanwhile, the vacancy rate has continued its downward trend, falling for the fourth quarter in a row, to end at 14%. Recent quarters have shown a growing gap between the average lease price for Class A+/A buildings. On the one hand, Class A+ prices continue their gradual climb mainly due to increased demand for this office space class. On the contrary, Class A prices, however, have held steady at around USD 16/SQM/month since 1Q09, due to a more stable demand. SAN JOSE, COSTA RICA Rents have remains stable over the last year, having seen some small increases in 2010. Average rents range from $14.85, low to $18.50 medium and $22.00 on the high g end. We expect there to be an increase because of very little construction in the market, largest project , which will have over 50,000m2, has just began construction on their last building. New office and medical manufacturing Supply continues to grow, we will be expecting this trend to continue through 2011-2012. PANAMA, PANAMA The office market in Panama City performed well d h ff k f d ll during the first quarter of 2011. Vacancy rate for Class A office buildings remain quite stable close to the 4.7% it average last quarter. Average lease rate slightly decreased around 1% from the ending of last year. Likewise, the average sales price showed a reduction ,less than 1%. The most expensive submarket in the city is the Banking Area due to the accessibility and infrastructures offers. infrastr ct res it offers GUADALAJARA, MEXICO During the last six months the corporate office space market in Guadalajara has shown an increasingly dynamic growth, reflected in a high degree of marketing during this quarter. The average list price for rentals followed the same trend as it has over the last eighteen months. months The average going rental showed a slight variation and ended the quarter at US$20.82/sqm/month. In some buildings adjustments in the asking lease prices were made as a sales strategy. As expected, there was a significant presale activity, representing 48% of the office space marketed during this quarter.

First Quarter 2011

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Historical Class A/A+ Inventory (000 SQM)

Total 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Growth rate 7% 6% 5% 4% 3% 2% 1% 0%

Country Class A/A+ Inventory (000 SQM)

4,500 4,000 3,500 3 500 3,000 2,500 2,000 1,500 1,000 500 0
Mexico Brazil Chile Argentina Colombia Costa Rica Peru Venezuela Panam

4Q10

1Q11

Latin Americas Class A/A + office market had a compound average growth rate of 3% since 1Q09, which means that in the past 2 years, SQM inventory in the region grew over 26%. Over a 470,000 SQM were added to the market in 1Q11, up 4% from last quarter of 2010, and over 46% of the eight-quarter average of 325,000 SQM. Yearend inventory surpasses 12.5 million SQM, over 135.5 million square feet.

Although Brazil and Mexico represent over 56% of the regions inventory, other countries such as Argentina and Peru, growth rates from 1Q10 reached historical highs with 40% and 24% respectively, giving the whole region a dynamism not seen in the past years. Colombia y p y inventory has grown over 25% in the past 2 years. Mexico City, Sao Paulo, Santiago and Buenos Aires concentrate over 65% of the market. Smaller markets such as Bogota, Rio de Janeiro, Lima, San Jose, represent an additional 20% of the total SQM in the region.

Historical Class A/A+ Vacancy Rate

Total 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 -10% 10% 5% 0% -5% Growth rate 15%

Country Class A/A+ Vacancy Rate

14% 12% 10% 8% 6% 4% 2% 0%
Mexico Brazil Chile Argentina Colombia Costa Rica Peru Venezuela Panam

4Q10

1Q11

The Latin America A/A+ office vacancy rate decreased slightly to 7.3% in 1Q11 compared to 7.9% in the previous quarter. Leasing activity across the region has continued to increase, as well as high construction rates in most countries, nevertheless demand has grown faster and we will see lower vacancies in the following quarters. This trend is quite noticeable since earlier l year. d bl l last

Even though vacancy rate is clearly diminishing, regional total is still in the 7-8% range; only countries such as Brazil, Chile and Peru, have figures in the 4-5% ranges. Mexico had the highest vacancy rate of the region with 11%, followed by Argentina with 10%, important to notice that these two countries were the only ones with double digit vacancy rate in the past 4 quarters.
First Quarter 2011

For Peru, A/A+ office market reached a record low vacancy rate of 1.5%, dropping over 3 basis points from last years first quarter 5.5%. Page 3
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Historical Class A/A+ Average Asking Rent

(USD per SQM per month)

Country Class A/A+ Average Asking Rent

Growth rate 5% 4% 3% 2% $90 $80 $70 $60 $50 $40 $30 $20 $10 $0
Mexico Brazil Chile Argentina Colombia Costa Rica Peru Venezuela Panam

Total

(USD per SQM per month)

4Q10

1Q11

$39.0 $38.5 $38 5 $38.0 $37.5 $37.0 $36.5 $36.0 $35.5 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11

1% 0% -1%

The average asking rent continued to edge up during 1Q11, with an increase of 4.5% from 4Q10 and a , similar 5% from last years first quarter; this figure translates in almost than $2 USD, starting the year close to $39 USD per SQM per month. Average asking rent has risen significantly since the all tine historic low in 2002 of $14.6 USD per SQM per month. Rents will probably keep on growing for the still expanding regional market, with significant price differences among countries, with Brazilin cities amongst d ff h l the most expensive markets in the world.

As mentioned before, tightening market conditions p placed additional pressure on pricing during the first p p g g quarter of 2011. In Rio de Janeiro average asking rent rose almost 8% highlighted by strong rental growth in numerous submarkets. In Buenos Aires and Santiago, rental values have remain stable within the ones registered in the first quarter of 2010, but slightly lower respect to the end of last years average. In Lima, AAR grew 4% compared with 4Q10 and an impressive 8% compared with 1Q10. d d h

Latin America Office Market Rent Cycles

Rental Decline Accelerating Rental Decline Slowing Rental Growth Accelerating Rental Growth Slowing

S R

So Paulo Rio de Janeiro

B S
Monterrey Panama City

g Bogota San Jose

M L M
Mexico City

P
Buenos Aires Santiago Guadalajara

Lima

B S G

First Quarter 2011

NB. Markets do not necessarily move along the curve in the same direction or at the same speed. The rental cycle is intended to display the trend in net effective rents

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MarketView Latin America Office Inventory 3,378.0 1,916.1 1 916 1 1,664.2 1,381.7 925.5 780.1 638.5 659.6 414.9 369.5 278.9 192.1 12,599.2 Absorption 33.50 57.71 57 71 54.56 20.47 14.40 21.75 21.78 10.20 10.06 0.00 -19.90 16.65 241.18 Added SQM 30.6 1.5 15 46.2 290.8 26.6 23.6 14.0 24.6 0.0 19.0 0.0 0.0 477.0 Vacancy 9.8% 4.0% 4 0% 3.2% 9.8% 5.0% 9.0% 14.0% 5.9% 1.5% 8.1% 4.9% 15.8% 7.3% AAR $23.6 $75.3 $75 3 $27.3 $26.9 $81.1 $30.1 $19.3 $32.9 $16.7 $72.7 $21.5 $20.8 $38.3

Mxico So Paulo Santiago Buenos Aires Rio de Janeiro Bogot Monterrey San Jos Lima Caracas Panam Guadalajara Total

Asking Lease Rate Average of Asking Lease Rates for each property weighted by the associated Available Space. Includes Direct Available Space unless otherwise indicated Completions Rentable Building Area completed during the period Market Coverage Existing completed competitive properties Net Absorption The change in Occupied square meters during the period for all Existing p p p g properties Base Inventory, Base or Building Square Meters The sum of the Rentable Building Area for all competitive properties Occupied Square Meters Rentable Building Area less Vacant Space Under Construction Buildings that have begun construction as B ildi th t h b t ti evidenced by site excavation or foundation work, and is on-going Available Space Space being marketed to potential occupants, in Rentable square meters (direct and sublease combined, unless otherwise indicated) Availability Rate Available A il bl space as a percentage off the Base t th B Inventory or Building square meters. Vacant Space Available Space that is physically vacant, in Rentable square meters. Vacancy Rate Vacant space as a percentage of the Base Inventory or Building square meters.

Regional Map

For more information regarding the MarketView, please contact: Victor Lopez-Beltran Lopez Beltran Director of Latin America Research CB Richard Ellis Montes Urales 470 2do Piso Lomas de Chapultepec, Mexico DF, CP 11000 T. +52 55 5284 3293 F. +52 55 284 0005 victor.lopez@cbre.com

2011 CB Richard Ellis, Inc. Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CB Richard Ellis clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist.