Lula’s victory keeps market focused on interest rates and public finances
- Lula’s re-election keeps attention on public finances. For the real estate market, the main impact is expected to come through investment costs
The re-election of Luiz Inácio Lula da Silva keeps public finances and the trajectory of interest rates among the main points of attention for financial markets. Ahead of the second round, some investors were pricing in higher future interest rates in the event of a Lula victory, mainly due to uncertainty over the pace of public spending control.
In recent months, Brazil’s Central Bank has already started a cycle of cuts to the Selic benchmark interest rate, and the continuation of this process will depend on factors such as inflation, economic activity and the Central Bank’s own decisions.
Market attention is now expected to turn to the first measures of Lula’s new term, particularly regarding public spending, debt and the composition of the economic team.
Fitch Ratings, for example, expects some fiscal adjustment in 2027 regardless of the election result. The agency also believes that tighter spending control could help interest rates fall more quickly.
Impact on real estate
In the office market, the effects of an election do not appear overnight. An exclusive SiiLA analysis shows that changes in the Selic rate take around five quarters to have a stronger impact on companies’ decisions to relocate or expand their office space.
The impact may emerge sooner in the property transaction market. During periods of high interest rates, investors tend to demand higher returns to acquire a building. When interest rates fall, real estate investments can become more competitive again and asset values may rise. In 2026, the average cap rate for office sales in CBD markets stood at 8.60%, while Brazil’s NTN-B 2045, a federal government fixed-income bond whose return is linked to the country’s official inflation rate, yielded 7.34%.
At the same time, the office market enters 2027 with positive fundamentals that do not depend directly on the election. Vacancy in São Paulo’s main corporate markets fell from 20.7% at the end of 2023 to 15.1% in the third quarter.
There is also limited new supply expected. The projected inventory for 2027 and 2028 totals around 117,000 sqm per year, less than half the average annual net absorption recorded in 2024 and 2025.
“For real estate, the main issue after the election will be the direction of interest rates. If the cost of capital remains elevated for longer, some investments and new projects may take more time to move forward. At the same time, the office market enters 2027 in a very different position from previous cycles: vacancy has fallen, there is limited new supply expected and demand continues to absorb space. These fundamentals do not change with the outcome of an election,” said Giancarlo Nicastro, CEO of SiiLA.
