03/20/2012 | By Carisa Chappell
From a thriving hotel market to its burgeoning office and industrial sectors, the commercial real estate industry in Brazil is showing signs that it will continue growing for years to come.
"The Brazilian real estate sector is booming and is expected grow at a very fast pace in the next few years," said Andre Viola Ferreira, a partner with Ernst & Young in Brazil who specializes in strategic growth markets. "The business and traveling environment and events held in the country are increasing a lot. There's a lack of availability in this sector."
The demand for hotels is due in part to upcoming global events being hosted in Brazil, including the World Cup in 2014 and the summer Olympics in 2016. In an interview with REIT.com, Ferreira said he anticipates that the hotel sector will continue to grow "for at least the next couple of years."
In addition to Brazil's growing hotel market, the office sector is expanding, too. Rio de Janeiro has the fourth-highest office lease price in the world on average, behind Paris, London and Tokyo, according to Ferreira. He also said that Sao Paulo has the eighth-highest office lease price in the world to go along with the lowest vacancy rate.
The industrial sector is also witnessing strong growth. Assuming that supply and demand drivers hold constant, E&Y estimates that demand in the sector will rise by roughly 15 percent per year for the next three to five years.
Interest in the Brazilian real estate market from global investors is also at an all-time high, according to a survey conducted by the Association of Foreign Investors in Real Estate (AFIRE) that was released in January. Survey participants ranked Brazil first as the most attractive emerging market for investors. Also, Sao Paulo moved from 26th on the list of top global cities for foreign investment in 2011 to fourth overall in 2012, , according to the AFIRE survey.
Despite the growth of the industry, Ferreira said infrastructure and services still pose challenges within the industry. Investments made in ports, airports, the transportation system and hotels should benefit the commercial real estate sector, but issues remain when it comes to customer service.
"There is an enormous challenge of improving the quality of services in the industry in hotels, restaurants, transportation and tourist attractions, which is more difficult to address," Ferreira explained.
Additionally, he said real estate companies need to understand that because of the country's size, market dynamics are asymmetric across the country.
"Thus, a one-size-fits-all approach is risky," he said.