The vacancy rate continued increasing in the premium zones of Caracas

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1 MARKETVIEW Caracas Office, Q The vacancy rate continued increasing in the premium zones of Caracas Vacancy Class A.% Sale Price Class A.9% Lease Rent Class A.9% New Supplies, sq. m. *Arrows indicate change from previous quarter. Figure : Area Available, Historic Class A Premium Northeast Zone Area Available for rent (sq. m., s) Vacancy Rate (%) Q Q Q Q Q Q Q Q Q Source: CBRE Research, Q. Area Available for Sale (L) Area Available for Rent (L) Vacancy Rate (R) The Central Bank of Venezuela did not publish data regarding inflation and economic growth for Q. The Vacancy Rate in Class A buildings increased, reaching.% in Premium NE Zone and 8.% in Premium SE Zone. The average Real Values for Lease Rents increased in Class A buildings in both Premium Zones. The average Real Values for Asking Sale Prices declined in Class A buildings in the Premium Northeast Zone. AREA FOR SALE AND LEASE At the end of Q in Northeast Premium Zone, continues the increase in availability for offices to rent and stability in offers for sale. Also the vacancy rate continues its trend of increase as seen from Q due to the incorporation into the market of offices because of the costs reduction that companies are assuming, mainly for the difficult political and economical situation that occurs today in Venezuela. Q CBRE Research CBRE, Inc.

2 ECONOMIC AND LEGAL ENVIRONMENT The economic situation remained complex, as official data showed inflation increased significantly during while GDP contraction remains. Also, according to international analysts forecast for it is not very encouraging although the political changes. At the date of issue of this report, the Central Bank of Venezuela published inflation data and GDP until Q, they indicated that the accumulated variation of inflation during the first nine months of the year was 8.7%, while the annualized variation stood at.% (Q - Q ). Regarding to economic growth, the Central Bank reported a fall in GDP of (7.)% compared to the Q. Estimations from the World Bank indicates that inflation for was 9.%, with an economic contraction of around (.)%. On the other hand, International Monetary Fund projected that inflation will be.% and GDP will contract in the order of (.)%. In the Venezuelan political context, a qualified majority by the opposition in the National Assembly encourages the possibility of defining economic and social correctives that could solve the serious situation of the country, however it is the task of the Executive to implement the necessary corrective measures and at the time of closing of this report it remained unclear, in any case, the restrictions and exchange controls continued, a situation aggravated by the sharp drop in oil barrel prices. Therefore it is estimated for a deepening of the crisis if the reforms are not applied. Figure : Economic Conditions (%) () Sep. (7.) Source: Central Bank of Venezuela, Q. Annual Inflation (%) GDP (Variation %) Q CBRE Research CBRE, Inc.

3 MARKETVIEW CARACAS OFFICE Figure : Class A Office Market Premium Zone Total Net Area Total Vacant Area Vacancy Rate Office Area for Lease Average Lease Rate Office Area for Sale Average Sale Rate Sub Markets (sq. m.) (sq. m.) (%) (sq. m.) (Bs./sq. m./month) (sq. m.) (Bs./sq. m.) El Rosal 8,97,89.7,,7,78,, Campo Alegre,9 La Castellana 9,9,9.,9,97,77,,8 Los Palos Grandes / Altamira Total Premium Northeast Zone 7,7,.7,,,,,8,8,.,8,9,8,,88 Las Mercedes,7,.,9,7,8,89, Parcelamiento CCCT / Chuao Total Premium Southeast Zone 9,,.7,8,978,,7,7,88, 8.,9,,7,79, Source: CBRE Research, Q. OFFICE MARKET The office market continued to be affected by the compromised economic situation that is appraised in the country. Despite this unflattering environment, demand for the purchase of offices remained high and with numerous projects under construction, which generated, in general terms, an increase in vacancy rates, asking sale prices and asking lease rent both in local currency and in reference R.V. Due this is one of the few alternatives where multinational companies may protect their surpluses in local currency, demand for purchasing offices remained high. These investments have led to an increase in vacancy rates, particularly for those offices that companies begin to introduce into the secondary market for lease and the incorporation of new office buildings, mainly in the Premium Southeast Zone. Despite this increase in supply, there were fewer offices that could be purchased or rented because a minority of owners preferred to negotiate in local currency. At the end of Q for the office market in Premium Zones, the asking sale prices continued to increase in local currency as well an increase is anticipated in the asking lease rates for the upcoming months. Regarding to the performance of prices in Real Values, an increase was reported in the average asking lease rent in Class A buildings of both Premium Zones. An increase in prices in Real Values in the average sale price is also reported in Class A buildings in the Premium Southeast Zone and a slight decrease in the Premium Northeast Zone. This change in the historical downward trend that had the R. V. is probably a result of government controls applied to foreign currencies in the country, which generated strong alterations in market prices. During it is anticipated that a substantial increase in prices in local currency will continue because it is unlikely a change in the economic policies of the country will happen towards stabilization of the Real Values used as a reference in the market. Q CBRE Research CBRE, Inc.

4 PROJECTS UNDER CONSTRUCTION At the time of issue of this report there have been identified, in both Premium Zones of Caracas, a total of thirteen () new office projects whose construction is expected to be completed between Q and Q 7. These new projects represent a total net office area of, sq m. There is a total of 8,99 sq m available for sale since many of these new projects have managed to be sold partially or completely. For the total of projects under construction, five () are been developed in the Premium Northeast Zone in the sub-markets of La Castellana, El Rosal and Campo Alegre; there is a total of 8,7 sq m available for sale. The remaining eight (8) projects are been developed in the Premium Southeast Zone, specifically in Las Mercedes, with a total of 8, sq m of office area available for sale. This real estate development in the sub market of Las Mercedes, follows the Zoning Ordinance of 998, changes which allow residential building to convert to commercial activities, and reforms of, which encouraged the integration of plots and changes in the volumetric size of the buildings. To this is added the limited availability of space throughout Francisco de Miranda Ave. (Premium Northeast Zone) and to the large monetary liquidity of the market, all of which has increased the interest of construction companies to develop new office projects in Las Mercedes sub market. Figure : Projects UnderConstruction. Premium Northeast and Southeast Zones Premium NE Zone Buildings Saleable Area Available Area Sub Markets (sq.m.) (sq.m.) Completion La Castellana.898 H 7 El Rosal.. H Campo Alegre H Total Premium NE Zone. 8.7 Premium SE Zone Buildings Saleable Area Available Area Sub Markets (sq.m.) (sq.m.) Completion Las Mercedes H 7 Total Premium SE Zone Total Premium Caracas Zones Source: CBRE Research, Q. Q CBRE Research CBRE, Inc.

5 VACANCY The office space for sale and lease still experienced a progressive increase since Q mainly because new constructions are being incorporated into market in the Premium Southeast Zone, also transnational companies have begin vacating offices looking for other smaller as a result of the economic conditions prevailing currently in the Venezuelan market. Vacancy rate in the Premium Northeast Zone during Q increased.% compared to Q, when it reported a.% of unoccupied offices in Class A buildings. Nevertheless, Class B offices went from a vacancy rate of.7% in Q to.% in the Q, a reduction of.7%. In the Premium Southeast Zone a similar performance was reported during this Q. The vacancy rate increased.% compared to Q, rising from.% to 8.% for vacant Class A office buildings. Vacancy in n Class B office buildings, reported a slight reduction of.% of vacancy during the Q. This significant increase in vacancy in Class A office buildings is explained by the incorporation to the public offers of. sq m of new offices in Las Mercedes submarket. Figure : ClassA Vacancy. Premium Northeast and Southeast Zones Vacancy Rate (%) Q Q Q Q Q Q Q Q Q Premium NE Zone Premium SE Zone Source: CBRE Research, Q. Q CBRE Research CBRE, Inc.

6 LEASE RATES The average asking lease rate in local currency and in Real Values experienced an increase in both sectors of Caracas Premium Zone. For Class A office buildings of the Premium Northeast Zone, an increase of 8.% was verified with respect to Q, standing at Bs.,9 per sq. m. per month. For offices in the Premium Southeast Zone, the average offer in lease rates is Bs., per sq. m. per month, representing an increase of 8.% compared to Q when it stood at Bs 9,8 per sq. m. per month. When analyzing the performance of lease rents in R.V an increase in average unit prices of asking lease rents in both Premium zones was also noted. In this regard, during the Q in Class A buildings in the Premium Northeast Zone the R.V. for lease rates rose.% compared with Q. The buildings located in the Premium Southeast Zone reported a similar outcome. The R.V. of lease rates increased at the end of Q by.8% compared to Q. The increase average lease rates both R.V. and in local currency, is the effect of the current exchange rate policy, whose distortion affects all economic activities of the country and not a consequence of the changes caused by the action of supply and demand in the real estate market. Figure : Class A Lease Rents. Premium Northeast and Southeast Zones Lease Rent (s, Bs./sq. m./month ) Lease Rent V.R./ sq. m. / month Q Q Q Q Q Q Q Q Q Lease Rent Premium NE Zone (L) Lease Rent R.V. Premium NE Zone (R) Lease Rent Premium SE Zone (L) Lease Rent R.V. Premium SE Zone (R) Source: CBRE Research, Q. Q CBRE Research CBRE, Inc.

7 SALE PRICES Asking Sale Price in local currency and in Real Values, experienced different outcomes in both Caracas Premium Zones. In local currency, average asking sale prices experienced a similar trend in both Premium Zones. In the offices of the Premium Northeast Zone, an increase of less of.% is verified with respect to Q, standing at Bs.,,88 per sq. m. For offices in the Premium Southeast Zone, the average sale price is Bs.,79, per sq. m., representing an increase of.% compared to Q when it stood at Bs.,, per sq. m. By contrast, analyzing the offer in the R. V. average asking sale price, divergent trends were noted in each Premium Zone in the Metropolitan Area of Caracas. The Class A buildings in the Northeast Premium Zone the R.V. of asking sale prices recorded, during the Q, a slight decline of.9% compared to Q. In contrast, the buildings located in the Premium Southeast Zone experienced an increment of 9.8% in the R.V. for the asking sale prices. This increase in the R.V. in the asking sale prices in the Premium Southeast Zone, it is estimated as a result of the current exchange rate policy, whose distortion affects all economic activities of the country and not by the changes caused by the supply and demand in the real estate market.. Figure 7: Class A Sale Prices. Premium Zones Northeast and Southeast Sale Price (Millions, Bs./sq.m.) Sale Price (s, R.V./ sq.m.) Q Q Q Q Q Q Q Q Q Sale Price Premium NE Zone (L) Sale Price R.V. Premium NE Zone (R) Sale Price Premium SE Zone (L) Sale Price R.V. Premium SE Zone (R) Source: CBRE Research, Q. Q CBRE Research CBRE, Inc. 7

8 MARKETVIEW CARACAS OFFICE CONTACTS CBRE VENEZUELA OFFICE Beatriz Yilo Managing Director beatriz.yilo@cbre.com Francisco de Miranda Ave. Parque Ávila Building, B Tower, th floor, Office -B- Los Palos Grandes. Caracas Francisco Mendoza Brokerage Service Manager francisco.mendoza@cbrecr.com.ve Carlos Esteves Data Research carlos.esteves@cbrecr.com.ve To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at Disclaimer: 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 CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.