Since the 2nd quarter of 2020 (shortly after the start of the pandemic of the Covid-19), the city of São Paulo began to register an increase in office returns in Class A+ Corporate buildings (negative absorption). And it went on like this for five consecutive quarters (from Q2/2020 to Q3/2021), as shown in the graph below:
In these five consecutive quarters, the net absorption totaled almost 221 thousand m² negative.
As a result, some companies took advantage of the opportunity that arose in the sector to relocate to these “plug & play” (furnished) spaces. Some of them had not yet even been released on the market (shadow space).
This practice of moving to furnished offices, and with improvements already installed, is becoming increasingly common in the corporate real estate market. This is because national and multinational companies have opted for smaller office models with a more interesting cost-benefit ratio.
They end up benefiting with the use of the hybrid model (office+home-office) and more collaborative spaces. In this way, the layout model of the companies gains more standardization, facilitating the change from one company to another with little adaptation needed.
Another important factor that motivated companies to look for “furnished” spaces was the considerable increase in the value of construction materials, greater than 33% since the 2nd quarter of 2020. This increase can be seen in the table below, from the National Cost Index of Construction at the Getúlio Vargas Foundation (INCC-DI (FGV)).
According to Rafael Peccin (OPM Founding Partner) there are also specific products used in the implementation of corporate offices, which reached almost 100% increase in this period.
This price adjustment made new leases in buildings recently delivered and without finishing such as dropped ceilings, raised floors, air conditioning system (Core & Shell), become less attractive due to the high value of Capital Expenditure (CAPEX). As a result, the new tenant would have to disburse this cost right at the beginning of the lease.
Peccin also states that since the 3rd quarter of 2020, the cost of works for companies wishing to occupy corporate buildings delivered in Core & Shell condition has risen approximately 30%. With this increase for companies, the average cost increased to R$3,500/m² for the internal works in a corporate office.
For adaptation works in offices that have already been occupied and that have raised floors, dropped ceilings, light fixtures, firefighting equipment and an air conditioning system installed (Warm Shell), companies invest an average of R$2,850/m².
For companies that manage to identify a “furnished” office, the average investment is R$800/m². The difference is noticeable.
There were some cases in which Ocupantes managed transactions in which the client only had to change the former tenant’s visual communication and pay a symbolic amount for the former tenant’s furniture.
The amount of spaces returned “furnished” decreased after the end of the pandemic, however, there is still considerable movement that can be taken advantage of. This opportunity to change to “furnished” offices has generated savings of up to 77% for companies in the cost of the adaptation work.
However, this type of transaction is not a simple process and shadow spaces are not easy to identify. They are available on the market for a short time and need to be demobilized and delivered to the landlord as per the initial lease conditions, before the notified lease end date.
Therefore, it is essential to have a consulting company specialized in assisting tenant companies so that such opportunities can be identified and negotiated in a timely manner.
Ocupantes has conducted several leases of this type and has the necessary expertise for this three-pronged negotiation. As the only Brazilian company that is 100% Tenant Rep (representing only tenants), we hold information from companies that intend to move even before the property landlord is aware of. This facilitates the search for options that are closer to the client demand.
Douglas Faioli | Partner
Corporate Real Estate Director at Ocupantes, he serves corporate clients from different segments, assisting in the processes of decommissioning, expansion, relocation and renewal of assets. Serves national and multinational companies.
He lived in England for 10 years and worked as an English/Portuguese Interpreter. Graduated in English from North Devon College in England and in Real Estate from Laureate International University.
Phone: +55 11 96384-9167
E-mail: douglas.faioli@ocupantes.com.br
