An old boss used to say, “these charts aren’t complicated, when the line goes up things are good and when the line goes down things are bad.” Perhaps a tad simplistic but when we look at the old supply – demand paradigm as it relates to real estate, there’s little doubt that when vacancies are lower, pricing is higher.
A quick illustration of this shows the current situation in markets across North and South America. With a vacancy rate of about 5%, CBD (central business district) average, class A rents in Rio de Janeiro are close to $100 psf while in Dallas with a vacancy rate of nearly 30% class A space is just north of $25 psf.
While looking at the current state is interesting, it’s equally important to see how the markets have performed over time. For the most current year-over-year data, average rates for prime space in the U.S. have fallen by 3.1% and by 1.2% in Canada. Rents in South America increased by 30% over the same period (22.8% in Brazil alone) while rents in Mexico were stable. If we look at the data over a longer time horizon – say back to 1998 – we can see that real estate has its ups and downs (sorry) with some regions clearly experiencing greater volatility than others.
So we know where we have been and where we are now but where are all these regions and markets headed? Well, in the U.S. we see downward pressure on rents continuing to slow in 2011 ; in Canada the outlook calls for stability with some upward movement in Vancouver’s central market; rents in Mexico are expected to rise moderately and in South America, markets remain tight and landlord favourable.
It’s a good time to be a landlord in Quito and a tenant in southern California. Is it true that what goes up must come down? It’s all a matter of equilibrium and timing as well as external circumstances in the political and economic environments and those are the variables which are the hardest to predict.
Americas Research Group,