Heated shopping mall market in small cities, high investment in high-end corporate buildings in the capitals, demand for residential properties even higher than in 2010 and an increase in partnerships and joint ventures are the expectations of the Market Committee of the Real Estate Nucleus Poli-USP for the Brazilian real estate market in 2011.
The committee, made up of professors and researchers from the NRE and leading professionals from the sector, met in the last two months of 2010 to debate opportunities, challenges and expected risks in the shopping malls, office buildings and residential segments, taking as a subsidy not only last year’s behavior, but also what can be glimpsed about the impacts of the world economy and the economic policy proposed or evidenced by the new government.
Confidence in the economy and the sum of fears (employment income in the market vector, reference interest rate on the investment side and inflation expectation in the investment aspect to protect accumulated wealth) were recognized by the study as the main anchors of market behavior.
In the shopping-center segment, the committee points out a trend towards heating in small urban centers in the interior of the country (up to 200,000 inhabitants), due to the growth in the purchasing power of the C, D and E income classes.
According to the report presented, this demand can be met through the implementation of projects that will require more contained investment amounts than in large regional malls implemented in cities with the greatest market potential in Brazil, added to the growth of the franchise segment. Deconcentration of investments in smaller scale projects (up to 10,000 m² of GLA) may allow a new set of entrepreneurs to join the large corporations operating in the Brazilian market and even the advent of specialized real estate funds.
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In large centers, experts highlight two trends:
- a) a continuous movement to revitalize existing shopping centers, due to the multiplicity of alternatives available to the consumer and the growing competitiveness between the different projects;
- b) the entry into the Brazilian market of new well-known brands abroad, with a focus on the purchasing power of higher-income consumers.
The Poli-USP Real Estate Core Market Committee views the performance of investment in high-end corporate office buildings with optimism, particularly for deployment in the cities of São Paulo and Rio de Janeiro, but also in the main Brazilian capitals, since demand continues to command market movements, showing that there is a need for new spaces for the largest corporations operating in the Brazilian market.
Despite recognizing that the simple search for better quality spaces is a demand-generating factor, specialists consider, however, that the rise in high-end office rental prices raises a point of doubt about the potential for occupation of New AAA corporate spaces: high costs may lead companies to seek spaces outside the large centers, to install support service units, for which they do not have the need to enhance the corporation’s image in the market.
Regarding the sale and lease prices of corporate spaces, experts point to a trend towards maintenance in medium-standard offices and, for offices shared in small units, intended to meet the demand of technicians and self-employed professionals who work alone or even in small groups expect a slight decrease in sales prices and maintenance of rental prices.
For the residential market, the committee expects demand in 2011 to be higher than in 2010, especially in the middle and low-income segments. The committee is betting that real estate companies should focus on serving both the organic growth of current markets and the “Minha Casa, Minha Vida” program.
Action strategies and fundraising
The members of the Market Committee believe that companies in the sector will use local partnerships and joint ventures as strategies to operate in geographical regions other than their headquarters with greater intensity, while the installation of their own operating units outside their central offices seems to be a tendency to be abandoned, excluding the great centers of São Paulo and Rio de Janeiro, eventually Brasília.
As a way of raising funds for investment, specialists believe that companies will resort more to indebtedness than to raising funds in the capital market and that new financial resources will be more concentrated in large companies and less dispersed among medium-sized companies.
According to the committee, for 2011, there is no concern about the availability of real estate credit in sufficient volume to meet the production and sale of residential properties, using the SFH mechanisms, with a growing influence of structured operations, in a relatively small volume.
On the other hand, there is strong concern about the construction workforce, whose shortage of qualified personnel could lead to higher costs and pressure the risk level of investors upwards.
The report produced by the committee members emphasizes that Brazilian companies plan their operating strategies without the support of adequate and reliable indicators on housing demand in different regions of the country and in different market segments. The effect of this lack of information is inducing imbalances between supply and demand. The same happens with information on sales speed, which, extracted only in some markets through indicators that do not portray the intensity of the offer, but only the relationship between sale and offer, can lead to inappropriate decisions.
The members of the NRE-Poli Market Committee are: Alessandro Olzon Vedrossi; Alex Kenya Abiko; Carlos Terepins; Claudio Bruni; Claudio Tavares de Alencar; Daniel Citron; Eliane Monetti; Eric Cozza; Fernando Bontorim Amato; João da Rocha Lima Jr.; José Romeu Ferraz Neto; Marcelo Vespoli Takaoka; Mario Rocha Neto; Pedro Cortez; Roberto Aflalo Filho; Roberto Sampaio; Sergio Alfredo Rosa da Silva; and Walter Luiz Teixeira.