Sao Paulo Office Market Is Worst in Decade, Engebanc Study Says

  • 6,000 square meters went vacant in the first half of the year
  • Market to scrape along bottom before recovery starts in 2017

Sao Paulo’s corporate real estate market is headed for its worst year in a decade as Brazil’s recession continues to take a toll on the nation’s financial center, according to real estate consultant Engebanc.

In the first half of the year, an additional 6,000 square meters (64,600 square feet) of office space went vacant, the company said in a report. About 22 percent of the city’s 4.9 million square meters of office space is empty, it said. The city is the No. 3 contributor to the Brazil’s economy, led only by the state of Sao Paulo and the state of Rio de Janeiro.

“Brazil is going through a hard macroeconomic hangover,’’ Marcelo Costa, Engebanc’s chief executive officer, said in a phone interview. “We still think we are at the bottom of the market, but the bottom may last a bit longer.’’

The pain of vacancy has fallen hardest on so-called Class B properties, often family owned properties that lack the amenities premium tenants demand. With the economy in its third year of decline, rents for Class A properties have fallen faster, and that’s led companies to switch to state-of-the-art buildings from older ones that lack professional management, Costa said.

The flight to quality may end as the Class B building owners start cutting costs aggressively to guarantee a minimum monthly revenue, Costa said.

Still, the market should remain weak for the rest of the year, while investors wait to see what happens to suspended President Dilma Rousseff, and start recovering in 2017, he said.

“We see Brazil getting out of the ring corner, where it was being beaten up, and getting more excited, with a renewed desire of making things happen,’’ Costa said. “The spirits are changing. But that doesn’t mean the gross domestic product will resume growth in the second half of the year.’’

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