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The purpose of this paper is to simulate possoble scenarios of São Paulo’s office market recovering. In 2006, a previous paper that dealt with the same issue was published…
The purpose of this paper is to simulate possoble scenarios of São Paulo’s office market recovering. In 2006, a previous paper that dealt with the same issue was published which the authors propose to analyse here. After eight years, the São Paulo office market is starting a new phase within its cycle. Then, the first part of this paper, as in Rocha-Lima and Alencar (2006), describes the economic scenario in which investment decisions are made for developing office buildings in the Brazilian market. Afterward, the authors simulated both the necessary period of time for investments in the São Paulo office market to recover attractiveness and time for the increase in the occupation rate to absorb the current vacant spaces.
These simulations were carried out using simple linear regressions models using the Brazilian gross domestic product (GDP) as explanatory variable to prices and vacancy rates dependent ones.
The authors have found that the vacant space can be fully re-occupied in the beginning of 2021 or mid of 2022, according to the GDP growth rate, and, from this moment on, the demand for new spaces may grow, and, moreover around 2019, investments may become attractive again in this market.
This paper offers an alternative approach for estimating office building scenarios, especially when the database of the market is scarce. It also permits to evaluate an investment strategy for emerging markets within next years, particularly in São Paulo, Brazil.
The office market in São Paulo has been in recession since the year 2000. This situation came up due to two main factors: [i] the very aggressive attitude of developers…
The office market in São Paulo has been in recession since the year 2000. This situation came up due to two main factors: [i] the very aggressive attitude of developers during the period that comprises the year 1999 until 2000. At that time there was a very strong perception among investors that a new expansion era for new office buildings in São Paulo was about to begin and, moreover the Brazilian economy had started its recovery; [ii] The intense retraction of the Brazilian economy along with the political transition in 2002, which was mainly caused by the deterioration of the expectations in relation to the economic policies that would be performed by the new government.The recovery of the economic activity in the office building market firstly depends on the macroeconomic growth in Brazil and within the São Paulo metropolitan area. On the other hand, the expansion of the activity in the office buildings sector relies not only on the developers’ expectations of how and when the current vacant units will be rented, but also on the potential risk‐return composition of new buildings to be developed in the next years. This paper describes the economic scenario in which investment decisions to build new office buildings for rent in our local market are made and we also simulated both the necessary period of time for investments in the São Paulo office market to recover attractiveness and the time interval for the increase in the occupation rate absorb the actual vacant spaces. These simulations have taken place based on projections for the Brazilian GNP increase and they showed that for an annual increment of 4.5%, in 3 years could be reached both, attractiveness for new investment and occupation of vacant areas. For a 2.0% annual growth, the absorption of vacant spaces will take 4 years from now and new investment would be attractive only in 2012. Besides, we discuss the market prices fluctuations on the inflexion point where the transition from one phase of the real estate cycle (recession‐non attractiveness) to another (recovery‐attractiveness) occurs.