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Commercial real estate giant Cushman & Wakefield recently issued its Q4 2015 Office Snapshot report for the Greater San Jose Metropolitan Area (Spanish acronym: GAM) of Costa Rica, and the 2016 forecast for this sector is positive.

According to the Office Snapshot, economic growth in Costa Rica slowed down in 2015, but total business production recorded a 2.8% increase that stands to boost the office space market. Cushman & Wakefield further explains the situation as follows:

With an environment of relative macroeconomic stability, the deflation rate in the last quarter 2015 oscillated between 0.81% and 1.20% due to a reduction of international prices of commodities, regulated goods and services, and some agricultural products. This provides an important opportunity for the country to achieve a long-term inflation rate similar to that of major commercial partners, consequently improving the country’s competitiveness.

 

As for the construction industry, non-residential buildings grew at an annual rate of 18%, due mainly to expansions and new construction of commercial buildings. According to the latest available information, Foreign Direct Investment (FDI) up to Q3 2015 totaled U.S. $1,585.9 million which slightly exceeds in 1.2% the equivalent time period in 2014.

 

Demand for office space continued to rise during the last quarter of 2015, closing the year with an even higher demand than in 2014. This significantly higher demand is reflected in a 26% increase in the net absorption in comparison to 2014. As the overall vacancy rate continues to drop, the overall asking rate rises gradually, a trend that has been maintained since Q3 2014.

 

As it was evident in Q3 2015, there is a shortage of spaces larger than 2,000 square meters (m2) in West San Jose and Heredia submarkets. This has led to companies searching for immediate requirements to evaluate projects in developing submarkets such as the East that have availability for large spaces. From the 94,000 m2 under construction, 70,000 m2 is expected to be ready by year-end 2016. The majority of this new inventory will correspond to expansions of existing developments in West San Jose and Heredia. It is important to note that other projects might start construction this year. However, they are waiting for an anchor firm to kick off development.

 

Outlook

 

Locally, the economy is expected to grow 4.2% in 2016. This positive economic forecast, tied with a record-high demand in 2015 and stable market conditions that show no signs of change, forecast a strong 2016 for the real estate market. The main challenge foreseen is in the supply side, where if the demand of 2015 is maintained through 2016, the new supply of 70,000 m2 will barely be able to satisfy it. In this scenario, 2016 could reach lower vacancy rates and continue the upward trend in rent.