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The Chile Real Estate report examines the commercial office, retail, industrial and construction sectors in
the country in the context of a historically buoyant market, whose slowing economic growth looks set to
cool the commercial real estate market.
With a focus on the principal cities of Santiago and Valdivia, the report covers the rental market
performance in terms of rates and yields over the past 18 months and examines how best to maximise
returns in the commercial real estate market, while minimising investment risk and exploring the dynamic
supply and demand landscape: in spite of new supply, absorption rates are generally holding up across the
board. Increasing demand and supply is the general trend across all commercial real estate sub-sectors,
and as a result, rents are mostly increasing. The country's status as Latin America's most prosperous
region has helped it retain stability and caused it to become a target destination for people looking to enter
into a more predictable market than the eurozone in particular.
However, even in Chile - where growth over the past two years has been strong in the office, retail and
industrial sub-sectors - current global economic woes may yet take their toll. Our most recent round of
in-country interviews, conducted in July 2012, indicate that rental growth is likely to be much slower, or
to come to a halt altogether. This is unsurprising in the face of a cautious market for international
investment, and it is still a testament to the country's stability that no declines are expected.
Although strong economic activity in the first half of 2012 exceeded our expectations, we do not
expect this trend to continue. We see Chilean private consumption growth slowing in the second
half of the year, which will contribute to a deceleration in economic growth. Indeed, we already
see signs that a slowdown is under way in the export sector. We currently forecast a general
slowing in real GDP growth from 5.6% in 2011 to 4.8% in 2012.
Chile is well-placed for growth in the construction sector, with strong fundamentals and a good
business environment. However, the high base rates seen over the past few years are
unsustainable, and growth rates are slowing to low single digits, with year-on-year (y-o-y)
growth of 2.8% expected for 2012. This is anticipated to improve over the longer term, with
annual average growth of 3.7% forecast between 2013 and 2021. The construction industry is
expected to increase in value, from US$18.6bn in 2012 to US$39.6bn in 2021.
With a number of projects and concessions going to tender from 2013, as well as strong growth
reported in H112, we have revised up our medium-term outlook for Chile's construction sector.
We anticipate strong interest in a number of airport concessions due between 2013 and
2015, given Chile's well regulated and low-risk business environment. At the same time, tenders
for a range of transport projects should bolster value creation for the overall construction sector.