Making Rent: Rio Surpasses New York As Priciest Real Estate Market in Americas

Pricing for tangible assets is sometimes a signal for an important intangible: future growth expectations. Cushman & Wakefield, a leading real estate firm's announcement that Rio has surpassed NY as the most expensive market in the Americas is a reflection of Brazil's growth prospects. It may also be a reflection of economic and political stasis in the US. Uncertainty about US recovery from the recession and concern about political turmoil fueled by hard-line conservative ideologues may be making investors cautious about the US in the medium term. It is said that markets abhor uncertainty (in fact, they like it in the short term because of the profitable trading opportunities it presents)this may be a more fundamental reflection of of complicated currency, inflation and commodity price issues driven by growth elsewhere. In the near term, this does tell us that the financial services led recovery has not convinced global capital that New York is back to where it was.

Joe Leahy and Samantha Pearson report in the FT:



"Prime office space in Rio de Janeiro has overtaken that of New York for the first time as the most expensive in the Americas on the back of Brazil’s growing economy and its strong currency, according to Cushman & Wakefield, the property advisers.

The cost of prime office rentals and associated costs in downtown Rio shot up by 47 per cent last year to $1,321 per square meter compared with $1,260 in midtown New York.

Rio ranked fourth in the world for prime office rentals after Hong Kong with $2,644 per sq m, London’s West End with $2,563 and Tokyo with $1,827, the study from Cushman showed.

“The most expensive location in the region was Rio de Janeiro. This is the first time that a South American location has been the most expensive within the wider Americas region,” Cushman said.

The rising demand for offices in Rio compared with New York stems from the sharp difference in economic growth between Brazil and the US.

While growth has been sluggish in North America, Brazil’s economy grew 7.5 per cent last year and is expected to expand about 4.5 per cent this year.

Rio’s importance is increasing as an oil hub following the discovery in recent years by Petrobras, the national oil company, of “pre-salt” oilfields off the coast.

The city is preparing to host the 2014 football World Cup final and the 2016 Olympic Games, both of which are expected to boost property prices and rentals.

In São Paulo, Brazil’s financial capital, more plentiful supply of office space meant rents increased by only 4 per cent but Cushman predicted a firm market in the city in 2011 as vacancy rates declined.

For Brazilians, prices in the once moribund residential and office real estate market are rising so fast that areas are rapidly becoming unaffordable.

There are signs that the market is becoming frothy as people invest with the intention of flipping properties in the next couple of years.

Alexandre, a 37-year-old textile engineer from Morumbi, a smart neighbourhood of São Paulo a few miles north of the city’s Jardim Angela favela, has bought a penthouse apartment that is still being built but he is already thinking of selling it.

“I bought my first place in Morumbi in 2006 for R$100,000, sold it for double in 2010, signed up R$500,000 for this place in September and it’s going to get even higher when it’s finished,” he explains. “If I keep doing this I won’t even have to go to work any more.”

Across Latin America, except in Argentina, prime office space became more expensive. Rents in Chile rose 8 per cent and Venezuela 12 per cent.

“Rental growth in South America amounted to 12 per cent, which was the highest sub-regional rise in rents recorded across the globe,” Cushman said.