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CBRE expects increased appetite for offices this year (Free Translation)

Valor Econômico – SP — 01/22/2014

SÃO PAULO, January 22, 2014 – Investors’ appetite for the acquisition of large corporate towers in São Paulo city will tend to increase in 2014 due to lower prices, according to Walter Cardoso, CEO of CBRE. He also believes leasing will move up. given that tenants will take advantage of lower rents to move to areas that better meet their needs. “It will be a year of opportunities for tenants seeking new premises and investors seeking to buy,” claimed Cardoso.

Last year, the delivery of new high-end office buildings in São Paulo city – Brazil’s biggest real estate market – totaled 531,000 sq.m., the highest figure for 13 years and 40% up on 2012. Gross absorption was 773,000 sq.m., also a 13-year record.

JNet absorption, equivalent to new areas occupied less returns, totaled 216,000 sq.m., higher than in 2011 and 2012, when 380,000 sq.m. were delivered, but lower than in 2010.

At the end of last year, the supply of vacant office space totaled 710,000 sq.m., but this is not a cause for concern according to Cardoso. “If we have a year with similar growth to 2013, around 2%, supply will be absorbed in a satisfactory manner. In addition, new inventory entering the market in 2014 will be only 60% of last year’s total,” he explained.

There is still room to reduce rents, but not to 2013 levels. Last year prices fell even on Avenida Faria Lima, the most coveted address by potential tenants of large corporate towers. The stretch of Faria Lima after Juscelino Kubitschek, in São Paulo’s south side, saw several deliveries in 2013 and rent prices at year-end were between 15% and 20% less than at the close of 2012, according to Cardoso. On the Marginal Pinheiros expressway, the slide was between 10% and 15%.

Also according to Cardoso, given the new price conditions and tenants’ appetite, companies are not going to wait for a “better moment” to release present space and rent new areas, motivated by opportunity. “Companies have two or three times as many employees as six or seven years ago and are seeking more efficiency from their space and better prices,” he declared.

Lower rents should also lead to a reduction in property prices, which will arouse investors’ interest. The devaluation of the real will also make property prices in dollars more attractive.

At the beginning of this month, the company was seeking two international investors interested in acquiring offices in São Paulo. Even if leasing returns are less attractive in the initial years, this type of investment is usually for at least five years, according to Cardoso.

For the time being, many property owners are still resisting lowering their prices, which means they are not doing much business. “But sellers will have to admit that things have changed and alter their prices accordingly,” added Cardoso.

In 2014 to date, the biggest office space rental deals in São Paulo involved GE, Samsung, Hypermarcas, KPMG, Procter & Gamble, Delloite, Zurich and Allianz. CBRE represented the lessors or the tenants in all these operations.

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