Available office space in São Paulo jumps 50% with wave of tenants vacating leased premises

RIO DE JANEIRO, BRAZIL – As the home office was widely adopted by companies following the first covid-19 cases, a question arose within the corporate world in 2020: what will be the fate of office buildings that housed companies?

As 2021 begins, with the pandemic about to turn 12 months old, the answer to this question seems clear. The surge in office vacancies has already begun and, according to real estate experts, it is likely to worsen this year.

Companies’ behavior is directly reflected in this market data. According to US corporate real estate specialist JLL, corporate building space vacancy rates jumped 50% from the first to the last quarter last year: the total of non-tenant properties, which stood at 13.6% between January and March, in the pre-pandemic, closed 2020 at over 20%.

In its latest report, JLL warns that the situation tends to worsen this year, both due to the massive adoption of the home office and the constant opening of new buildings in São Paulo – the market that serves as a benchmark for the situation throughout the country should increase its supply of corporate spaces by over 200,000 m² in 2021.

And there are cities in a worse situation: in Rio de Janeiro, the vacancy rate reaches 40%.

The “wave” of office space returns is widespread. It includes traditional groups – such as LATAM airlines and banks like Itaú Unibanco and Banco do Brasil – and spreads, in a cascade effect, to medium-sized companies. One aspect is clear: professional life in the post-pandemic will feature a strong home office component.

According to Roberto Patiño, JLL’s director, an average of one-third of the corporate workforce is expected to work primarily from home – he bases this prediction on discussions he has had with companies. In terms of companies that do not rely as much on interaction with clients, the cutback in physical spaces may be even more radical. Over the past few weeks, Estadão newspaper contacted companies that have already reduced their offices by 40%, 50% and even 100%.

According to Patiño, in addition to returning offices, companies will also be restructuring spaces: soon, corporate building owners, who used to invest in large offices for renowned companies, will be forced to change their tactics: because with a large part of teams working from home, there will be a growing demand for flexible workspaces, and not only in the sharing model offered by companies such as WeWork.

Some companies that have already begun to reduce spaces are adapting old structures to convert the old individual workstations into shared environments. This is the case of BMG bank, which has 1,100 employees.

According to Alexandre Winandy, director of organizational transformation, the institution gave up 33% of the space it rents in one of the most expensive regions of the São Paulo capital: Juscelino Kubitshek Avenue, in Itaim.

One of the floors is now being adapted to accommodate hybrid meeting rooms, booths for phone calls, and lockers for people to store their belongings – which should be collected at the end of each day. Winandy says that the decision to remodel the office, which should be ready by May, was based on surveys showing that 94% of workers are happy with the home office.

Saving on rent

At Afferolab, a corporate education consultancy with 350 employees, most offices have become a thing of the past: with teams in Rio de Janeiro, São Paulo and Juiz de Fora (MG), the company was relatively advanced in relation to the home office before the pandemic, because it allowed its employees to work from home once a week. “But there was some resistance from the leadership, which operated in ‘command control’ mode,” says Leonardo Bar, the company’s CEO.

With the reduction of business in the pandemic, as most companies cut costs with training, the home office became not only a valuable form of organization for Afferolab, but also a cost reduction option to “avoid” layoffs. As a result, the Rio office was closed, while the São Paulo office was halved. It saved approximately R$1.2 million per year.

Home office

It was on Ash Wednesday, February 26th last year that LacLaw consulting moved to its new office. After closing a contract in January and a short renovation period, the company expanded its corporate space from 300 to 570 m². The lockdown came three weeks later – and LacLaw, which had never worked remotely before and had no plans to do so, was “forced” into the home office.

Amid changes in tax collection implemented by the government during the pandemic, the company was forced to increase its staff to cope with the demand: from 68 to 100 employees between March 2020 and January 2021. Meanwhile, the floor rented in the region of Brigadeiro Faria Lima Avenue, in São Paulo, remained empty. The “dream office” was ultimately abandoned.

“We decided to return the property to build a cash reserve,” says Flávio Lopes de Almeida, partner at LacLaw. “Rent represented 20% of our costs – and today the cost is zero.” The consultant does not rule out renting a new office in a post-vaccine future. But he says that it will be adjusted to the company’s new reality. In other words: it will be much smaller than the previous one.

Another company that chose the same route was Blu, a technology startup that returned 100% of the space it occupied – eliminating rental costs.

“We asked ourselves: does our business work under this model? And the answer was yes: it is actually better,” says Luís Marinho, Blu’s co-founder. The decision to close the offices – which the executive believes to be permanent – was based the team’s reaction, which currently consists of 400 people, to the temporary reopening of offices still in 2020: “There was no demand.”

FS Security technology company, on the other hand, decided for a middle ground. It realized that it could accommodate its 125 employees – the same number as in early 2020 – in a smaller space: so it reduced the leased area by 50%. “It was not difficult to make the company work in the home office. But we believe that it is still important to have a space for solution ideation. This is a much richer process when performed in person”, says Carlos Alberto Landim, the company’s CEO.

Source: O Estado de S. Paulo

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