Brazil Real Estate Market

Commercial Property Market
Office: Principal Business Centers in the World
Despite its accelerated growth in recent years, the office market remains underpenetrated in
Brazil compared with other major global markets
100.000.000
90.000.000
80.000.000
70.000.000
60.000.000
50.000.000
40.000.000
30.000.000
20.000.000
10.000.000
Tokyo
London
Manhattan
Paris
Munich
Total Stock
Population
Toronto
Madrid
São Paulo
Rio de Janeiro
Source: CB Richard Ellis Brazil
2
Office: Total Stock – São Paulo
São Paulo’s stock lacks good quality properties, with the highest technical specifications, despite
being one of the most important business centers in the globe
Quality
Weight
GLA m²
AAA
6%
GLA sf
AAA
A
Other w/ CAC*
6%
11%
39%
689.274
1.263.669
4.480.281
7.419.284
13.602.020
48.225.343
W/out CAC*
Good Quality Properties
44%
17%
5.054.676
1.952.943
54.408.080
21.021.303
A
11%
W/out CAC*
44%
Other w/ CAC*
39%
* Central Air conditioning
Quality by Region
15%
35%
38%
53%
44%
77%
50%
40%
41%
23%
Downtown
15%
22%
Paulista
Jardins
A + AAA
Other w/ CAC
40%
7%
Marginal
Other
Other w/out CAC
Source: CB Richard Ellis Brazil
3
Office: Total Stock – Rio de Janeiro
Rio de Janeiro remains a tight market, driven by the oil and gas industry boom, scarcity of good
quality space, geographic barriers to entry and lack of adequate mass transportation
infrastructure
AAA
2%
Quality
AAA
A
B
Other w/ CAC*
W/out CAC*
Good Quality Properties
Weight
2%
14%
13%
28%
43%
16%
GLA m²
119.506
836.542
776.789
1.673.084
2.569.379
956.048
A
14%
GLA sf
1.286.352
9.004.463
8.361.287
18.008.926
27.656.565
10.290.815
B
13%
W/out CAC*
43%
* Central Air conditioning
Other w/
CAC*
28%
Quality by Region
11%
46%
32%
40%
20%
60%
89%
54%
60%
Downtown
Flamengo
68%
80%
40%
Botafogo
With CAC
South Zone
Barra da Tijuca
Other
Without CAC
Source: CB Richard Ellis Brazil
4
Office: Total Stock – São Paulo and Rio de Janeiro
Over the last 5 years, total stock in both markets has grown at approximately the same pace
(3% annually), constrained by the lack of infrastructure
7.000.000
6.000.000
5.110.800
5.291.400
5.530.900
5.681.300
5.853.100
6.022.600
5.000.000
4.000.000
3.000.000
2.460.100
2.609.300
2.517.300
2.711.700
2.780.400
2.892.500
2.000.000
1.000.000
2006
2007
2008
São Paulo
2009
2010
3Q11
Rio de Janeiro
Source: CB Richard Ellis Brazil
5
Office: Vacancy Rates – São Paulo and Rio de Janeiro
Growing demand for quality space and restrictions in new supply have led to historically low
vacancy rates, with better quality properties presenting better performance in both bull and bear
markets
14,0%
12,0%
10,0%
8,0%
6,0%
4,0%
3,1% 3,1%
2,0%
0,8%
N/A
N/A
0,0%
2006
2007
São Paulo
2008
Rio de Janeiro
2009
2010
3Q11
BRPR (SP &RJ)
Source: CB Richard Ellis Brazil
6
Office: Average Rent/ m²/ Month - A and AAA Properties
Average price/m² has increased since the mid 2000’s after many years of stagnant growth, which
has brought Brazilian prices closer to those of the developed world
300
266
247
250
201
200
150
115
100
69
77
75
90
83
120
117
107
95
84
73
120
57
52
50
N/A N/A N/A
N/A N/A N/A
N/A
2007
São Paulo
2008
Rio de Janeiro
2009
West End - London
2010
Midtown Manhattan
3Q11
BR Properties
Source: Jones Lang La Salle Brazil and Cushman & Wakefield
7
Industrial: São Paulo Inland
The industrial market remains strong, driven by faster consumption growth and increased
demand for distribution facilities
Total Stock
6.000.000
5.000.000
4.000.000
3.511.000
3.724.900
3.848.300
3.377.100
3Q09
4Q09
1Q10
2Q10
4.120.900
4.167.300
4.290.700
3Q10
4Q10
1Q11
4.528.600
4.817.300
3.000.000
2.000.000
1.000.000
-
2Q11
3Q11
Stock
Vacancy Rates
12,0%
10,0%
8,0%
6,2%
6,0%
4,0%
2,0%
0,1%
0,0%
3Q09
4Q09
1Q10
2Q10
Vacancy
3Q10
4Q10
1Q11
2Q11
3Q11
BRPR
Source: CB Richard Ellis Brazil
8
Industrial: São Paulo Inland
Lease prices have stabilized, and are expected to remain at these levels because of the difficulties
in obtaining environmental approvals. Sluggish economic growth is not expected to affect lease
prices in the mid-term
Average Asking Rents in São Paulo Inland (R$/ m²/ month)
23
25
20
17
19
19
20
19
19
19
20
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
15
10
5
3Q09
3Q11
Asking Rents
Average Asking Rents in Other Markets (R$/ m²/ month – 2Q11)
36
32
24
20
19
10
Tokyo
London
Singapore
São Paulo Inland
Sydney
Los Angeles
Source: CB Richard Ellis Global and Jones Lang La Salle USA.
9
Fragmented Industry
Highly fragmented and non-institutionalized market creates an attractive environment for the
industry in the coming years
Fragmented Industry (in terms of GLA – m²)
Brazil: Owned vs Leased – Large Companies
The large majority of the companies in Brazil still own their real estate
Non-Organized
Market
91%
Leased
20%
Organized
Companies
9%
Own
Buildings
80%
USA: Owned vs Leased – Large Companies
In the USA, only 20% of the companies own their real estate assets
BRProperties
35%
Own
Buildings
20%
10 Organized
Companies
65%
Addressable Market1: 36.3 mm m²
Leased
80%
Source: Internal Estimates and Itaú Securities
10
Takeaways
 Industry dynamics still present very attractive growth opportunities;
 Infrastructure constraints will keep both office and warehouse markets tight in the mid-term;
 In the short run, slower economic growth may have a slight impact in vacancy rates, leading to
stabilization of lease prices;
 Players with better quality portfolio’s and below-market lease prices should be more resilient than
developers;
 Lower interest rate environment with greater access to credit and urban redevelopment of existing
areas (i.e.: Porto Maravilha project in RJ) will drive the industry’s growth in the long run.
11