Kris Hudson at The Wall Street Journal reports on Panama’s building boom and the speculation going on here. Will it pan out? Time will tell.
Panama, known mostly for the bustling canal that bisects it, has found a downside to its surging economy: It has built too many offices and hotels.
Panama’s growth as Central America’s banking capital and its aggressive recruitment of multinational companies with tax breaks made it a magnet in recent years for foreign investors.
Wealthy people and companies in countries like Colombia and Venezuela have seen Panamanian real estate as a stable place to stash capital.
Driven by this demand, Panamanian developers have nearly tripled Panama City’s high-end office market since 2009. They expanded its stock of hotel rooms by roughly 61% in 2012 and 2013 together, according to Lodging Econometrics.
As a result, Panama City’s office vacancy rate has risen to 33.6%, the highest in Latin America, and could go as high as 45% by 2016, according to brokerage JLL. Lease rates for all but the best towers have declined by as much as 30% since 2012, the firm says.
Meanwhile, the country’s average hotel occupancy has fallen to 49.9% in the first 10 months of this year from 72.5% in the same period of 2008, according to Smith Travel Research. In turn, nightly rates have declined by 28% in that span to an average of $108.80.
Property owners and investors in Panama now anticipate several years of office floors sitting vacant and hotel rooms going unused. Many predict Panama’s burgeoning economy will take up the slack, but not for at least another two years, if not longer. Others are watching for owners to start selling hotels on the cheap and for desperate landlords to cut office lease rates further, meaning still cheaper rates for travelers and office tenants alike.