Remote-working becomes ubiquitous across the Brazilian city

The commercial real estate market in the Brazilian city of São Paulo is crumbling, as corporate firms are vacating expensive commercial buildings amid the economic turmoil brought about by the COVID-19 pandemic.

Among the firms that vacated commercial buildings in the city were regional carrier, LATAM and Oracle. The airliner was a victim of the tight travel restrictions enforced by governments across the regional and has filed for bankruptcy protection after its aircrafts were grounded for extended periods.

Concerns are growing among corporate firms about São Paulo and the profitability of commercial and office real estate in the post-pandemic world. These fears and concerns have been highlighted by SiiLA Brazil, a regional real estate consultancy in its 2020 annual report.

SiiLA Brazil reports that it has not seen the vacancy rate increase so drastically in the past 13 years. The extended impact of the pandemic has hit companies in Brazil’s most populated city hard with some companies vacating their premises in violation of their lease agreements.

Remote working blamed for crumbling commercial real estate market

Others will wait for their contract to end before leaving and do not intend to renew, the consultancy reports. The Brazilian real estate consultancy blames the increased vacancy rate squarely on the remote-working trend and the social distancing measures enforced by the government to contain coronavirus.

Real estate players will be aware that restrictions on social distancing will not be ending soon and as such they are worried about the crumbling commercial real estate market in São Paulo, which is a municipality in the Southeast Region of Brazil. The metropolis is an alpha global city and the most populous city in Brazil, the Americas, the Western Hemisphere and the Southern Hemisphere.

Additionally, São Paulo is the largest Portuguese-speaking city in the world. The municipality is also the world’s 4th largest city proper by population. 

Aside from restrictions on movement, the other consideration for companies, which would otherwise be renting office space, is that the vast majority of their employees want to remain working from home even when the pandemic is over. A report by Boston Consulting Group indicated that 89 per cent of people surveyed, “expect their jobs to be partly remote after the pandemic ends”.

Some companies are suffering from ‘double costs’

To add to the financial burden that companies are struggling under, they are now suffering from the ‘double costs’ of maintaining a workforce at home as well as the various overheads required for their office spaces. According to Giancarlo Nicastro, CEO of SiiLA Brasil, “this whole pandemic time ended up allowing companies to understand better how it would be possible to reduce costs. For some, the choice at that time was to return rented spaces”.

While many commercial properties are falling vacant, realtors have gone on adding more office space, forcing the industry to cut rent. However, the consultancy doesn’t confirm if the property prices are falling but considering the report, the vacancy rate increased from 14 per cent in December 2019 to 21 per cent in March this year.

Despite the success of vaccine rollouts in regional markets like Chile, most of Latin America is struggling to effectively vaccinate their population. The Americas Society Council of the Americas reports that only four countries (Brazil, Chile, Argentina and Uruguay) have given at least one vaccine to more than 10 per cent of their population. Brazil is placed second in COVID-19 deaths, led only by the United States.