Bloomberg News

Lemann-Backed Sao Carlos Sees More Vacant Brazil Offices

August 21, 2014

Office vacancy rates in Brazil’s biggest cities are poised to keep climbing even after more than doubling during the past two years, according to the real estate investment company backed by billionaire Jorge Paulo Lemann.

“You’ll still have relatively weak demand and lots of supply,” Felipe Goes, chief executive officer of Sao Carlos Empreendimentos e Participacoes SA, said in an interview at Bloomberg’s Sao Paulo office. “We think vacancies will continue to rise.”

Sao Carlos’s rate rose to 7.6 percent last quarter from 3 percent a year earlier, Goes said. The figures for Sao Paulo, Brazil’s biggest city, and Rio de Janeiro exceed 10 percent, according to real estate firm CBRE Group Inc. (CBG:US) New York’s business districts are at 5 percent to 10 percent.

A commercial construction boom is driving an oversupply of office space that isn’t being absorbed with the nation’s economy forecast to expand at an annual rate of 1.3 percent in 2014, according to data compiled by Bloomberg. Even more new buildings will come to market next year, Goes said on Aug. 19.

Sao Carlos is controlled by Lemann, Carlos Sicupira and Marcel Telles with a combined 54 percent stake, Goes said. The three also control Budweiser-maker Anheuser-Busch InBev NV and Burger King Worldwide Inc. In 2013, they bought HJ Heinz Co. with Warren Buffett’s Berkshire Hathaway Inc. (B:US)

Lower Rent

First-quarter office vacancies ran at a rate of 10.9 percent in Sao Paulo and 10.7 percent in Rio de Janeiro, according to Sao Paulo-based Sao Carlos, citing CBRE data. Two years earlier, the figures were 4 percent and 4.4 percent, Sao Carlos said.

Vacancies in the company’s properties are lower than the market average because Sao Carlos charges less in rent, Goes said. He predicted a real estate turnaround in 2016 as the economy improves and fewer new buildings are completed.

Empty offices are damping valuations, with the asking price for the highest-class buildings falling by 20 percent, Goes said. That presents a buying opportunity, according to Goes, who said Sao Carlos has 360 million reais ($160 million) in cash and is prepared to sell some holdings to make way for acquisitions.

“We are looking to invest,” Goes said. “You can find good deals because vacancies are up and few companies have the capital to invest.”

Sao Carlos (SCAR3) rose 1.1 percent this year through yesterday 37.40 reais, trading at 19 times estimated 2014 earnings, according to data compiled by Bloomberg. Three analysts recommend buying the shares and three say hold.

To contact the reporters on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net; Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net; Leonardo Lara in Sao Paulo at llara1@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Peter Eichenbaum at peichenbaum@bloomberg.net Molly Schuetz


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