Real Estate & Construction
Room To Grow
The growth of the real estate sector in Panama over the last decade has been nothing less than remarkable. Instead of taking a breather, the market is moving full speed ahead and proceeding with a slew of construction projects to fill the growing demand in the residential and commercial sector. The real estate sector contributed $8 billion to the GDP in 2015 and looks set to remain a key sector of the economy. Panama City in particular has a reputation as a safe place to live, work, and retire, and the country’s upbeat economic growth and subsequent wealth creation, advantageous location, and rapid development have all combined to drive up demand for luxury condos, beachfront properties, and vacation homes as well as industrial and office spaces.
Private purchases of properties in 2015 were in excess of $900 million and the National Board of Housing Developers (Convivienda) expects an increase of 3%, amounting to $1.1 billion, for 2016. The construction sector in the country grew by 7% YoY in 2015 and expectations are similarly high for 2016 and 2017, with growth rates predicted to be 10.5% and 14%, respectively. In the month of January 2016 alone, there were 448 new buildings in the main districts of the country totaling $161 million, mostly concentrated around the areas of Panama City, San Miguelito, La Chorrera, and Arraiján.
The majority of this construction is driven by foreign demand from the US, Canada, and Latin America, and the burgeoning luxury real estate market. Selected as a “city of the future” by real estate consultancy Knight Frank, Panama City was highlighted as offering a “high degree of economic and regulatory stability…high-quality transport and healthcare and a growing presence of global hotels brands.” The company also noted that the number of high net worth individuals in the country jumped to 4,700 in 2014 and will grow to 7,000 by 2024. The large number of luxurious property developments popping up along the coast of the country is testimony to the growing demand from not just foreign investors, but wealthy Panamanians as well. There are estimates that the number of beachfront properties in the country will swell from 400 new units in 2015 to about 4,500 by 2019. In-demand luxury residential projects sell out before they are even completed. The majority of projects for which environmental impact studies were submitted in November 2015 comprised the construction of condominiums. Consequently, prices of apartments in downtown Panama City have increased almost 30% compared to 2008, with real estate developers all vying to provide buyers with exclusive services and amenities along with promises of stunning sea views.
The government of Juan Carlos Varela has taken steps to tackle the issue and, in line with its focus on social inclusion in the country, has developed plans to invest in social housing, road works, new infrastructure projects, and sanitation. Its key targets with regards to the issue of affordable housing was summarized in its Five-Year Strategic Development Plan 2015-2019, which outlines, among other things, the need to construct social housing solutions, improve and revitalize certain neighborhoods, legalize informal housing, and assist with financing home purchases. The plan also noted the importance of passing incentives to encourage the private sector to play a larger role in constructing affordable low-cost housing options.
One such program, Techos de Esperanza (Roofs of Hope), is focused on constructing up to 35,000 houses to benefit 140,000 Panamanians, specifically those living in areas with the highest rates of poverty. According to Minister for Housing and Land Management Mario Etchelecu, the program was initiated with government resources but was tendered out to the private sector under a scheme in which the state donates the land and construction companies carry out the works. The minister told TBY the aim is to construct a total of 100,000 homes by 2019. In addition, in October 2015, work began on the City of Hope—the largest housing project in Panama City—involving the construction of 2,250 affordable homes complete with utilities over an area of 36ha that will benefit 11,250 people. Estimated to cost around $137 million, the housing project in Vista Alegre, Arraiján, an underdeveloped and densely populated enclave, will be held up as a model for similar housing projects around the country to develop suburban areas and create new centers of economic activity beyond the capital. Minister Etchelecu told TBY that 99.9% of all the new housing projects under construction in the country are in the interior, which not only reduces urban migration to Panama City but aids in the development of cities like Santiago, David, and Colón. In addition to large-scale housing projects, the urban development plan also includes schools, health centers, and basic sanitation.
In a bid to provide further incentives for the private sector to drive economic growth, the government in April 2016 approved the Colón Puerto Libre Law. The law outlines incentives to encourage the construction of more residential and retail projects in Colón in tandem with the ministry’s efforts to redevelop, construct, and improve infrastructure in the country. Constructions of houses, hotels, schools, and health centers, as well as the restoration of buildings are exempted from taxes, levies, duties, and customs. The government has set aside $800 million to redevelop the city of Colón and bring its infrastructure up to date. Brazilian company Odebrecht and its partner Cusa won a $537 million tender in 2015 to conduct an urban redevelopment project in Colón that includes the construction of 5,000 homes in Alto de los Lagos, outfitted with the basic amenities. Similar to other urban development projects in the country, key facilities such as recreational areas, schools, and sport centers were also outlined in the tender.
In terms of office space, Panama City is one of the fastest-growing markets in the western hemisphere, driven in big part by high expectations of economic growth from the canal expansion. The number of office spaces has jumped more than four fold since 2009, with total office space in the city estimated to be 1.2 million sqm in 2015. Demand, however, was not as quick to keep pace with supply; approximately 196,000sqm of new office space was delivered in 2015 but only 78,000sqm of office space was snapped up, real estate firm Jones Lang LaSalle reported. The disparity has resulted in a vacancy rate of 45%, among the highest seen globally. Although construction of office space continues unabated at the moment, rental prices are expected to remain steady in 2016 amid the bullish market.
The completion of the expansion of the Panama Canal in 2016 is also expected to have a significant impact on industrial real estate prices. In Panama City, over 300,000sqm of logistic warehouse space—including four large warehouses being built at the Panama Pacifico Special Area—is under construction. The area is being allocated for the distribution, packing and trans-shipment of the goods that arrive at the newly expanded Panama Canal. The widening of the canal has encouraged industrial developers to build new, modern, and efficient warehouses, and increased demand for warehouse and storage space on Panama’s path to becoming a transport hub.