The downturn of world's demand for copper has affected the Chilean property market, specifically the office real estate sectors.
The number of office vacancies has been rising in Chile's capital, Santiago, stated the Wall Street Journal, mostly due to China's weakening demand for copper. The copper industry accounts for 90 percent of Chile's mining output and the low demand has resulted to companies closing offices in the country's capital. According to Mario Valenzuela, economist and vice dean of business faculty at the Universidad San Sebastian in Santiago, copper mining fell to just 10 percent in March, lower than the traditional range of 17 to 18 percent.
In the report, the Wall Street Journal also cited data from the brokerage firm CBRE Group Inc., which showed that vacancies in top-quality offices in Santiago has reached 7.8 percent in the second quarter of this year. This is higher than 2012 level of roughly 1 percent. Meanwhile, vacancies for lower quality class-B buildings also rose to 13.1 percent, from roughly 3 percent in 2012. Majority of the vacancies were due to the surge of supply that were added to the office market in the recent years. In 2014 alone, developers delivered more than 3.5 million square feet of projects, twice the production in 2011.
If previously Chile's office market favored landlords, states Wall Street Journal, it has now shifted to tenants. Office landlords are now willing to offer bigger discounts and interior work to ensure that vacant office spaces are filled up, according to Felipe Acevedo, associate director with JLL's Santiago office.
Meanwhile, real estate firms in Chile are looking for creative ways to remain in the market and earn a profit, reports Nasdaq. Firms such as BTG Pactual Chile, a unit of Brazil's leading investment bank, is considering raising a regional fund that would enable the company to focus on acquisitions in Chile, Peru and Colombia. Prudential Real Estate Investors, who has been active investors in the country since 2007, are now developing rental apartments in Chile.
The Nasdaq report also mentioned a few companies looking at acquisitions in the capital, hoping to capitalize on potentially lower prices due to the market slowdown. Union Investment of Germany, which exited the Chile market in 2013, is reportedly back in the market this year looking for potential acquisitions. However, a spokesperson for the company told Nasdaq through email that it's too early to speak about the company reentering the Chilean market.
