Office Q4 2018

Cushman & Wakefield

Despite the uncertainties caused by the

election, an economic shock by truckers’ strike

in May, and the trade war between the two

biggest economies, Brazil continue to growth

and kept the economic resumption in 2018.

The economic setbacks during the year

brought an intense volatility to the Brazilian

economic and political scenario, which ended

the year below the projection from the

beginning.

The GDP forecast was 3% in January, but it

was revised along the year, reaching

December at 1.39%. The main reason for this

gap between the forecast from the beginning

of the year, and the projection at the end of the

year was the truckers’ strike, which put a halt

to all activities in the country for 10 days. In

addition to that, the trade war between USA

and China caused a surcharge in the steel and

aluminum. Despite these negative impacts, the

Brazilian GDP expected to growth at 0.33

percentage points

The IPCA (Inflation index) projected in the

beginning of the year pointed out to a increase

of 3.8% (YoY), but this value decrease to 3.6%

in the last revision. Despite forecast’s drop, the

IPCA had an increase of 0.71 p.p. in

comparison to the previous year, which is a

reflex of the increase of the consumption

caused by the economic recovery in 2018. The

projection indicates the inflation should remain

within the target established by the Central

Bank, which is 4.5%, but can vary between 3%

and 6%.

Economy

The unemployment rate was forecasted at

12.0%, however, due to all the instability seen

in the country so far, the projection for the end

of the year had a slightly increase, and should

reach 12.2%, though still better than the rate

seen in 2017 (12.7%).

The exchange rate had a high volatility and

oscillated from R$3.13 in the beginning of the

year to R$4.19 in September – the highest

value since the creation of “Plano Real”. The

instability was mainly due to the Brazilian

election that generated a high-risk

environment and the fact that FED had

increased the interest rate.

Finally, the market expected a stronger growth

in 2018, however, the truckers’ strike and the

election process backlashed the economy.

1

Economic Indicators 2017 2018 (F)12-Month

Forecast

Gross Domestic Product 1.06% 1.39%

Inflation Rate 2.95% 3.74%

Unemployment 12.74% 12.21%

Real Estate Indicators 4Q17 4Q1812-Month

Forecast

Vacancy 24.5% 21.5%

Net Absorption (,000) 22.5 43.1

New Deliveries (,000) 29.2 8.8

Avg. Asking Rent (R$) 95.79 89.07

(Source: IBGE and LCA)

Office Q4 2018

Cushman & WakefieldCushman & Wakefield

Recovery. This was the word of the year in

2018 for the São Paulo’s CBD Office Market

Classes A and A+. With the return of the

optimism in the economy, occupations were

ongoing, accounting for a gross absorption

of 292.9Ksqm throughout the year. Large

discounts given by landlords stimulated

leases, and encouraged expansions and

occupations.

Furthermore, 5 new corporate buildings were

delivered to the market, adding 141.2Ksqm

to São Paulo’s inventory, 81.9Ksqm more

than the previous year. Another good sign

that the market is recovering was the net

absorption of 199.5Ksqm, slightly above the

one seen in 2017 (191.7Ksqm).

Market Overview

*The vacancy rate calculated and established by Cushman & Wakefield, which takes into account the effective

occupation is at 21,5%, While the commercial vacancy rate considering tracked leases in São Paulo CBD

classes A and A+ closed the quarter at 19,3%.

Five new corporate buildings weredelivered to the market, adding141.2Ksqm to São Paulo’s inventory

02

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

0

10

20

30

40

50

60

70

80

90

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018

(.000 s

qm

)

Net Absorption x New Inventory x Vacancy – CBD Class AA+

Net Absorption New Inventory Vacancy

R$ 80

R$ 85

R$ 90

R$ 95

R$ 100

R$ 105

R$ 110

0%

5%

10%

15%

20%

25%

30%

35%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018

Vacancy x Asking RentCBD Class AA+

Vacancy Asking Rent

Office Q4 2018

Cushman & Wakefield

In December, São Paulo’s CBD Market

received a new development of 8.8Ksqm.

Throughout the year, the city received

72.7Ksqm in the first quarter, 18Ksqm in the

second, and 41.7Ksqm in the third quarter of

2018.

For 2019, 33.3Ksqm are expected to be

delivered. One in Marginal Pinheiros, and

another one in the Avenida Paulista. Both

should be delivered in the first half of the year.

Pipeline

Due to the net absorption results seen in 2018,

São Paulo vacancy rate for the CBD’s Class A

and A+ Market decreased by 3 p.p., going from

24.5% to 21.5% (YoY).

Chucri Zaidan’s net absorption was the

highlight for the second consecutive year,

registering 47Ksqm, although this is below the

101Ksqm seen in 2017. Another highlight was

the axis JK – Faria Lima, registering 68.7Ksqm

together (34.2% of the whole market), with a

combined decrease vacancy from 21% to

13.2%. In a similar note, Berrini, Paulista and

Vila Olímpia also registered drops in their

vacancy rate.

Overall, 2018 was a positive year for most

CBD regions of São Paulo. The regions that

showed negative results were Chácara Santo

Antônio with a negative net absorption of

-2.9Ksqm, and Itaim which despite the -1Ksqm

of net absorption, registered a vacancy rate of

only 3.4%.

Occupancy

03

Average Asking Rents

Even with the real estate market heating up in

the city, the average asking rent decreased

7%, going from R$95.8/sqm to R$89.1/sqm.

This depreciation occurred because many

tenants took advantage of the excellent leases

conditions that included large periods with

better rent discounts and cash allowances for

the fit out, which allowed them to occupy

buildings that typically would have a higher

asking rent. In this way, the price drop was a

result of the high availability of buildings whose

location and specifications were under less

demand.

Moreover, Prime regions such as Paulista,

Faria Lima, JK and Vila Olimpia continue to

decrease their available office spaces due to

high demand which statistically, pressure

down the asking rent of SP CBD AA+ due to

the poor availability of expensive office spaces.

0

50

100

150

200

250

300

350

2014 2015 2016 2017 2018 2019 2020

(.000 s

qm

)

New Inventory – CBD Class AA+

Office Q4 2018

Cushman & Wakefield

Bubble Map

The map above shows the volume of net absorption of the CBD regions classes A and A+ in São

Paulo, in 2018. The red circles indicates the regions with negative results troughout the year (Itaim

and Chac. Sto Antonio). The other regions presented positive net absorption results in 2018, and

the main highlights were JK and Chucri Zaidan with 46.6Ksqm and 47.0Ksqm respectively. Despite

the results of 2018 being lower than the results seen in 2017 and 2016, Chucri Zaidan maintained a

good volume of absorption, showing the high demand for the region.

04

Volume of Absorption

Major Market Paulista Marginal Pinheiros Faria Lima Chac. Sto AntonioJK Chucri Zaidan Berrini Vila OlímpiaPinheiros Itaim

Office Q4 2018

Cushman & Wakefield

Heat Map

Transactions

The heat map above shows the regions with the most number of transaction throughout the year.

The regions highlighted in red were the most active regions, and it’s possible to see that Faria Lima,

JK and Vila Olímpia were the main spots. Chucri Zaidan and Paulista also had a good volume of

transactions in 2018.

05

0,00 1.55 3.10 4.64 6.19

Office Q4 2018

Cushman & Wakefield 06

SUBMARKETNUMBER OF

BUILDINGS

INVENTORY

(.000 sqm)

AVAILABLE

AREA (.000

sqm)

VACANCY

RATE

NET

ABSORPTION

(Q4)

NET

ABSORPTION

(ANNUAL)

UNDER

CONSTRUCTI

ON*

ASKING RENT

(ALL CLASSES)

ASKING RENT

(CLASS AA+)

Paulista 16 271.6 23.6 8.7% 15,124.2 24,071.9 9.314 80.3 114.1

Pinheiros 18 271.1 36.0 13.3% (251.4) 202.6 - 68.9 91.5

Faria Lima 25 450.2 70.9 15.7% 6,253.0 21,595.2 64,850 111.8 135.1

Itaim 4 72.6 2.4 3.4% 226.0 (998.9) - 63.4 -

Vila Olimpia 15 222.2 32.0 14.4% (63.1) 23,234.0 8,000 77.2 116.2

Berrini 10 298.6 60.5 20.2% 4,549.6 26,457.5 - 74.0 89.6

Chac. Sto. Antonio 18 242.0 123.1 50.9% (1,213.9) (2,886.9) - 62.5 69.1

Marginal Pinheiros 20 200.8 61.3 30.5% (3,309.0) 13,516.2 24,000 54.1 68.1

Chucri Zaidan 24 664.7 160.3 24.1% 7,179.3 46,987.3 120,453 85.3 91.8

JK 12 336.4 32.9 9.8% 13,338.8 46,639.3 - 110.7 127.5

Santo Amaro 8 113.5 73.6 64.9% 1,257.8 610.0 - 45.5 52.4

TOTAL CLASSE AA+ CBD

Classe AA+ 170 3.143,5 676.5 21.5% 43,091.3 199,428.1 226,617 73.5 89.1

*We consider "Under Construction" buildings with delivery scheduled until 4Q 2021

Main Transactions Q4 2018

BUILDING SQM TENANT / BUYER TRANSACTION TYPE SUBMARKET

Edifício Paulista 26,206 JS Real Estate Multigestão Sale Paulista

Tower Bridge Corporate 6,525 MedTronic Lease Berrini

Vera Cruz II 3,601 Julius Baer Banco Suiço Lease Faria Lima

Birmann 21 1,804 Informa Exhibitions Lease Pinheiros

São Paulo Corporate Towers - Torre Norte 1,246 HSBC Banco de Investimento Lease JK

Office Q4 2018

Cushman & Wakefield 7

About Cushman & WakefieldCushman & Wakefield 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. Cushman &

Wakefield is among 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 or follow @CushWake on

Twitter.

Jadson Mendes AndradeHead of Market Research & Business Intelligence

South America

jadson.andrade@sa.cushwake.com

Bruno SuguimotoCoordinator of Market Research & Business Intelligence

South America

Bruno.Suguimoto@cushwake.com

REGIONS

CBD

Marginal Pinheiros

Pinheiros

Paulista

Faria Lima

Itaim Bibi

JK

Vila Olímpia

Berrini

Chucri Zaidan

Chác. Sto Antônio

Santo Amaro