Office Rental: Market Correction

The oversupply of office space and changes in the dynamics and ways of working of companies have led the office rental market to a corrective or adjustment phase, which is mainly evidenced by the downward pressure on rental prices.

Wednesday, March 17, 2021

At the beginning of 2021, CentralAmericaData expected that in the coming years, 4 out of 5 companies will bet on hybrid work modalities, which include face-to-face and remote activities. This phenomenon will force office supply to adjust to the new market conditions.

The report "Latin America Office Market" corresponding to the second half of 2020 and prepared by the consulting firm Newmark, points out that in the capital of Costa Rica at the end of last year, the office inventory was established at 2.34 million square meters of rentable area, 4.2% higher than what was reported in 2019.

Learn about the "Feasibility studies of real estate projects" that we conducted in CentralAmericaData.

According to Newmark, by 2021 it is expected that the Costa Rican market will maintain a trend of migration towards more modern and efficient properties, a behavior that began to be evident since 2020.

The case of Panama is similar to that of Costa Rica, since in the Panamanian market between 2019 and 2020 the office inventory increased by 1.1%. The report highlights that at the end of last year the availability rate was 30.9%, a situation that confirms the effects of several excesses in the development of speculative supply, considerable delays in the delivery times of new product and the impact of the health crisis and its management by the authorities.

The document specifies that "... the average starting price for the last quarter of 2020 was $16.72/m2, while the closing price was $15.27/m2, after negotiations."

The downward trend is justified by the excess of available supply and the motivation of owners to take available space for several years, explains Newmark's analysis.

Danny Quiros, Market Research Director of Newmark Central America, told Martesfinanciero.com that due to the fact that in the Panamanian market there is "... 1.74 million square meters of inventory, of which 30.95% is available, there are important challenges for owners in the design of their commercial strategies."

See "Central America: Potential Real Estate Market"

For Giovanni D'Agostino, president in Mexico and regional director for Latin America of Newmark, "... in 2020 uncertainty prevailed in the world and Latin America was no exception, since in most of the office market there were more vacancies than occupancies. However, the health indicators of the current situation remained stable during the last quarter of the year and, although there is fragility in this balance, there is optimism that once the vaccination stage is overcome and there is greater confidence in the recovery, there could be greater demand for offices."

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More on this topic

Real Estate Rentals: Outlook for 2021

September 2020

Because the supply of office and commercial buildings has increased, and at the same time unemployment has also risen, in Costa Rica the directors of these properties foresee that next year the parties will have to renegotiate the contracts.

Data collected by Colliers International indicate that between June 2019 and the same month in 2020 the total inventory of commercial buildings increased by 1.5% from 1.16 million m2 to 1.18 million m2.

Offices: Changes in Market Conditions

August 2020

Since office construction is still active and could enter a phase of over-supply, combined with the strong increase in telecommuting, the market could face a contraction in the coming months.

Because of the spread of covid-19, governments in Central America have decreed strict home quarantines.

Real Estate Market: Prices in the New Reality

May 2020

It is predicted that in Panama due to the health and economic crisis the inventory of available properties will increase, a situation that will put downward pressure on property prices and rents, affecting mainly the office and commercial space segment.

Directors of the Panamanian Association of Real Estate Brokers and Developers (Acobir) estimate that in the context of the health crisis resulting from the covid-19 outbreak, sales or rental prices in the local market could contract between 20% and 25%.

Office Market: What are Companies Looking for?

August 2019

In Costa Rica, it is estimated that the level of occupation of corporate spaces is 90%, being the modality "coworking", the type of office most sought by companies that are established in the country.

According to reports from Newmark Knight Frank (NKF), San Jose West, Heredia and the Savannah sector, are the most attractive areas in the country for future projects of this type.

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