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Much of the ongoing discussion over issues related to Brazilian residential real estate has also been matched with regards to the recent behavior of the commercial / office sector.  The graph below, for example, shows how prices have increased between 1995 and 2010 in São Paulo according to research by Embraesp (the Brazilian Patrimonial Studies Organisation):

The same data also showed that the São Paulo small office sector has heavily grown in supply in recent years.  In 2006, 2,016 small offices were created in the region, which grew to 4,909 in 2008 and 7,476 in 2010.  In terms of area, the number of launches rose from 344,000m² in 2006 to over R$ 600,000m² in 2009 – with the estimated value almost doubling from US$ 481.1 million to US$ 1.1 billion. According to CB Richard Ellis, in the same area, over 7,500 office space launches were made in 2010 – tripling that of 2008 (with investment over the period increasing from R$ 2 billion to R$ 3.6 billion).

When looking at rents, rates being charged have also witnessed rapid changes.  A building developed by Brookfield Malzoni, currently being constructed on the Faria Lima Avenue in central São Paulo, will be rented for an average of R$ 160 per m² (all units have been sold) – a price equivalent to Times Square in New York.  In the first quarter of 2011, Colliers reported that prices in the same region for existing office space increased to up to R$ 200 per m² – with an occupancy rate of just 0.8 percent.  Another commercial / residential building launched in partnership by Stan, SDI and Bramex on the Faria Lima (to be ready for occupation in 2014) completely sold within 24 hours of release.

Such statistics have shown no signs of abating with many commercial real estate developers continuing to look for further opportunities in the market place.  According to Colliers, up until 2014, 600,000m² will be placed on the open market in the primary and secondary regions of São Paulo – almost doubling the level of stock that exists in the prime regions of the city, namely Itaim (407,000m²) and Faria Lima (285,000m²).  Such impending figures have subsequently prompted a debate of whether there is a risk of over-supply to be expected in the coming years.  According to André Strumpf of Colliers in an interview with Brazil’s Construction Market magazine: ‘today, what is available or is being launched is not saturating the market – but I think a saturation is to be expected in the next 2 or 3 years principally because investors are over-paying and will not get a sufficient return.’

In the same article, João da Rocha Lima of the Polytechnic University of São Paulo believes that some investors have been falsely rationalising and justifying the fact that prices will not lose value – pointing to the fact that the Brazilian real estate market is relatively undisciplined and cannot be read in such a simple manner.  Fernando Kenworthy, president of Fibra Experts, in an article in the Exame magazine, believes the market will become similar to that of apartment-hotels in the 1990s which saw a high level of launches, subsequently resulting in an occupancy rate of between 20 and 30 percent (which took over 10 years to recuperate).  His comments were supported by Carlos Betancourt – partner of the Bracor group – who stated to Exame: ‘as with what happened with the stock market in 2006 and 2007, there are many investing in Brazilian commercial property, thinking that the curve only moves upwards.’

Silvio Zazur, vice sales president of EZTec believes the contrary is true: ‘we have launched seven commercial developments in the last three and a half years which have sold fast and quickly.  Should the economy of Brazil continue to grow at between 4 and 6 percent per year, I think that the supply of office stock entering the market will be sufficient.’   Research by CB Richard Ellis showed the commercial property supply is still lacking in light of the growing Brazilian economy – stating, for example, that there is less commercial space available in metropolitan São Paulo than compared to Atlanta in the USA.

It is also stated that the difficulty of developing commercial real estate – combined with the limited availability of land has had a major effect on keeping prices buoyant due to limited supply.  Adriano Sartori of CB Richard Ellis pointed to the difficulty of obtaining Certificates of Additional Construction (Certificados de Potencial Adicional de Construção, Cepacs) in prime areas such as São Paulo, which enable buildings to be built higher, stating to the Estadão newspaper: ‘it is a region where it is difficult to incorporate projects – which can often take up to 5 years to get off the ground.  In the case of Faria Lima, for example, the local government recently presented a number of land plots which none of the developers could make viable.’

Nevertheless, according to Colliers, with carefully managed research and execution, many opportunities remain in Brazil’s commercial real estate market – according to Strumpf: ‘as well as the obvious markets of Rio de Janeiro and São Paulo, peripheral regions such as Campinas and Santos as well as Brasília, Recife, Fortaleza and Belo Horizonte are all looking promising.’