Economy In May, the modest economic recovery that started off the year was brutally interrupted by the truckers strike, which had a big impact on 2018 s second quarter indicators. July s forecast indicators, however, have revealed that the damage was only temporary, and the economic impacts should dissipate bythe end ofthe year. Projected annual GDP growth declined from 2.8% in April to 2.0% in June, right before the strike. In addition, the Central Bank has called for an end to interest rate cutbacks, therefore, the SELIC should remain at 6.5% until the end of the year. The inflation rate (IPCA) was largely impacted by the strike and closed June at 1.3% (MoM). This figure was largely influenced by the fuel and supermarket sectors, which was heightened by fears of food and fuel shortages. The forecast for 2018 is 4.0%, below the Central Bank s target rate. The unemployment rate reached 12.7% in May, and the forecasts indicate that it should drop to 12.4% in June. As the indicator directly affects the office market, an improvement in the labor market could influence the demand for office space, warehouses and shopping centers. The exchange rate closed June at R$3.77, and is expected to close out 2018 at R$3.70. Economic Indicators Gross Domestic Product 1Q18 2Q18 12-Month Forecast 0.9% 0.3% Inflation Rate 2.9% 1.3% Unemployment 11.8% 12.5% Real Estate Indicators 1Q18 2Q18 12-Month Forecast Vacancy 23.9% 24.7% Net Absorption (.000) 201.4 21.1 Under Construction (.000) 57.9 154.1 Avg. Asking Rent R$19.85 R$19.56 The unfavorable external environment the strength of the US economy, and the increase of interest rates bythe FED, andthe damaged domestic environment. Despite the unfavorable domestic scenario, it is important to consider that the country has been responding to the crisis for the past several years, and is slowly reestablishing itself. Current data for 2018 indicate a shy economical trajectory. Presidential elections, however, should increasingly impact the dollar s swing, and the economic results for the upcoming months depends on the outcome of the political dispute and the economic positioning ofthe newgovernment. 1
Market Overview The Class AA+ industrial market is reacting well to Brazil s economic and political situation. Absorption is still happening, although primarily in the country s southern axis, with newprojects on the way. Despite this, the average asking rent keeps falling as a way to attract tenants, and the vacancy is rising, due ongoing new development projects. The delivery of690ksqm worth of Class AA+ new inventory is expected by the end of the year, though the chances of this happening are slim, once landlords often wait for demand before delivering newprojects. Net Absorption/Asking Rent Source: 250 150 R$ 22 R$ 20 50 R$ 18 154.1Ksqm were delivered this quarter, increasing the vacancy rate by0.8 p.p. -50-150 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2017 2018 Net Absorption Asking Rent R$ 16 R$ 14 Brazil Compared to 2017 s second quarter, the current period s net absorption in high standard developments increased by 88%, ending the quarter with 21.1Ksqm absorbed. Due to the vast number of deliveries, the net absorption was not enough to halt Brazil s vacancy rate. 154.1Ksqm were delivered this quarter, increasing the vacancy rate by 0.8 p.p., reaching 24.7% in June. Overall Vacancy Source: 30,0% 25,0% 20,0% 15,0% 10,0% 5,0% 0,0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2017 2018 02
(%) Quarterly Change (,000 sqm) Industrial Q2 2018 São Paulo With no new deliveries in the first quarter, the Class AA+ logistics market in São Paulo absorbed over 95Ksqm during the second quarter; all of them in Campinas. With a dynamic market, the net absorption reached 28.1Ksqm, mainly in Barueri (23.3Ksqm) and Jundiaí (22.6Ksqm). If not for the withdrawal of27ksqm in a warehouse in Guarulhos, which negatively affected the indicator by 18ksqm, net absorption could have been even higher. The following map shows which regions had positive or negative absorption flow. The size of the bubble indicates the amount ofactivity. The vacancy rate, despite wide-spread absorption, rose by 0.5 p.p. due to new deliveries, and closed out the quarter at 23.8%. With another 330Ksqm of new inventory expected by the end of the year, São Paulo s vacancy should increase even more in the coming months. Along with the vacancy, the average asking rent fell, dropping from R$19.33/sqm to R$19.12/sqm, or a decrease of 1.1%. The asking rent should experience minor fluctuations in the following months, as political uncertainties dominate the national scenario. São Paulo AA+ 2018Q1 2018Q2 New Inventory (K sqm) 0 95.5 Net Absorption (K sqm) 154.2 28.1 Vacancy (%) 23.3 23.8 Asking Rent (R$/sqm) 19.33 19.12 New Inventory Brazil Class AA+ 1.600 1.400 1.200 1.000 800 600 400 200 0 2014 2015 2016 2017 2018 2019 Asking Rent Class AA+ 20,0% 10,0% 0,0% -10,0% -20,0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2015 2016 2017 2018 Change SP Change RJ 03
Rio de Janeiro In the first quarter of 2018, the Class AA+ logistic market in Rio de Janeiro received new developments. Such as the 58.6Ksqm that were delivered in Duque de Caxias. The results so far for 2018 indicate a possible rebound in Rio s industrial market, after a lack of demand in 2017. Because of the economic recovery in Rio, net absorption rose. With a 34.7% hike in comparison to the previous quarter, and 96.1% compared to the same period in 2017, roughly 10.7Ksqm were absorbed during the last three months. Santa Cruz/Campo Grande and Pavuna contributed the most to these absorptions, which 9.7Ksqm and 2.6Ksqm each, respectively. On the other hand, Vale do Paraíba registered -1.5Ksqm of negative net absorption. Even with Rio s industrial market dynamicity, the vacancy rate increased again, reaching 29.3%, showing that current absorption levels are not enough to halt it, due to the increase in newdeliveries. Rio de Janeiro AA+ 2018Q1 2018Q2 New Inventory (Ksqm) 57.9 58.6 Net Absorption (Ksqm) 7.9 10.7 Vacancy (%) 27.5 29.3 Asking Rent (R$/sqm) 22.86 21.65 With that said, the region where the vacancy rate increased the most in comparison to the last quarter was Duque de Caxias, going from 35.9% to 40.9%. Rio s vacancy rate also affected the average asking rent, which fell 5.3%, going from R$22.86/sqm in 2018 s first quarter to R$21.65/sqm. As for the rest of the year, another 220Ksqm are expected to be delivered in Rio de Janeiro s Class AA+ market, which could push the vacancy rate beyond 30%, as well aslowering the average asking rent. 04
BRASIL - INDUSTRIAL PARK REGION INVENTORY VACANCY RATE 2018 LEASING ACTIVITY 2018 NEW INVENTORY 2018 NET ABSORPTION ASKING RENT (R$/sqm/month) MIN AVG MAX Amazonas 307.5 48.9% 14.9 0.0-7.5 R$17.00 R$21.00 R$22.00 Bahia 48.4 13.5% 0.0 0.0 0.0 R$9.00 R$18.00 R$28.33 Paraná 637.5 32.4% 14.3 0.0 4.6 R$8.00 R$16.00 R$21.56 Pernambuco 757.0 11.1% 37.8 0.0 21.1 R$14.00 R$18.00 R$18.50 Rio Grande do Sul 152.8 5.9% 3.5 0.0 3.5 R$8.30 R$16.00 R$20.65 Minas Gerais 622.2 24.2% 13.8 0.0 4.4 R$15.00 R$21.00 R$27.00 Ceará 92.6 19.6% 0.0 0.0-10.2 R$14.00 R$15.00 R$17.00 Pará 54.0 61.8% 0.0 0.0 0.0 R$19.00 R$23.00 R$23.00 Santa Catarina 103.3 14.4% 5.7 0.0 5.7 R$8.00 R$14.00 R$22.00 Other Regions 2,775.2 24.2% 90.1 0.0 21.6 - R$26.50 - Campinas 1,325.3 20.8% 13.3 95.5-3.6 R$8.19 R$16.00 R$30.00 Jundiaí 1,507.0 22.9% 53.6 0.0 30.1 R$14.46 R$18.00 R$38.00 Cajamar 1,206.5 19.0% 76.1 0.0 71.8 R$16.00 R$21.50 R$24.00 Guarulhos 1,102.5 28.5% 28.4 0.0-0.6 R$17.90 R$22.00 R$27.00 Barueri 771.8 23.3% 31.8 0.0 29.4 R$14.00 R$23.00 R$34.15 Embu 740.3 19.2% 6.7 0.0-5.0 R$13.00 R$20.00 R$26.00 Capital - SP 107.1 2.5% 5.4 0.0 2.7 R$8.19 R$19.00 R$38.00 Atibaia 333.5 16.7% 6.9 0.0 3.5 R$12.00 R$18.00 R$23.00 Vale do Paraíba 252.3 43.9% 0.0 0.0 0.0 R$12.50 R$15.75 R$23.80 Sorocaba 293.1 49.9% 9.6 0.0 9.6 R$12.00 R$17.00 R$23.81 Grande ABC 311.1 10.7% 56.6 0.0 56.6 R$17.00 R$23.00 R$30.00 Ribeirão Preto 138.7 41.6% 0.0 0.0-12.2 R$10.00 R$15.00 R$18.00 Piracicaba 143.3 48.1% 0.0 0.0 0.0 R$10.00 R$16.00 R$20.00 São Paulo 8,232.5 23.8% 288.3 95.5 182.3 R$8.19 R$19.00 R$38.00 Duque de Caxias 733.3 40.9% 10.3 58.6 1.7 R$17.50 R$25.45 R$30.00 Pavuna 299.7 23.6% 12.2 26.1 12.2 R$17.00 R$24.00 R$30.00 Queimados / Seropédica 219.1 52.3% 0.0 14.1-0.2 R$16.50 R$20.00 R$22.00 Santa Cruz / Campo Grande 181.7 4.4% 9.7 17.7 9.7 R$17.00 R$17.00 R$23.00 Belford Roxo / Nova Iguaçu - 0.0 0.0 0.0 R$22.00 R$23.00 R$23.00 Vale do Paraíba Fluminense 211.4 2.4% 0.0 0.0-5.1 R$13.00 R$17.00 R$18.00 Campos 24.5-1.0 0.0 1.0 R$14.00 R$14.50 R$15.00 Avenida Brasil 34.6 3.3% 0.0 0.0-0.6 R$35.00 R$35.00 R$38.00 Rio de Janeiro 1,704.4 29.3% 33.1 116.5 18.6 R$13.00 R$22.00 R$38.00 Brazil 12,712.1 24.7% 411.5 212.0 222.5 R$8.00 R$18.50 R$38.00 5
Main Transactions 2018Q2 BUILDING SQM TENANT TYPE OF TRANSACTION SUBMARKET Distribution Park Embu 11,141 Decathlon Lease Embu GLP Louveira I 10,629 Kuenhe+Nagel Lease Jundiaí LOG - Rio Campo Grande 8,039 NFA Lease Santa Cruz / Campo Grande Thera Park Jundiaí 7,784 Malverino Chocolates Lease Jundiaí Royal Business Center Castelo Branco 6,568 Lojas Eskala Lease Barueri About is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 70 countries help investors and occupiers optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. isamong the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com orfollow @CushWake on Twitter. Jadson Mendes Andrade Head of Market Research & Business Intelligence South America Phone: +55 11 3513 6783 Fax: +55 11 5501 5144 jadson.andrade@sa.cushwake.com 6