Brazil’s real estate: From fledgling to flourishing in 20 years

 —  Article by JLL Staff Reporter
Panoramic view of Rio de Janeiro from above, Brazil
Image credit: Shutterstock

Brazil’s real estate marketplace has been transformed beyond recognition in the last two decades as foreign investors moved in and skyscrapers sprang up in its growing cities.

At a historic crossroads 20 years ago, JLL opened its first location in Brazil, in Sao Paulo. At the time, Brazil was in the early stages of its rise to prominence as a growing world economy. In 2015, JLL Brazil relocated its headquarters to a new Sao Paulo location, on what was a single-lane road 20 years ago and a major avenue today, surrounded by vibrant commercial and residential neighborhoods.

This transformation is not limited to the business centers of Sao Paulo and Rio de Janeiro. Brazil’s many cityscapes boast bold new skyscrapers like Millennium Palace in Balneario Camboriu, completed in 2014, which is still the country’s tallest . Its business districts host countless offices of global and domestic corporations. The iconic architecture is backed by sophisticated financing and well-developed infrastructure.

Real Views sat down with Fabio Maceira, Chief Executive Officer, JLL Brazil, to learn more about the commercial property sector’s evolution in South America’s dominant economy:

What have been the most visible changes in Brazil’s commercial property markets during the past two decades?

In 1996, Sao Paulo offered only approximately 20 prime downtown office buildings and Rio de Janeiro, less than five. Even those properties typically offered 20 or fewer floors and smaller floor plates than today’s average. Today, Brazil’s major cities include trophy skyscrapers, some with floor plates as large as 2,500 square meters. Mixed-use developments with retail, residential and office components have become common, as are technology-enabled warehouses in modern industrial parks with shared infrastructure, services and security.

Brazil’s growing middle class has contributed indirectly to huge impact on the landscape. Twenty years ago, 40 million people moved from the poverty to the new middle class. Today, employment and disposable income have increased, and millions of new members of the middle class are spending it on household goods, services, cars and travel—driving demand for more commercial properties.

What factors helped Brazil develop its commercial property sector?

Getting inflation under control was a critical factor. In 1987, inflation was 364 percent annually and reached an all-time high of 1,620 percent for 1990. It was down to about 1.66 percent in 1998, and has remained well below 10 percent for most of the past 10 years.

High inflation severely limited bank participation, borrowing, income growth and economic development. The government stabilized the economy and reduced inflation significantly, which attracted lenders and foreign investors. We also invested in far more and better roads, along with improved public transportation and wireless Internet offerings.

As a result, we attracted global investors such as Cadillac Fairview, Ivanhoe Cambridge, Canadian Pension Plan Investment Board, GTIS Partners, Brookfield Office Properties, Blackstone Group, Hines, Tishman Speyer, Prologis, Global Logistic Properties, GIC, Abu Dhabi Investment Authority (ADIA) and many others. Brazil has also developed a securitization market that adds liquidity, enabling many real estate firms to become public companies.

How have changes in the financing contributed to growth?

Perhaps most profoundly, our new finance instruments were able to move Brazil from the strata title structure to single-entity ownership. Under strata financing, each floor of a typical office building had a different owner—like condominiums. To construct a 20-story building, a developer had to pre-sell each floor to a different buyer. Imagine: corporate occupiers had to negotiate leases with multiple landlords in a single building. Modernizing the financing enabled developers to create much larger buildings with fewer investors in a shared ownership entity—and therefore a single landlord.

How have Brazil’s workplace strategies evolved?

Historically, Brazil’s workplace culture was based on everyone working together in a single location. Today, we are seeing companies adopt workplace strategies similar to those you see in the United States. Companies in Brazil are offering more flexible work options, with different kinds of workspaces and more efficient use of facilities. We’ve grown more accepting of workplace mobility, especially as many employees have long commutes and better technology infrastructure is making it possible and productive to work remotely.

What are the big challenges and how is the real estate market responding?

Our economy has slowed, creating short-term challenges like rising interest rates, concerning unemployment figures and huge political turmoil. However, the market continues to offer potential, even as its growth has slowed.

Foreign investors are seeking distressed assets, and currency depreciation adds to the opportunity. Tenants in every sector are renegotiating their leases for better terms, and landlords are offering incentives to attract and retain occupants. Well-capitalized corporations may consider acquiring real estate at favorable prices, while those in need of cash may find opportunities for sale-leasebacks.

While Brazil’s growth has slowed from its explosive growth phase, its potential remains strong. We have an enormous population, plentiful water, a moderate climate, strong commodities exports, a developing service sector and a strong industrial base. Our economy will recover, and we are looking forward to the next chapter.

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