Uninspired Marketing Hinders Leasing: Examination of Certain Buildings in the Paulista Region

The vacancy rate in São Paulo's Central Business Districts (CBD) currently stands at 20.5%.
Despite competitive pricing, strategic location, and excellent tenant amenities, certain high-quality buildings continue to underperform. Many of these properties rely on outdated promotional methods, neglecting the importance of establishing a comprehensive marketing strategy with a strong digital presence.

Adriano Sartori, Vice-President CBRE Brasil

By: SiiLA News

02/19/2024

In a recent news article published by REsource, the issue of inefficiency in CBRE's exclusivity process sparked a broader discussion regarding the performance of assets with a heavy reliance on antiquated marketing strategies.

São Paulo Central Business Districts (CBD) has a current overall vacancy rate of 20.5% for A+, A and B office properties. This rate has been steadily decreasing quarter by quarter since the peak of the pandemic in 1Q 2021. These figures are sourced from Market Analytics, SiiLA's source of market statistics, available in Brazil since 2015.

While the overall market is gradually improving, certain high-quality buildings continue to underperform, despite being competitively priced, strategically located, and offering excellent amenities for tenants. Notably, many of these properties persist in relying on outdated promotional methods, such as traditional signage and exclusive agreements, neglecting the necessity of establishing a comprehensive marketing strategy with a strong digital presence.

Itaú’s departure accelerates rapid increase in vacancy at Paulista 1100

Avenida Paulista has experienced fluctuations in its vacancy rate over the past few years. In an analysis, for Class A+, A, and B offices, the region witnessed vacancies rise from around 10% in 2020 to a peak of 17% in 2022. In 2023, the area welcomed new tenants, reducing the current vacancy rate to 15%. However, some properties, adorned with brokerage company signs on their facades, still struggle with high vacancies.

A prominent example is Paulista 1100, owned by Pratapar Empreendimentos e Participações. Over the past two years, the property has lost several tenants, including Itaú, which vacated eight floors in 2022, Banco Sumitomo Mitsui Brasileiro, contributing one floor during the same period, and Ericsson, among others. The building prominently features a CBRE sign, indicating its brokerage services. Additionally, it's worth noting that CBRE is also responsible for property management at the property. Upon examining the Class B asset market, the vacancy rate in the area has fluctuated between 19% and 21% since the beginning of 2022. However, the vacancy rate at Paulista 1100 has significantly underperformed with vacancy fluctuating between 37% and 52%.

Herman Figenbaum, CEO para América do Sul da Cushman & Wakefield

The São Luis de Gonzaga is another notable Class B property situated on Avenida Paulista, experiencing a significant increase in its vacancy rate. Under the management of Cushman & Wakefield, the property had a 4Q23 vacancy of 38%, a sharp 16 percentage point increase over the past year.

The subsequent graph describes the performance of both properties and their respective submarkets.

Vacancy Rate Performance Analysis - São Paulo - Paulista region - Class B. Source: Market Analytics, SiiLA

"For those questioning whether these are isolated cases, the answer is a resounding no. In both the cases outlined in this article and others under market surveillance, the properties analyzed offer attractive features for tenants, including location, construction quality, and floor plates. The underperformance reflects a misunderstanding of market dynamics, inefficiencies in marketing strategies and a deficiency in leveraging technology," stated Giancarlo Nicastro, CEO at SiiLA.

Strong Demand for Paulista Office Space

The underperformance highlighted above stands in stark contrast to similar properties in the Paulista. According to SiiLA Market Analytics, the region has experienced a rapid increase in leasing velocity over the past two years posting an impressive 133,583 square meters of gross absorption. The strong demand in Paulista has been driven by the finance, healthcare and tech industries with recent notable new leases by Qualicorp, H-Cor, Mediabrands and Google.

Even in a hot office leasing market, it can be challenging for ownership to attract the “right” tenants for their properties. The most successful strategies include leveraging independent market data to drive decisions and developing a comprehensive marketing strategy.

Notably, the ownership of the Paulista region Delta Plaza (Class B) has taken a different approach with no brokerage exclusivity and a diverse marketing strategy including events, digital listings, content, and press. The strategy has certainly paid dividends, decreasing vacancy from 20% to a respectable 10% in less than two years. Likewise, Edifício Paulista, part of the JSRE11 fund and integrated with Shopping Center 3, has experienced tremendous success leveraging its in-house leasing teams paired with creative marketing to attract new tenants with recent leases by Expedia, Google, Targetware, and Interfusão bringing the property to full occupancy.

CRE Marketing Strategies that Drive Results

In the world of commercial real estate, there certainly is no magic button for instant results. However, it is an undeniable reality that a comprehensive marketing strategy with a robust digital presence is essential for those aiming to compete effectively in today's dynamic market.

The search for any product or service, be it an automobile or a commercial property, invariably begins online. For CRE, a tenant’s search increasingly begins online researching regions, prices, availabilities and amenities. In this way, "information is power” - both for tenants and landlords.

“While fragments of this information used to be tightly controlled by large brokerage houses like CBRE and Cushman & Wakefield, SiiLA has worked diligently over the past nine years to independently collect, verify and analyze every dataset while also developing best-in-class technology solutions for the commercial real estate industry. Today, our solutions drive results for the vast majority of the largest players in Brazil’s commercial real estate industry including brokers, property owners, tenants, and industry professionals alike” comments SiiLA CEO, Giancarlo Nicastro.

"It is an exciting time for the commercial real estate industry across Latin America. Property owners are really waking up and leveraging independent platforms like SiiLA’s Market Analytics and SPOT. This is giving them much more control over their marketing strategies” highlights Fernanda Leão Chief Marketing Officer at SiiLA. As the saying goes, "a rising tide lifts all boats." Collective efforts propel the entire industry forward. The commercial real estate market is continuously evolving, and it is incumbent upon all stakeholders, especially the most powerful companies, to use all the tools at their disposal to assist their clients and to ensure that there is fair and healthy competition.

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