Looking to predict the CRE market direction for the following stages, it is necessary that we first understand the primary growth vectors and risks that affect this segment. It is essential to identify the current market trends and which are capable of indicating movements futures.
2020 was marked by subsequent cuts in the Brazilian interest rate (Selic), leaving the level of 4.50% p.a. at the beginning of the year until reaching the all-time low of the historical series of the Central Bank, reaching 2.00% p.a. at the end of the period. This movement was mainly due to a need for liquidity in the economy resulting from the externalities imposed by Covid-19. The main consequence noted for the economy was the deterioration of the Brazilian fiscal situation, reaching 88.8% publicDebt/GDP in December 2020.
The year 2021 already starts with a reversal of what was observed in 2020, with regard to the expectation of short-term interest rates, given structural changes in the base scenario and a need for an increase in interest rates to contain the inflationary shift observed in the three leading country's inflation indicators (IPCA, IGPM and INCC). This intensification of the increase in costs in the economy has as its main factors the water crisis, the fuel price, and the price markdown movement observed in services, given the increase in the pace of vaccination.
The amount of Public Debt/GDP at a historical record, sensitive inflationary pressure on consumption and the intensification of the stress of the fiscal framework force a more aggressive reaction, by the BACEN, in raising the country's base interest rates, causing, according to the FOCUS report, market projections for Selic at the end of the 2021 period would leave 3.5% pa in February to 7.5% p.a. in August.
In this sense, it is correct to state two main consequences for the Real Estate market: The increase in the cost of credit and the flattening of the profitability differential between the interest rate and the expected return.By analysing the transactions obtained by SiiLA Brasil in 2020 and the first quarter of 2021, the high-end Corporate Slab and Logistics Condominium segments (Classes A+ and A), the Cap Rate fluctuates between 6% pa and 12% p.a.
The chances of market profitability are above the expectation of short-term interest savings, as well as due to the profile of the contracts, ensuring inflationary protection.
A stress point that tends to be corrected with the rise in interest is the price of properties and fund shares. The period of high liquidity also resulted in an over-pricing of assets, which resulted in lower profitability. Offices and shopping centres are expected to adjust to the fair price, given the direct effect of the pandemic in these markets.