Giancarlo Nicastro Discusses Market Rent, SiiLA's New Metric Enhancing Precision in Real Estate Market Analysis

SiiLA introduces a groundbreaking metric aimed at refining and optimizing real estate market data analysis

Giancarlo Nicastro, CEO of SiiLA

By: SiiLA News

07/02/2024

Last week, SiiLA unveiled a new metric for Brazil's commercial real estate sector: the Market Rent of each property. This innovative approach promises to revolutionize how analysts assess real estate asset prices, moving beyond traditional reliance on asking prices of available properties.

Giancarlo Nicastro, CEO of SiiLA, underscores that Market Rent aims to enhance sector transparency and provide professionals with a more accurate understanding of actual asset values and regional dynamics. Nicastro criticizes the sole reliance on asking prices for market analysis, arguing it overlooks occupied properties and fails to capture true market conditions.

"In areas like Faria Lima, where high-end properties are predominantly leased, vacancies are concentrated in lower-quality developments, driving down prices. Thus, basing analysis solely on asking prices in such areas doesn't reflect the true market worth of properties there," Nicastro explains. "Market Rent differs significantly from Asking Price by factoring in property availability, regional variables, construction standards, transaction histories, grace periods, and comparative property assessments within the same locale."

SiiLA analysis of asking price vs. market rent vs. vacancy rate for offices in São Paulo, Classes A+, A, and B

The graph above illustrates the disparity between the two metrics. According to the Asking Price, the average for Class A+, A, and B office towers in São Paulo stands at R$ 92.43/m², whereas based on Market Rent, it reaches R$ 105.13/m²

Market Rent Analysis

Giancarlo Nicastro, SiiLA CEO

In contrast to the office sector, where high vacancy rates have driven asking prices below Market Rent, the industrial segment presents a different dynamic. Currently, with a vacancy rate around 10% in Brazil, this sector shows a more balanced relationship between Asking Price and Market Rent, as illustrated in the following graph.

SiiLA analysis of asking price vs. market rent vs. vacancy rate for industrial properties in Brazil, Classes A+, A, and B

Since 2021, the market rent for industrial properties in Brazil has consistently lagged behind the asking price by approximately 19% to 20%. Giancarlo illustrates this discrepancy in a video using concrete examples of asking prices, market rents, and actual transaction values.

The analysis stems from a real estate broker's disclosure offering industrial space for lease in the metropolitan region of Belo Horizonte. The email promoting the property advertises a lease rate of R$ 23/m², along with additional incentives such as a 6-month grace period for 60-month contracts. Given these terms, it can be inferred that the effective transaction value for the property will likely be around R$ 20.50/m².

Gap between asking price, market rent, and transacted price in a industrial property in the Metropolitan Region of Belo Horizonte

Conversely, utilizing SiiLA's methodology, the Market Rent for the property stands at R$ 22/m². "Our assessment considers construction standards, market conditions—including availability and projected inventory—facility quality, and regional demand. This comprehensive approach aims to deliver enhanced balance and accuracy in analyses for our clients," explains SiiLA's CEO.

About the Market Rent

The Market Rent is determined using SiiLA's exclusive methodology, which conducts detailed analyses of all monitored properties. This assessment takes into account specific asset conditions, vacancy rates, asking prices, actual transaction values, and external factors such as comparable properties in the area and overall vacancy trends.

"This represents another innovation from SiiLA, enabling industry professionals to analyze a property's Market Rent and compare it with regional benchmarks, asking prices for available spaces, or even transaction prices," comments Giancarlo Nicastro, CEO of SiiLA.

The methodology was developed based on data collected by SiiLA's intelligence team, which monitors a total of 40 million square meters. Each monitored property features comprehensive technical profiles and complete transaction histories, including new leases, returns, asking prices, and transaction prices, among others.

This new feature is now accessible to subscribers of SiiLA's Market Analytics platform

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ABOUT SiiLA

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.