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Americas Research Bogotá, Colombia Market Summary Industrial / Logistical Market Mid-Year 2012 Economic Outlook Colombia is maintaining the same macroeconomic policies that have created economic growth throughout the past decade. The government of Juan Manuel Santos has focused on strengthening commercial ties with major trading partners and making the country safer for commercial and personal transport. This year has seen the implementation of the US Free Trade Agreement as well as the approval for permits of several new Free Trade Zones throughout the country. The IMF is forecasting annual GDP growth at 4.5% - down from the 5.5% rate seen in 2011, though still impressive considering the lagging economies of many of Colombia’s major trading partners. Interest rates are currently at 5.3%, and inflation is within the Central Bank’s target rate at 3.4%. Foreign direct investment in January and February of 2012 were up 25% over the same period in 2011 with the majority coming in the mining, energy, agriculture, and infrastructure sectors. All three major credit ratings agencies have rewarded Colombia’s sound macroeconomic policies by upgrading their bond ratings to BBB. The economic growth seen on a national level in Colombia has had a direct effect on industrial and logistical properties in and around Bogotá. Trade liberalization and an increasingly diversified domestic economy have boosted production and therefore heightened demand for manufacturing, warehousing, and transport services. This has profoundly transformed the local economy into one of Latin America’s premier industrial hubs. The municipality of Bogotá has taken steps to disincentive industrial activities in urban areas in an effort to redevelop them into residential neighborhoods and push industrial activities into suburban corridors. This is particularly noticeable in Puente Aranda, a centrally-located sector occupied primarily by older factories and warehouses where many new residential towers are being constructed. Suburban municipalities, meanwhile, are offering competitive tax incentives to lure new industrial tenants. 1. Bogotá Industrial Market Map Several challenges remain, however. Unemployment has risen from 9% to 10.4% since November 2011, though this is still historically low for Colombia. High dependency on oil exports makes Colombia vulnerable to market shocks, while inadequate transportation infrastructure poses a challenge to intercity transport. Economic Data * Population - Colombia (Millions) Population - Bogotá (Millions) Unemployment Rate (%) 2012 GDP Forecast (Billions of US$) 2012 GDP Growth Forecast (%) GDP per capita (US$) – PPP YoY Inflation (%) Market Interest Rate (%) Exchange Rate (COP per US$, 09/13/2012) 46 7.47 10.4 346 4.5 7,076 3.44 5.3 1,795 Source: Global Insight Country Intelligence (2012) Bogotá’s industrial stock is divided into two main sectors: the urban submarkets of Toberín, Puente Aranda, Corredor Sur, Engativá, Montevideo, and Fontibón that contain primarily non-speculative properties (factories and distribution centers), and the suburban submarkets of Mosquera, Funza, and Cota (i.e. the western suburbs) and Corredor Norte (i.e. the northern suburbs). The vast majority of speculative properties (industrial/logistical parks and Free Trade Zones) tend to be concentrated in the western suburbs. The primary corridors for industrial production are Calle 13, Via Cota-Funza, and Autopista Medellin due to their proximity to the El Dorado International Airport and preferable access. Jones Lang LaSalle – Pulse – Bogotá Industrial Market – Mid-Year 2012 2 2. Property Type and Stock by Submarket 4. Speculative Vacancy by Submarket *Includes all urban Bogota except Engativá and Fontibon Mosquera is the largest industrial submarket with over 1.8 million m² of industrial floor area, almost 700,000 m² of which is speculative. Fontibón, Puente Aranda, Cota, and Funza follow. Note that urban submarkets such as Puente Aranda, Montevideo, Toberín, and Corredor Sur are almost exclusively composed of stand-alone warehouses and non-speculative space. From this point onward, this report will focus exclusively on speculative industrial properties which include Industrial/Logistical Parks (ILPs) and Free Trade Zones (FTZs). These speculative properties are further subdivided into Class A (well located, easy access, international standards) and Class B (lower quality properties). 3. Historical Production of Speculative Stock The vast majority of new industrial space is being financed by groups who buy a large plot of land, design the plans, and sell off individual lots. Those who purchase individual lots from developers or investors then have the option to construct their own warehouse for their own purposes or rent it out to a tenant. As a result of this model, structures are usually only built when a tenant has been arranged. This “bit by bit” approach is the most common model, as it limits the developer’s investments and keeps vacancy rates low. Consequently, overall vacancy rates are currently around 6.7%. Vacancy is highest in Corredor Norte (19.3%) where there are a few industrial spaces that have been built on speculation. Funza (11.2%) and Mosquera (9.1%) are experiencing above-average vacancy due to several recently built parks located within close proximity. Vacancy is extremely low inside the city as there are fewer speculative properties located there. This is especially the case in Engativá and Fontibón, where warehouse space is generally not available very long due to their prime location. 5. Production and Rents *COP $1,795 = 1 USD (09/13/12) As of Q2 2012, there are 98 total speculative parks (93 ILPs and 5 FTZs) in and around Bogotá that have companies operating within them. 14 more will be finished in the next two years, delivering over 2.3 million m² of built space. 2013 will see the largest single year increase in industrial stock; this can be attributed to several large-scale projects that are expected to start operation by then – industrial/logistical parks San Jorge and El Portal, and Free Trade Zones Intexzona, Tocancipá, Zofrandina, and PLIC. By 2014, speculative industrial stock is likely to double from 2009 levels. Average rents for warehouse rentals are just over COP $15,000/ m² /month for Class A and just over COP $13,000/ m² /month for Class B. Rents stagnated in 2009-2010 when a glut of supply came online, however they have been rising sharply since. We expect average Jones Lang LaSalle – Pulse – Bogotá Industrial Market – Mid-Year 2012 3 rents to slow down again over the next 1-2 years as another glut of Industrial Market Statistics supply is expected. This should especially be the case in Mosquera, (next 12 months) Class A Warehouse for rent: (COP/ m² /mo) 13k – 22k Class B Warehouse for rent: (COP/ m² /mo) 8k – 16k FTZ Warehouse for rent: (COP/ m² /mo) 15k – 27k Class A Warehouse for sale: (COP/ m²) 1,300k – 1,900k Class B Warehouse for sale: (COP/ m²) 1,000k – 1,500k FTZ Warehouse for sale: (COP/ m²) 1,400 – 2,200k Non-FTZ lot for sale: (COP/ m²) 200k - 550k FTZ lot for sale: (COP/ m²) 300k – 700k 3,400,000 6.7% 800,000 1st very quickly, therefore putting downward pressure on rents. 6. Warehouse Rental Prices *Includes all urban Bogota except Engativá and Fontibon **COP $1,795 = 1 USD (09/13/12) Stock (m² of floor area) Companies can expect to pay between COP 15,000 – 27,000 /m² /month for warehouse space inside an FTZ. Class A space outside an FTZ will typically cost COP 13,000 – 22,000 /m² /month, and Class B space outside an FTZ will be between COP 8,000 – 16,000 /m² Trend 2012 Half Funza, and Cota where a boom in production is unlikely to be filled Vacancy Rate (%) 12-month Production Pipeline (m² of floor area) **COP $1,795 = 1 USD (09/13/12) /month. Warehouse rents are highest in Engativá and Fontibón due to their location inside the city and close to El Dorado Airport. The cheapest rents can be found in Corredor Norte. 8. Recent and Future Production by Submarket *Includes all urban Bogota except Engativá and Fontibon 7. Lot Sale Prices *There are no available lots in urban Bogota **COP $1,795 = 1 USD (09/13/12) Companies looking to purchase a lot should expect to pay between COP 300,000 – 700,000 /m² inside FTZs and between COP 200,000 – 550,000 /m² outside FTZs. Prices will be much cheaper in Corredor Norte due to the high availability of land and longer distance from Bogotá. The growing attractiveness of the western suburbs should keep prices rising moderately in those submarkets at least through the next few years. Future industrial production is concentrated almost exclusively in the western suburbs (Mosquera, Funza, and Cota) and northern suburbs. High urban land prices are pushing industrial activities out of the city, though there are a few available lots in and around the Fontibón Free Trade Zone. Mosquera will register the most impressive growth, with almost 1 million m² of industrial floor space planned to be constructed by the end of 2014. Corredor Norte will grow 5-fold in the next two years as FTZ’s Tocancipá and Zofrandina are developed as well as a handful of new ILPs. Jones Lang LaSalle – Pulse – Bogotá Industrial Market – Mid-Year 2012 4 Typical Market Practices Taxes Standard Unit of Measurement Unit of Measurement Square Meters (m2) Lease Contracts Rent Typical Lease Term Frequency of Rent Payment Quoted in COP /m² /month 3-5 years Monthly Deposit / Lease Guarantee Case-by-case basis Security of Tenure Only for the duration of the tenancy. No guarantee beyond the original lease term Statutory Right to Renew No (unless an option to renew is agreed at the outset and specified in the lease) Basis of Rent Increases or Rent Review Case-by-case basis, usually between CPI and CPI + 3 Frequency of Rent Increases or Rent Review Yearly Transaction Fees Agency Fees 2 month’s rent for a lease contract under 5 years. Agency Fees (payable by Landlord / Tenant) Typically Landlord pays Legal Fees (payable by Landlord / Tenant) Each part responsible for its own legal costs Incentives Rent Free Period 1-3 months The rent free period is not standardized in the local market, however typically occurs. The length of this period is negotiated between the parties and is also a factor of how much (if any) tenant improvement allowance is provided. Service Charges, Repairs and Insurance Service Charges/Managements Fees Additional to the rental charge and payable monthly in advance Utilities (Sometimes separately metered, sometimes paid as a percentage of occupation) Electricity, telephone, AC, etc. paid by tenant according to consumption Car Parking Case-by-case basis Internal (Tenant Space) Tenant Common Areas (reception, lift, stairs, etc.) Landlord (charged back via service charge) External / Structural Landlord Building Insurance Both landlord and tenant COPYRIGHT © JONES LANG LASALLE IP, INC. 2012. All rights reserved. Local Property Taxes Landlord, annually VAT on Rent & Service Charge (Payable by Tenant) 10% Disposal of Leases Sub-Letting & Assignment Normally yes approval) Early Termination Unless otherwise stipulated in the rental contract, tenant is responsible for paying the entirety of the contractual obligation Tenant's Building Reinstatement Responsibilities at Lease End Original condition, allowing for normal wear and tear. (subject to landlord Purchasing Properties Foreign Ownership No restrictions Strata Title (Partial ownership of the building) Strata title ownership is typical Security Deposit Case-by-case Agency Fees 3% paid by the Seller. Legal Fees Each part responsible for its own legal costs Other Transaction Costs Typically paid by Buyer Contact Scott Figler Consultant Jones Lang LaSalle +57 318-263-2740 [email protected] Jean-Baptiste Wettling Vice President Jones Lang LaSalle +57 317 657 0623 [email protected] Zach Cheney Director Jones Lang LaSalle [email protected] Jones Lang LaSalle Colombia www.joneslanglasalle.com/latinamerica