Brazil: invest in office space?


Brazil is booming – it's now an investment-grade middle class country and as soon as the growing number of middle class Brazilians can afford to, they visit the beaches around Fortaleza, the country's top domestic tourism destination…

Soccer's Confederations Cup comes here in 2013, followed by the World Cup the following year. A lot of money-$5.5 billion-will be spent in the state of Ceara (Fortaleza (pictured) is the capital of Ceara) improving infrastructure and tourism amenities in the lead up to 2014.

There's oil offshore-bringing revenue and high-paying jobs. A new major industrial centre is being constructed at the port of Pecem. Fortaleza is playing catch-up…and fast.

That's a lot of economic activity-a lot of new businesses…and a lot of existing businesses are expanding their operations. They all need a roof over their head.

Thing is: even before the pace of economic growth began to accelerate in Fortaleza, there was an office shortage. Today, this shortage is chronic.

Fortaleza's professionals and business people don't like to commute. They like to live and work in leafy high-end neighbourhoods-like Aldeota. This is where you should invest in office space.

The case for buying quality office space here is pretty straightforward. There is a chronic shortage. The economy continues to grow, creating further unsatisfied demand. New supply will come on stream; very little of this however will be in the areas (like Aldeota) where businesses want to be based. There is a shortage of developable land in this area.

A major North American group has secured a prime developable plot here. I know the quality of their work. I frequently pass their shiny towers in Toronto's financial district. They will bring this quality and standard of work to Fortaleza. On this site, they plan to develop a major office tower.

I expect that prices for the smallest units could be as low as £45,500. If you get in pre-release, you can buy with as little as 1% down.

The terms for buying office buildings pre-construction usually work in a similar way to pre-construction condos. You make monthly payments of 1% (plus an inflation adjustment) during the build period. Once construction is complete, you can pay the balance or continue to make monthly payments of principal plus interest.

I have bought pre-construction condos in the boardwalk area of Fortaleza with these terms. I plan to make them available for short-term rental when they are complete. The short-term rental market is extremely strong here.

The rental market for office units is equally strong. You simply can't buy or rent quality, new office space in Aldeota. Office rentals could be a nice business here. Your tenants take care of all the headaches and costs relating to the unit-the tenant is typically responsible for fitting out the unit, for example. Once you have found a tenant, your involvement (and work) should be minimal. They sign a three- to five-year lease. And they pay you a handsome price.

I expect yields from this new building to be in double digits. I expect to see capital appreciation during construction and once the units are delivered. This is my favourite commercial real estate play at the moment, and worth investigating if you're looking for a hands-off investment property.

Written by Pathfinder's Ronan McMahon for

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