Suddenly, a Comeback
Under Way in Brazil

In 2002, property developer Tishman Speyer stopped building a four-tower office complex in São Paulo, Brazil, unwilling to proceed after vacancy rates began their rise toward the 20% range.

What a difference a few years make: By year's end, Tishman plans to complete work on the first phase of Rochaverá Corporate Towers, a sign of the comeback by the region's commercial real-estate sector.

A rendering of Tishman Speyer's Rochaverá Corporate Towers project in São Paulo, Brazil.

São Paulo also appears to be getting a good share of the investment dollars as office developments and malls are rising. About 2.3 million square feet of prime office space is expected to be built this year, pushing the city's high-quality inventory up about 13% to about 19.8 million square feet, according to Cushman & Wakefield, South America. In the state of São Paulo, about six shopping centers are expected be completed by year's end, pushing the total inventory of larger shopping-center space up about 3.8% to 36.9 million square feet.

To be sure, like most real-estate markets, the business in São Paulo is likely to be hurt by the global credit crisis and weakening economies. Also, commodity prices -- a strength amid the global boom -- could weaken if the U.S. falls into recession, according to Alfredo Coutino, senior Latin American economist with Moody's Economy.com.

But until recently many investors were being drawn by Brazil's population, which is the world's fifth largest, and its successful taming of its notoriously high inflation. The annual inflation rate fell to 4.5% by the end of 2007, down from a high of 22% in 1995. Further, the annual gross domestic product rose 5.4% last year, according to Moody's Economy.com.

That has given local and international office tenants confidence in the country's economy and pushed them to expand in São Paulo, says Daniel Citron, senior managing director and head of Latin America for Tishman Speyer.

Fabio Maceira, chief executive of Jones Lang LaSalle in Brazil, believes the real-estate sector saw an overall jump in investments from outside the country, though the money was plowed into other vehicles than existing buildings, such as the increasing number of publicly traded real-estate companies. So, while direct foreign purchases of Brazilian commercial property fell to $500 million in 2007 from $1.4 billion in 2006, Mr. Maceira estimates that the total amount of foreign investment in the Brazilian real-estate sector overall rose to $11 billion last year from $4 billion in 2006.

São Paulo is home to about 11 million. It anchors a sprawling region -- a patchwork of both wealthy enclaves and slums -- that is so congested that helipads frequently top out some of the newest office towers.

Tishman Speyer expects to complete two towers in its Rochaverá complex this year. The developer, which sold the complex to a British hedge fund last summer, expects to complete a third tower next year, which will be occupied by Dow Chemical Co.

Retail growth is expected to come from the rising number of middle- and upper-class shoppers, says Richard Taylor, a senior retail real-estate adviser for Toronto-based Brookfield Asset Management Inc. Still, Mr. Taylor says the potential opportunity for returns also carries risk given Brazil's volatile history. "I don't think anybody can look at Brazil and not think back to the hyperinflation periods," he says.

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