Brazil Real Estate Report Q4 2010

Business Monitor International's Brazil Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Brazil's Real Estate industry.

Of all the countries whose real estate sectors are surveyed by BMI, Brazil stands out as one where the general outlook is particularly promising. Thanks in part to high real prices for commodity exports and in part to the impetus to investment and tourism provided by the 2014 FIFA World Cup and the 2016 Olympics, the economy should continue to grow by 4-5% annually. However, it is continuing growth in consumer spending that will likely drive the fortunes of the real estate sector.

Over the recent past, consumption has risen because of an improvement in consumer sentiment, which, in turn, is a function of rising employment. Growing employment is, in turn, a consequence of the investment boom in Brazil. The investment boom can continue so long as Brazil’s economy and financial markets remain – as we expect them to – in a virtuous circle. The virtuous circle includes lower inflation and interest rates, a strong currency, and reduced perceptions of investment risk.

We interviewed local sources in January/February 2010 and again in mid-2010. The second round of interviews gave us a much clearer picture of trends in rents and yields this year. The crucial development is that net rental yields in São Paulo and Rio de Janeiro have fallen sharply. Given that rental rates appear to be consolidating, after fairly strong rises through 2008, the implication is that capital values have soared in the office, retail and industrial sub-sectors. We also suspect that capital values have risen in Fortaleza, the third of the three cities for which we have gathered data, notwithstanding that yields there are broadly the same as they were in 2009.

The stabilisation of rents in São Paulo and Rio de Janeiro (and the modest increases in Fortaleza) suggest to us that, in the short-term, supply of new space has caught up with demand. This is just as well. Our interviews at the beginning of 2010 revealed that vacancy rates were low, and that tenants could expect few concessions from landlords. The global financial crisis caused a number of investors to suspend or postpone projects. Encouragingly, though, there is no evidence of speculative building or gross oversupply.

As a part of our latest round of interviews in mid-2010, we asked our sources to explain how they believe rental rates will move in 2011. Early indications are that steady growth in rentals is expected to resume next year – with double-digit growth in some sub-sectors.

Looking forward, we expect that rental yields will continue to fall gradually in Rio de Janeiro and São Paulo, as capital values continue to rise relative to rents. This will be the consequence of the ongoing fall in the risk premium associated with all Brazilian investments. At this stage, we expect that yields in Fortaleza will track sideways – and will consequently remain at a small premium to yields in São Paulo and Rio de Janeiro.

Key Features Of This Report
This is the latest edition of a new series of industry reports published by BMI that seeks to identify the key dynamics of the real estate sectors of 44 countries around the world, some of which are developed and some of which are, in every sense, emerging markets. The questions that we seek to answer for each country remain as follows: What are the main issues for actors in and around real estate development in the country concerned, over both the long and the short term? What are the main constraints that they face? What are the key insights to be gleaned by comparing the real estate sector of a country with its regional peers?

In Q3 we introduced a very substantial improvement to our reports. We incorporated data and qualitative observations provided to us by commercial real estate agents operating in the countries we survey. As a result we have gained a much clearer picture of the balance between demand and supply in each of three main sub-sectors – office, retail and industrial. We have also introduced a new approach to the forecasting of rental yields, which is discussed in the methodology section of this report.

In Q4, we have incorporated a lot of new data in relation to rents and yields in 2010. We gained this data through a new round of interviews with our in-country sources in mid-2010. In some cases, the latest information from our sources has caused us to make significant revisions to our forecasts for 2011-2014. We asked our sources to indicate what growth in rents is likely for 2011. We explain their answers in the Forecast Scenarios. SHOW LESS READ MORE >

Executive Summary

SWOT Analysis
- Brazil Real Estate SWOT
- Brazil Economic SWOT
- Brazil Business Environment SWOT

Regional Real Estate Overview
- Table: Latin American Office Markets At A Glance – Rental Costs, 2009-2011 (US$ per m2 per month)
- Table: Latin American Retail Markets At A Glance – Rental Costs, 2009-2011 (US$ per m2 per month)
- Table: Latin American Industrial Markets At A Glance – Rental Costs, 2009-2011 (US$ per m2 per month)

Real Estate Market Overview
- Table: Brazil’s Real Estate Market – Rentals, 2008 And 2009 (m²/month, BRL)
- Table: Brazil’s Real Estate Market – Net Yield (%)
- Table: Brazil’s Real Estate Market – Terms Of Contract/Lease
- Table: Brazil’s Real Estate Market – Available And Vacant Space (m²)

Forecast Scenarios

Real Estate Outlook
- Table: Brazil’s Real Estate Markets – Rentals in m²/month (BRL)
- Table: Brazil’s Real Estate Markets – Forecast Net Yield (%)

Construction And Infrastructure Outlook
- Table: Brazil’s Economic And Construction Data, 2007-2014

Macroeconomic Outlook
- Table: Brazil – Economic Activity, 2006-2014

Business Environment

Real Estate/Construction Business Environment Ratings
- Table: Latin America Business Environment Ratings

Brazil’s RECBER

Latin America Project Finance Ratings
- Table: Design And Construction Rating
- Table: Commissioning And Operating Rating
- Table: Overall Project Finance Rating

Brazil’s Business Environment
- Table: BMI Business And Operation Risk Ratings
- Table: BMI Legal Framework Rating
- Table: Labour Force Quality
- Table: Foreign Direct Investment Inflows Into Latin America, 2006-2008
- Table: Brazil’s Top Export Destinations, By Destination Country, 2001-2008 (US$mn)
- Table: Trade And Investment Ratings

Company Monitor
- BR Malls Participações
- Grupo Camargo Corrêa
- Construtora Norberto Odebrecht
- Even Construtora e Incorporadora
- Multiplan Emprendimentos Imobiliários
- OAS
- Trisul

BMI Methodology
- How We Generate Our Industry Forecasts
- Construction Industry
- Bank Lending
- Real Estate/Construction Business Environment Rating
- Table: Weighting Of Indicators
- Project Finance Ratings Indicators
- Table: Design And Construction Phase
- Table: Commissioning And Operating Phase – Commercial Construction
- Table: Commissioning And Operating Phase – Energy And Utilities
- Table: Commissioning And Operating Phase – Transport
- Sources

- BR Malls Participações
- Grupo Camargo Corrêa
- Construtora Norberto Odebrecht
- Even onstrutora e Incorporadora
- Multiplan Emprendimentos Imobiliários
- OAS
- Trisul