A Cushman & Wakefield Research Publication RETAIL BRAZIL 2015/2016

Transcription

1 MARKET POSITIONING RETAIL BRAZIL 1/16

2 SUMMARY ECONOMY RETAIL MARKET 4 MARKET OF SHOPPINGS CENTERS MAIN INCORPORATORS 8 FUTURE SCENARIO 9 Cushman & Wakefield South America Praça Prof. José Lannes, 4 4º andar. São Paulo, SP. Cep: Brasil 16

3 R$/US$ (YoY%) DECONSTRUCTING ECONOMY Fig 1: GDP (Gross Domestic Product) 1 was marked by political instability and the deterioration of Brazil s economic expectations. The conflicts involving the Federal Government and the House of Representatives, the deepening tax problems, and the disappointing market indicators culminated with the main credit rating agencies downgrading Brazil s rating. The immediate consequence was the outflow of foreign capital from Brazil, which drove the value of the dollar up by about % for the year. 1 - () 4, 6,1 -,1,9 7, 1,9,,1 -,9 -,, 1, The sharp drop in Gross Domestic Product (GDP) resulted in a poor economic performance in 14 (.1%), while, currently, market (1) estimates point to substantial decreases of.9% and.% for 1 and 16, respectively. Even Family Consumption, a GDP factor that has typically a positive contribution, is expected to shrink by.4% over the next two years. Current shortfalls, however, are not only due to a decline in activity. The recent hike in the inflation rate, which reached 1.67% in 1, also added to the cutback in family expenses. Way above the limits stipulated by the Central Bank of Brazil s (BCB) monetary policy of 6.% inflation in 1 came in at 1.67% - a much higher rate than the 6.% rate seen in 14 This result was highly influenced by the sharp increase in government-controlled prices, such as electricity and water, which should lessen over the next few years, and result in a deceleration of inflation to 6.9% in 16, and 6.1% in 17. In an effort to contain it, the BCB raised the Selic interest rate (CBC s overnight rate), with the most recent hike hitting 14.%; the highest rate in over nine years. Fig : IPCA x Selic 1 1, 7,1 1 Brazil (YoY%) 6,7 Consumption (YoY%) Source: IBGE 1 1, ,,97 6 There is still a bumpy road ahead before activity can resume, and a macroeconomic rebalance may reoccur. While government mismanagement continues to abound, the longer the recovery time will be. Accordingly, the local currency will tend to remain depreciated about USD/BRL 4., although sudden changes are not impossible. 4,9 7, Selic (left axis) Baseline,9 IPCA (right axis) Maximum Source: IBGE and BACEN BRAZIL ECONOMIC Fig : Exchange x Risk 14 1* GDP GDP Consumption IPCA Forecast 1 Months , , , SELIC R$/US$.66.9 EMBI+Brazil 1.7. (*) Forecast R$/US$ (left axis) EMBI+ (right axis) Source: BACEN AND JP Morgan

4 (YoY%) (Milhões Admissão x Demissão) (YoY%) DECONSTRUCTING RETAIL MARKET Fig 4: Volume of Sales x Average Price x ICC The retail sector declined in1. This was primarily observed by the 1 drop in sales volume when compared to the previous year (-4.% YOY), according to the Pesquisa Mensal do Comércio (PMC) [Monthly Retail Trade Survey] This slump is directly pegged to wage bill cutbacks, boosted by both the actual average income decline and job cuts. Furthermore, this was the worst yearly decline in 1 years. Accordingly, the unemployment rate presented a strong rise within this same period, jumping from 4.8% in December 14 to 6.9% in 1. These factors, along with the surge in inflation rate, resulted in a sharp cutback in purchasing power of individuals, and thus a slowdown in the retail market. In addition to weaker purchasing power, adverse political conditions and loss in purchasing power led to reduced trust on the consumer's part, as shown by the ICC (Índice de Confiança do Consumidor) [Consumer Trust Index] measured by FGV that dropped from 9. to 7.4 over the past year. With the index declining for the third consecutive year, it is expected to dip further in 16, as a result of the instability that should continue into this year. The retail market is expected to rebound in 17, but in a subtle way. In the near-term the unemployment rate should stabilize, and actual positive adjustments to purchasing power of families by means of a lowered, and under control, inflation rate. As a result, the ICC, as well as sales volume, should once more go up, which will resume a positive annual variation within this same period. () () Average Price Sales Consumer Confidence Index - ICC Source: FGV and IBGE Fig : Employment x Unemployment 4 1 9, 8,9 9,4 9,1 7,9 8,1 1 6,7 6,8 6,,,4 7 4,8 1 - (1) (1) () Variation Unemployment Source: IBGE BRAZILIAN RETAIL Fig 6: Real Wage Mass 14 1* Forecast 1 Months 1 Sales Volume Average Price ,6, 4,4 6,9 4,4 6,4,1,7 1,8,9 ICC Unemployment Occupation () (1) -,1-1, Average Income Welfare.61.7 (*) Forecast Occupation Average Income Welfare Source: IBGE 4

5 (billion R$) (million R$) (, sqm) (, sqm) DECONSTRUCTING SHOPPING MALL MARKET Fig 7: Inventory x GLA/Shopping TODAY'S MARKET Today, the Brazilian market counts on 8 shopping malls spread across the entire country, amounting to roughly 1 million m² of Gross Leasable Area (GLA). Despite being impressive, these numbers are still regarded as being low when related with the demand opportunity of Brazilian consumers. Today, that supply represents 7 m² (GLA) per thousand inhabitants, or about times less than that in the United States, where the largest retail market worldwide is located Inventory Expansion New Inventory GLA/Shopping The Brazilian retail market has been growing every year with the opening of numerous new retail centers, which also tend to be increasingly larger. Despite consistent development, however, shopping malls are unevenly distributed across the different regions, and the largest existing supply is found in the Southeast region (6% of the total GLA). Fig 8: Revenue Total x Revenue/Store 1, 1,4 1, 1 1, Source: ABRASCE 1, 1, 1, 1, , 1,, ,4 Total Revenues Revenues/Store Source: ABRASCE BRASIL: JANUARY 16 Fig 9: Distribution GLA per Region Total Number of Shoppings 8 GLA (In million of sqm) 14.7 Construction Area (In million of sqm) Park for cars 77,97 North.% ABL 6 SC Total of store 98, Anchor Store,946 Northest 17.% ABL 8 SC Megastore 1,964 Satellite Store 7,668 Centro-Oeste 8.% ABL SC Leisure 98 Food Store 1,766 Southest 6.% ABL 9 SC Service Store 6,874 Movie theatres,81 South 1.4% ABL 9 SC Created Jobs 1,,744 Source: ABRASCE

6 DECONSTRUCTING EVOLUTION OF THE SECTOR Year Nº of Shoppings GLA (million of sqm) Store Revenue (in billion of real/year) Employment Visits of people (million/month) ,487 4, , , , , , 74 77, , , , , , , , , , , , 11. 1,, PARTICIPATION PER REGION - 1 Region North Northeast Central-West Southeast South Total Nº of Shoppings % of total 4.8% 14.9% 9.% 4.% 16.7% 1% GLA (million of sqm) 76,1,,4 1,199,44 8,4,947 1,966,86 14,679,97 Shopping Eldorado Last Transactions - 1 West Shopping Center Shopping Av. Rebouças, 97 - São Paulo Estrada do Mendanha, Rio de janeiro Total Area: 76, sqm Total Area: 9,8 sqm Price (R$/sqm):.68,1 Price (R$/sqm): 1,89.4 Cap Rate: 6.% Cap Rate: 1% Tok&Stok Marginal Tietê Internacional Shopping Guarulhos Avenida Geremário Dantas, 44 - Rio de Janeiro Total Area: 1.76 sqm Price (R$/sqm): 1,89.4 Cap Rate: 1% Rua Miguel Menten, 1 - São Paulo Rodovia Presidente Dutra, km - Guarulhos Total Area: 7,9 sqm Total Area: 76,84 sqm Price (R$/sqm): 8,69.19 Price (R$/sqm): 1,6.81 Cap Rate: 9.% Cap Rate: 8.6% Source: Cushman & Wakefield 6

7 (R$/sqm) (% YoY) (R$/sqm) 41 4 (, sqm) DECONSTRUCTING OVERVIEW - SHOPPING CENTERS Fig 1: New Inventory x Net Absorption x Vacancy Overview shopping 4. 4, 6 In a general sampling, where information on shopping malls across Brazil that was gathered by Associação Brasileira de Shopping Centers (ABRASCE) [Brazilian Association of Shopping Centers] was addressed, a decline in sales was observed, and, consequently, so was a decline in aggregated leases of the sector's companies. With the exception of entertainment stores, every store type (anchor, megastores, satellite and services) had revenues below that of the respective quarters in 14, thus enhancing that scenario. By analyzing the indicators of these companies, we were able to observe the impacts the adverse economic scenario caused the Brazilian retail market. The nominal revenue generated by store sales remained unchanged when compared with that of the previous year, leaving behind a long historical dynamic where it grew above the inflation rate ,1 1,7,,8, New Inventory (sqm) Net Absortion (sqm) Vacancy (*) The information about the inventory of 1 have not yet been provided by Abrasce Fig 11: Rent (R$/sqm) x Delinquency Source: Cushman & Wakefield and ABRASCE By the same token, rent increase decelerated recently. Even so, their result was quite positive considering current economic and vacancy increase scenario, thus supporting their resilience when compared to that of the rest of the Brazilian market. In turn, the vacancy rate reached 4.% in the second quarter of the year, the worst result since ABRASCE (Q1 9) first started conducting surveys. This effect can be explained by the moderate absorption and tenant departures that caused vacancy rates to be 1. percentage points higher than that which was observed in the previous year. It is expected that the pipeline that previously included Shopping Malls up to late 16, amounting to 71,6 m² of GLA, will partially slide in subsequent years as the retail market waits for more consistent improvements to the economic environment ,7 6 4, 4,6 4, 4,, Anchor Store Megastore Satellite Store Service Store Leisure Delinquency Source: Cushman & Wakefield and ABRASCE NEW INVENTORY Fig 1: Variation Sales Level by Type of Shop (YoY%) Regions Shopping Centers GLA Distribution N 1,.7% NE 11 8,4 1.7% CW 4 8, 11.1% SE 9 7,697 6.% % 1% 1% -% 9% -1% % 1% % S 17, 18.% YTD -1% Brazil 71,6 1.% Anchor Store Megastore Satellite Store Service Store Source: Leisure Cushman & Wakefield and Sale ABRASCE (right) Source: Cushman & Wakefield and ABRASCE 7

8 DECONSTRUCTING MAIN INCORPORATORS OPEN CAPITAL COMPANIES In this report, the operating results of the assets of publicly held companies owning shopping malls stand out, and represent.7% of the GLA (m²) in Brazil. The set of companies surveyed for this research are listed below, along with their respective GLA (m²). By analyzing the indicators of these companies, we were able to observe the impacts the adverse economic scenario caused the Brazilian retail market. The nominal revenue generated by store sales remained unchanged when compared with that of the previous year, following a long period of traditionally growing above the inflation rate. Fig 1: Same Store Sales - SSS 1% 1,8% 1% 8,% 8,4% 8,%,7% % -,1% % -% YTD Aliansce BR Malls Iguatemi Multiplan Sonae Sierra SSS (average) Source: Companies Lower same-store sales led to a deceleration on the rent increase trend by the same amount. Even so, their result was quite positive considering current economic and vacancy increase scenario, thus supporting their resilience when compared to that of the rest of the Brazilian market.. Fig 14: Same Store Rent - SSR 16% 1,1% 1% 8,6% 8,6% 1,6% 8,9% 8%,7% 4% YTD Aliansce BR Malls Iguatemi Multiplan Sonae Sierra SSR (média) Source: Companies OPEN CAPITAL SHOPPING GLA (SQM) Vacancy Available Area (sqm) Aliansce 417, % 11,.4 BR Malls 999,78..% 9,99.4 CCP 1, %,78.67 General Shopping 6,777..6% 9,49.97 Fig 1: Average of Asking Rent (R$/sqm) x Vacancy R$ R$18 R$171 R$11 R$14 R$19 R$1 R$1,4% R$1,8%,%,%,% 1,9% R$ % % % Iguatemi 48,7..% 1,9.1 JHSF 148, % 9,766. R$ YTD % Multiplan 67, % 8, Sonae Sierra 4,7. 4.% 1,.1 Rent (left) Vacancy (right) Source: Companies 8

9 DECONSTRUCTING FUTURE SCENARIO Our forecast anticipates an economic rebound in the near-term. Accordingly, we still expect an adverse Brazilian economic market and domestic retail market in 16. The unemployment rate should present new growth and reach its peak, while the average income should remain under the pressure of a high inflation rate, which will, in turn, lead to a once again negative wage bill variation. In addition, extended political mismanagement tends to keep the levels of trust low. Sales volume should fall again, but in a milder way than what was observed in 1. Within this environment, consumers have become more cautious, and make their purchases in a more selective way, thus bringing less revenue to the retailers. That being said, vacancy rates, as well as default rates, will remain under pressure. The moment is for strong negotiation between landlords and tenants, who should strive to keep their best customers while improving and developing their business mix. In turn, 17 should be a rebound year for the sector. The Brazilian GDP will turn positive following two consecutive years of recession, a phenomenon that had not occurred since 19 during the worldwide Great Depression. This will lead do a fall in the unemployment rate will which will cause the wage In a clearer market with clearer stability and development, the consumer's trust will make a come back, and so will retail sales volume. This process will cause a direct impact on sector players, who, if they are well positioned in the post-crisis period, should reap the future rewards of the investments they made in the present. Cushman & Wakefield (C&W) is known the world-over as an industry knowledge leader. Through the delivery of timely, accurate, high-quality research reports on the leading trends, markets around the world and business issues of the day, we aim to assist our clients in making property decisions that meet their objectives and enhance their competitive position. In addition to producing regular reports such as global rankings and local quarterly updates available on a regular basis, C&W also provides customized studies to meet specific information needs of owners, occupiers and investors. This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete. Published by Corporate Communications. 1 Cushman & Wakefield, Inc. All rights reserved. Cushman & Wakefield South America Praça Prof. José Lannes, 4 4º floor São Paulo, SP. Zip Code: Brazil For more information, contact:: Adriana Colloca Superintendent T adriana@abrasce.com Gustavo Garcia Head of Market Research & Business Intelligence South America T gustavo.garcia@sa.cushwake.com 9