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Average Cap Rate for 2023 Stands at 7.34% for Brazilian Prime Offices
- SiiLA data reveals that the annual average cap rate remained at 7.43%, a difference of less than 1% compared to the previous year
By: SiiLA News
01/15/2024 With an average cap rate of 7.43%, 2023 demonstrated stability compared to 2022 and marked the highest stabilized average since the beginning of the decade, according to SiiLA data. Notably, top-tier office transactions revealed that the highest cap rate last year reached 8.43%, while the lowest was 5.31%.
Cap rate is a calculation performed to determine the return on investment in a property based on its market value. This metric allows for a comparison of real estate investments with other types of financial instruments. SiiLA conducts three cap rate analyses: Stabilized, Year 1, and Brazilian.
In 2023, over R$ 900 million were transacted, solely in prime assets. The highest cap rate was from the Rio Sul Center transaction, involving an area of 1,464 square meters. In April, Brasim Administração de Bens Próprios paid R$ 25 million to the CSHG fund at an 8.43% cap rate for the property located in the Orla region, Rio de Janeiro.
On the other hand, the 11th floor of Pátio Victor Malzoni, in a transaction in October, presented a stabilized cap rate of 5.31%. The Catuaí Triple A (BLCA11) fund sold 1,372 square meters for R$ 96 million.
Historical Analysis
When compared to 2022, last year remained stable, with a difference of only 0.04 percentage points (p.p.). The stabilized cap rate was 7.39% in 2022 and increased to 7.43% in 2023, with the lowest being 5.05% and the highest 7.76%, excluding the outline transaction with a stabilized cap rate of 12.17%.
With a difference of 0.26 p.p. between the lowest capitalization rate of 2022 and 2023, the Complexo JK, block B, had a cap rate of 5.05%. The highest was in the Rio Sul Center transaction, with a cap rate of 7.76%, representing 0.33 p.p. more than in 2023. The outline transaction was the purchase of Francisco Serrador by the City Council of Rio de Janeiro, with a cap rate of 12.17%.
Example
To better understand, imagine an investor considering the purchase of a property with a sale price of $1,000,000 and a net operating income (NOI) of $80,000. To calculate the cap rate of this investment, the NOI is divided by the current market value of the building.
Cap Rate = NOI/ Property Market Value = 80,000 / 1,000,000 = 0.08 ou 8%
This means that the investment has an 8% rate of return. The investor can expect an 8% annual return on their investment. If the cap rate of this investment seems attractive compared to other real estate investment opportunities in the market, the investor may consider purchasing the property.
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Founded in 2015, SiiLA is the industry leading REsource for comprehensive commercial real estate market insights, news and events across Latin America. The SiiLA suite of innovative products drive greater accuracy, efficiency, and strategic advantages for top players in the commercial real estate industry.
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