By Jay Forte, Contributing Reporter

RIO DE JANEIRO, BRAZIL – The staggering spike in real estate prices over the last five years is starting to cause more closed storefronts in the Zona Sul (South Zone) beach-side gems of Ipanema and Leblon. With many five-year commercial leases turning over and owners asking for huge rent increases, despite a cooling of the market, store owners are moving to other areas.

In Ipanema, one of Rio's most expensive areas, the new limit buys a one bedroom apartment of around thirty square meters, photo by Fernando Maia/Riotur.
In Ipanema, one of Rio’s most expensive areas, many store owners are being priced out, photo by Fernando Maia/Riotur.

An O Globo report pointed to property owners willing to wait to until the higher rent price was met, while few business owners are able to renew their leases, and finding it easier to relocate.

Secovi-Rio, a real estate association, shows that the profitability of stores in Ipanema and Leblon is around 0.58 percent, while in Centro, the value of rental stores is up to one percent of the property price. In Copacabana, profitability is around 0.66 percent and in Tijuca 0.76 percent, according to the organization’s data.

Leonardo Schneider, vice president of Secovi-Rio told O Globo, “What happens in Ipanema and Leblon is that there were still many old contracts that are being renovated now. And the owners have been asking for up to three times the current value.”

“You have no business [that can handle] increases so sudden. But this is a time of transition in the market. With the increase in supply, the bargaining power will come back into the hands of tenants and those prices will have to settle.”

In Sergio Castro Real Estate, which specializes in commercial real estate, the vacancy rates in two neighborhoods rose from an average of eight percent in recent years, to thirteen percent in 2014. The speed at which new lease agreements are made has decreased three months on average for six months, stretching out loses for property owners.

At the same time price increase per square meter of residential and commercial real estate in Rio de Janeiro registered a decline for the eleventh consecutive month in October, the lowest increase since 2008, according to the FipeZap Index, one of the main sources for the real estate market in Brazil. The price increase in Rio de Janeiro slowed to just 0.35 percent, a fraction of what the market has done in recent years.

Claudio Castro, director of Sergio Castro, also pointed to the Metro construction tearing up the main high streets of both neighborhoods, as well as growing culinary centers in Botafogo and Centro. “About 35 percent of tenants that return the keys in these neighborhoods are fleeing the works of the [metro] subway. But there is a striking exodus of [restaurants] to other neighborhoods with cheaper square meters. In Ipanema and Leblon, a space for R$500 you can get for $250 in the best area of Centro. And in Botafogo, R$100.”

While most residents are looking forward to the new Metro Line 4, it has caused massive changes in foot traffic for Leblon and Ipanema due to construction, road closures and detours. The six new stations will be; Jardim Oceânico, São Conrado, Gávea, Antero de Quental, Jardim de Alah and Nossa Senhora da Paz.

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