1 ST SEMESTER 2011 OFFICE A AND A+ RIO DE JANEIRO OFFICE MARKET REPORT OFFICE RESEARCH REPORT - CLASS A AND A+ Lease Rates in Rio de Janeiro will Rise until 2016. Economy PRICE ABSORPTION VACANCY CONSTRUCTION 2010 2 ND SEMESTER 2011 1 st SEMESTER In spite of the federal government s efforts to control economic growth and inflation through higher interest rates and macro-prudential measures, the first semester of 2011 showed very positive results for the Rio de Janeiro State economy in terms of economic growth. According to FIRJAN (Rio de Janeiro State Federation of Industries), industry in the state showed expressive numbers in the first six months. Real industrial sales grew by 10.4% compared to the first semester of 2010, and the number of jobs grew 7.5% while salaries rose by 4.8%. These numbers are a sign that the sector should maintain a more accelerated rhythm than the national economy, mostly due to the investments being made in the region in varied segments including oil, infrastructure and the transformation industry, among others. In the retail market, a study performed in July by Fecomércio RJ showed the 26th consecutive rise in invoiced revenues for the sector, confirming the strong phase the Rio economy is enjoying. Accumulated growth for business revenues was 2.1% for the semester. Over the 12 month period ending in July, compared to the accumulated for the previous period (July 2009 to June 2010), growth was 3.2%. Aside from this, the Ministry of Work and Employment (MTE) recently released data from the Federal Employment Index (CAGED), which showed that Rio de Janeiro had a record number of new jobs during for a first semester: 99,175 new work stations, reaffirming the vigor of economic activity for the period. www.colliers.com.br
Market Overview The positive economic scenario favors the arrival of multinational companies in Rio de Janeiro, promising a continuing heated market over the next three years without perspective of falling rates in any of the main market indicators (price, absorption or vacancy). Most new companies are in the tourism, oil and gas sectors, among others. New arrivals installation processes involve the accommodation of the foreign professionals that accompany them. The occupation of compact residences and growing business naturally create a necessity for the support of micro and small companies to meet this new demand and also the growth of other companies. The presence of Petrobrás, for example, which is already much too big if compared to other Brazilian capital cities, is expected to become even stronger in the coming two years as the new development phases of the pre-salt project move forward. The volume of resources headed for Rio de Janeiro in the 2011-2012 period is projected to be R$ 750 million, making the city Brazil s newest center of technological development and Latin America s largest investment hub. The inventory of A and A+ properties, currently around 830,000 sqm, may reach 1 million sqm by the end of 2011 if construction timelines are rigorously met. The greatest concentration of commercial suites lies in the region and of corporate suites in downtown. One factor contributing to this growth is a 64.5% increase in Retrofit releases over a yearlong period. In 2010, 25,000 sqm of recuperated areas came onto the market and it is estimated that another 70,000 sqm will become available by the end of 2011. The corporate office market in Rio de Janeiro is just at the beginning of a growth process which is expected to continue for at least three years, driven by new commercial projects in the downtown and port regions awaiting permits by December. VACANCY RATES 2008-2011 (%) 15 2008 0.5 VACANCY RATE COMPARISON OVER THE SAME PERIOD (%) 2.8 2009 2010 2011 The current 4.6% rate resembles the rate in the same period last year when 90% of the Américas Corporate development, recently released in, was available. 15.1 5.2 4.6 4.6 VACANCY The A and A+ office market in Rio de Janeiro did not present significant change over the first semester of the year due to the scarce offering over the last two years. The two-point increase in the vacancy rate is the result of the new Bay View, O2, Rio Branco 115 (Retrofit) and Península Corporate properties, totaling approximately 82,000 sqm with around 55% of rentable area still available. The new inventory represents 11% of the inventory at the beginning of the year. 1S 2009 1S 2010 1S 2011 Of Rio de Janeiro s main office regions, was the only one showing excessive offerings, both of office suites and large corporate areas. The region today is home to 98% of the city s total available area. P. 2 COLLIERS INTERNATIONAL
VACANCY RATES Q4 2010 X Q1 2011 (%) 20.1 4.2 4.6 0.6 1.9 0.4 5.2 ABSORPTION In spite of little change in areas offered last semester, 82% of the new inventory (82,000 sqm) was pre-leased. 2S 2010 1S 2011 DISTRIBUTION OF TOTAL AVAILABLE AREA BY REGION (%) 2% An increase of large corporate areas (entire floors) was noted, especially in the Barra region. Both the availability of land as well as infrastructure works for transportation connecting the borough with the airport and line 4 of the subway brought about a wave of corporate project approvals in the area. NET ABSORPTION BY REGION (SQ.M) 28,660 31,673 98% 608 0 1,044-30 Total Available: 38,317 sq.m RIO DE JANEIRO REGIONS MAP 1S 2011 60-70% of the total area absorbed over the one year period was absorbed during the 1st semesters of each year over the last three years. ABSORPTION IN THE SAME PERIOD (SQ.M) 77,769 61,955 14,826 1S 2009 1S 2010 1S 2011 COLLIERS INTERNATIONAL P. 3
PRICES During the first semester, the highest value registered was R$ 250/ sqm., in Leblon. Prices near to R$ 200/sq.m. are expected to become common due to the large projected demand for Rio de Janeiro. is the region with the second highest prices and as in Barra da Tijuca, should show the largest variation in prices since 90% of the new stock is concentrated in these areas. Three of the six main office regions practice average prices higher than the overall market average. They are, Centro and Leblon/ Ipanema. AVERAGE REGIONAL RENT X MARKET AVERAGE (R$/SQM/MONTH) 211.5 HIGHEST AND LOWEST PRICES BY REGION (R$/SQM/MONTH) 250.00 105.5 150.0 132.5 110.0 128.00 57.0 150.00 160.00 170.00 104.00 50.00 130.00 120.00 100.00 100.00 60.00 50.00 Average value A and A+ Average MARAVILHA PORT Average increase of prices over the last three years was 9%. Only in the first semester of 2011, prices went up 8.2%, a number which is expected to reach 13-15% by the end of the year, mostly because of the better quality of the new stock. The average price calculated for this semester was R$ 128/sq.m. AVERAGE GENERAL PRICE (R$/SQ.M) 96.5 104.5 117.5 128 2008 2009 2010 2011* The second phase of the Porto Maravilha project may already start up after the gavel falls in the auction of the Porto Maravilha Investment Fund, controlled by Caixa Economica Federal, which boasts some 6.4 million shares valuing at least R$ 545, for a total of R$ 3.5 billion. Of the 4 million square meters converted to shares, approximately 2.3 million represent additional commercial construction potential. In other words, they could become large buildings that increase stock in the city beyond its natural curve of growth. The goal is to attract headquarters of large technology and innovation companies, port terminal modernization and development companies as well as maritime tourism companies. Comprised of a 5 million sqm area, the second phase of the Porto Maravilha project consists of demolition of the Perimetral Elevated Highway, creation of 4 km of tunnels, re-urbanization of 70km of streets and 700km of urban infrastructure networks. The works will be done by the Porto Novo consortium, considered to be the largest PPP (Public-Private Partnership) in Brazil today. The consortium will be responsible for construction over the next five years and for maintenance of urban infrastructure in the area for the next 15 years. On a 13,000 sqm piece of land that was home to the old Marilu mill, Tishman Speyer will begin construction of the region s first large office building, the Porto Corporate, with 35,000 sqm rentable area and LEED Green Building certification. The area s first building to be available on the market will be São Carlos Empreendimentos newly retrofitted Venezuela 43. P. 4 COLLIERS INTERNATIONAL
MARKET TRENDS New Inventory: Release of 170,000 sqm in the second semester, bringing today s 4.6% vacancy to nearly 8% by the end of the year, assuming absorption of 130,000 sq.m, 47% of which already in the first semester. The Retrofit concept that started strong in the Centro region is now in use in South Zone buildings, especially in the and boroughs, both of which with other revitalization projects under analysis. The corporate business tower concept will be introduced in in 2013 with construction of the CEO Corporate tower. Absorption The Rio de Janeiro office market absorbed an average of 80,000 sqm per year between 2008 and 2010, a relatively small number considering the size of the local market. This fact is due to the lack of offerings over the period, a scenario which will change drastically over the next three years with the release of over 400,000 sq.m. Absorption should be 70% higher through 2014, with an average of 135,000 sq.m absorbed per year. Vacancy Rates Historically, the city of Rio de Janeiro has always had a lower vacancy rate than Brazil s other major cities. The tendency is for some variation over the coming years, always under 10%. The highest level of vacancy should be reached at the end of 2011 and 1st semester of 2012 and falling off in subsequent years. Prices Average rise of 12.5% (net, for inflation) over the next three years. Values near to R$ 200/sq.m will become common not only in the South Zone but also Centro. Prices in Rio de Janeiro continue to rise and should reach their highest before 2016. VACANCY X ABSORPTION X PROJECTED INVENTORY UNTIL 2013 1,400,000 25% 1,050,00 15% 902,568 1,087,588 1,162,488 20% 700,000 605,076 647,097 748,752 8% 8% 15% 10% 350,000 0 2008 67,112 1% 6% 3% 170,000 130,000 95,440 100,000 81,816 2009 2010 2011* 2012* 2013* 5% 0% ACTUAL MARKET Average Vacancy Rates: 2.8% 2011 1 st Semester Absorption: 61,954 sq.m Average Total Lease Prices: R$ 128,00 Buildings under Construction: 431,000 sq.m Buildings under Project: 60,000 sq.m COLLIERS INTERNATIONAL P. 5
STATISTICS CLASS A+ AND A REGION NUMBER OF BUILDINGS INVENTORY ACTUAL VACANCY RATE PREVIOUS SEMESTER S VACANCY RATE ABSORPTION IN SQ.M AVERAGE ASKING LEASE PRICES (R$/SQ.M) VALOR MÉDIO PEDIDO DE LOCAÇÃO (US$/m²) 21 186,095 20.1% 4.2% 28,660 105.50 65.50 8 124,827 0.6% 4.6% 608 150.00 93.15 18 482,447 0.0% 1.9% 31,673 132.50 82.30 1 10,200 0.0% 0.0% 0 110.00 68.30 1 7,033 0.4% 0.0% -30 57.00 35.40 Leblon /Ipanema 4 20,257 0.0% 5.2% 1,044 211.50 131.35 TOTAL 53 830,859 4.6% (média) 2.8% (average) 61,954 128.00 (average) 79.50 (average) Colliers International More than 500 offices in 61 countries on 6 continents United States: 125 Canada: 38 Latin America: 18 Asia Pacific: 194 More than US$ 1.5 billion in annual revenues US$ 978.6 millions sq.m under management Over 12.500 professionals Exchange rate: US$ 1,00 / R$ 1,61 REAL ESTATE VOCABULARY. Absorption: Amount of sq.m occupied in the previous period. Development category: Real estate properties are classified as A+, A, B and C. Stock / Inventory: Amount of usable constructed area in square meters. Vacancy Rate: Ratio between area available area and total area. Free Ceilings Height: Space between the finished flooring and the 1st structure ceiling interference. Build-to-Suit: Customized construction BRAZIL São Paulo R. Olimpíadas, 205-1 andar 04551-000 São Paulo SP TEL +55 11 3323 0000 Rio de Janeiro Av. Almirante Barroso, 63 - sl. 1.217 20031-003 Rio de Janeiro RJ TEL +55 21 2524 4242 COLLIERS INTERNATIONAL BRASIL REAL ESTATE CONSULTANCY FOR INDUSTRIAL, OFFICE, RETAIL, LAND, RURAL, HOTELS, HOSPITALS AND EDUCATIONAL INSTITUTIONS Recife Av.Gov. Agamenom Magalhães, 4.575 - sl. 1.503 50070-160 Recife PE TEL +55 81 3037 2222 Real Estate Investments Tenant and Landlord Representation - Leasing, Acquisition and Sale Advisory and Disposals for real estate assets and/or portfolios Build-to-Suit and Sale & Leaseback Operations Lease Administration and Property Management More Information RESEARCH AND MARKET INTELIGENCE research@colliers.com.br OFFICE office.rj@colliers.com.br Real Estate Valuation for Leasing, Acquisition, Sale and Guarantee Market and Technical-Financial studies, Highest and Best use studies Advisory for Investment Funds and Private Investors Green Consulting for LEED certification Accelerating success. P. 6 COLLIERS INTERNATIONAL www.colliers.com.br