Caracas Chronicles

This slideshow requires JavaScript.

Photos: Javier Liendo

New construction sites in Caracas, big shopping malls opening at the most unexpected places, office buildings inaugurating at the lomito locations of the Francisco de Miranda Avenue; tell me in what country, in the middle of hyperinflation, does this happen? Is there even a crisis going on with this type of business running?

Buddy, buckle up: yes, there’s a crisis, and that’s why this happens.

Multinational companies and national banks started years ago a new strategy to fight off their high demand of foreign currencies and get rid of their ever depreciating bolivars without much suffering. The play? Mass construction of office buildings and commercial real estate to shield their gains, in the face of an economic improvement, so loses are recuperated and revenue is acquired. The move started in 2014, when people demanded office spaces, rents were going up and shopping malls had a normal flow of customers. Problems solved and happily ever after, right?

In Venezuela vacancy rates are very high and rents are going down, currently being absurdly low, even compared to those in low income countries.

Well, no. Four years later, the strategy was at full speed and a common phenomenon at the real estate cycle called “the oversupply phase” began: the demand for renting spaces goes down, and constructions go up. Unlike a real estate cycle in normal conditions, the average price of office building rents in Caracas’ metropolitan area plummeted down more than 46% of their real value in 2017, according to the Cámara Inmobiliaria Metropolitana. Anyone in Caracas can see the “ghost buildings”, as we call them: The shopping mall Parque Cerro Verde, the office building/hotel Paseo La Castellana, the new Venezolano de Crédito Tower, and the many constructions in Las Mercedes. All of this is due to abnormalities in the Venezuelan market. In any country, the market for office space follows a cycle dominated by vacancy rates and rental growth rate. In Venezuela, we see that vacancy rates are very high (because no one wants to rent an office) and rents are going down, currently being absurdly low, even compared to those in low income countries. A prime office in a nice building at the heart of Chacao can be as low as 250 bucks, for a huge office of 15 workstations and five private offices.

The point we want to make here is that, according to the market cycle, we should be in recession, but when we look out the window, there are cranes and workers in future office buildings at Las Mercedes and Francisco de Miranda Avenue. This is just another example of the Venezuelan economy absurdity: companies rather use their liquidity to build or acquire assets that will generate losses, ask for maintenance and stay empty, than to keep a lot of bolivars that will depreciate faster than you can read this.