Renovating Downtown Rio
Large commercial properties are among those with the greatest increase in sales values, with prices comparable to Copacabana.
It has its competitors, but downtown Rio has acquired a new lease of life and is expanding to incorporate new neighborhoods. As part of thePorto Maravilha initiative, the local government plans to build six thousand new properties in the port area. New property renovation techniques are transforming classic buildings into luxury corporate office buildings with high tech services, materials and resources at their disposal.
Thishman Speyer, who owns and manages real estate funds that specialize in luxury office buildings worldwide, is working on a number of projects in downtown Rio and is now preparing to undertake what promises to be the first big project in the port area. “We bought 32 thousand meters of land there and construction should start in the second semester,” says Daniel Cherman, the company’s president. The corporate office building, on Avenida Rio de Janeiro, will be 20 stories high, 18 of which will be office space, on 48 thousand square meters of built area and with 35 thousand square meters available to rent, with individual floor spaces of 1.7 thousand square meters each, representing a total investment of R$ 200 million. They intend to equip the building according to sustainability-conscious and energy saving specifications in order to obtain international Green Building certification.
In the downtown area, the firm was also responsible for construction of Venture Corporate Towers, a R$ 500 million investment covering 170 thousand square meters of built area on Avenida Chile in the heart of downtown Rio. The company is also in charge of the retrofit project of the Galeria Sul América Building, an architectural landmark of the 1930’s. This project is worth R$ 150 million and takes up 28 thousand square meters of built area, preserving the original characteristics of the façade and updating the building’s air-conditioning, electrical and hydraulic systems. The center of the city is still the economic heart of Rio where 75% of offices are located. Only 10% to 12% of the city’s offices are in Barra, compares Cherman. In the area chosen by the company, the port area, he believes they will be able to offer rents in the region of R$ 90 per square meter, which is half what is currently charged in the traditional downtown area for luxury modern buildings. “Excellent cost-benefit ratio,” he highlights.
According to José Conde Caldas, president of the Association of Heads of Real Estate Market Firms (Associação de Dirigentes de Empresas do Mercado Imobiliário , Ademi-RJ), in 2003 there was a vacancy rate of 15% to 25% for commercial buildings in downtown Rio for “undesirable, decrepit buildings, rented practically at break-even prices, in other words, at around R$ 3 thousand per square meter.” Because of this he says that Barra da Tijuca “became the first focal point for new developments absorbing repressed demand, providing high quality buildings all the way to the so-called triple-As or high luxury buildings with ‘intelligent’ resources, air-conditioning, elevator, electricity, access to parking space, security cameras etc. all controlled by computers, as well as high ceilings, one parking space for each 35 square meters of office space, raised flooring for inbuilt fiber optic cables, etc.” Now he believes many companies will seek to broaden or expand their presence into the city center.
Recently Eletrobras bought an area on Avenida do Chile, in the city center, for office space, the Central Bank is building new headquarters on the port docks, Santander bank is looking for a building for its administrative departments. “Even those companies that already have their offices in the center are badly set up in buildings lacking in modern facilities. They need up to four times the space they currently take up,” says Conde Caldas. “Rio has become a market again.”
In Porto Maravilha, specialists estimate that deals will be done at around R$ 12 to R$ 13 thousand per square meter. The local government plans to pave the way for constructions of 5 million square meters, of which 2 million square meters will be commercial buildings and 3 million square meters residential buildings, with the first phase of construction planned for up to 2015. This corresponds to between 5 and 7 thousand individual offices, fitted at triple-A standard, with floor space of over two thousand square meters, two emergency staircases and complementary areas. According to the Panorama of the Rio de Janeiro Real Estate Market 2010, produced by the Accommodation Union (Sindicato da Habitação, Secovi-RJ), in the areas close to the port such as the city center or downtown area, Saúde, Gamboa, and Santo Cristo the price per square meter for residential property increased between 30% and 83% from January to December 2010.
The boom in property prices there also affects other areas that are under its influence, says Conde Caldas. He cites, as an example, São Cristóvão where property is traded at between R$ 4 thousand and R$ 5 thousand per square meter, and Avenida Francisco Bicalho. These are, in his opinion, the new frontiers for high quality new commercial buildings. “Leopoldina will be the bullet train station. Companies that left will come back to Rio de Janeiro. If a businessman needs to go to São Paulo, he catches a train and gets there in forty minutes.”
According to a survey conducted by the leading Real Estate Company in the Central Area, commercial office space in the city center generates average annual returns of 35.55%, above the 21.53% average annual returns in Barra. For sales, the biggest increase in value has taken place in the larger office spaces in the city center which are harder to come across. According to the analysis of this organization which divides office space into three sizes (up to 150 square meters, from 150 to 300 square meters, and above 300 square meters), it can be observed that in January 2010 sales values per square meter were around R$3.5 thousand. But in December, values of larger properties sustained much more significant increases of 59.4% (from R$ 3,861 to R$ 6,154 per square meter), almost equal to Copacabana (the top neighborhood in the ranking). Values of medium sized offices, of between 150 and 300 square meters, increased 39.3% (from R$ 3,766 to R$ 5,246 per square meter), and the offices of up to 150 square meters increased 39.6% (from R$ 3,345 to R$ 4,669 per square meter). Lower increases for smaller offices are explained in the research conducted as resulting from greater supply than in other areas.
|Average value per square meter for commercial buildings – SALE|
|City Center||Jan-10||Dec-10||Variation (%)|
|Up to 150 square meters||R$3,345||R$4,669||39.60%|
|151 to 300 square meters||R$3,766||R$5,246||39.30%|
|Over 300 square meters||R$3,861||R$6,154||59.40%|
|Average rental value per square meter of available commercial property
– All kinds of Buildings
|City Center||Jan-10||Dec-10||Variation (%)|
|Up to 150 square meters||R$33.09||R$43.34||31%|
|151 to 300 square meters||R$35.07||R$48.04||37%|
|over 300 square meters||R$39.58||R$58.18||47%|
Source: Sergio Castro Imoveis
Obs. Prices for Triple A buildings are always between 130-180 per square meter