RESEARCH 2Q 2020 SÃO PAULO INDUSTRIAL/LOGISTIC MARKET THE COVID-19 CRISIS SHOWS SIGNS OF SUMMARY 2Q 2020 IMPACTING THE ECONOMY HIGH END CONDOMINIUMS Indicators Overall* São Paulo Rio de Janeiro The Covid-19 pandemic has significantly slowed global economic growth – Total Inventory (thousand sq.m) 11,201.3 9,093.6 2,107.7 for how long and how much is still not known. The isolation measures adopted to slow the spread of disease led to a significant drop in demand Vacancy Rate (%) 19.1% 17.7% 25.2% in most industries. Activities have been suspended, jobs have been Net Absorption (thousand sq.m) 294.2 287.5 6.8 eliminated and there is uncertainty regarding how the pandemic will evolve. Gross Absorption (thousand sq.m) 383.8 370.7 13.1 All of this has led to a significant slow-down in consumption of consumer Average Asking Rent (R$/sq.m/month) R$ 18,80 R$ 18,40 R$ 19,80 goods and services, and a drop in investor and consumer confidence around the world. The service industry, which is a significant share of New Inventory Delivered (sq.m) 252.6 222.7 29.8 country GDPs, has been hard hit by the drop in transportation, tourism, entertainment and leisure. Despite fiscal and monetary stimulus measures *Includes main regions of SP and RJ offered by the main world economies, and a certain dampening in the volatility of financial assets, these are challenging times for emerging 2Q2020 HIGHLIGHTS nations. Brazil's GDP dropped 1.5% in the first quarter of the year, compared to 4Q19. This is the largest quarterly drop since 2015, a clear According to the May and June 2020 CNI Reports of its survey of reflection of the onset of the effects of the pandemic. The impact on supply Industry and Construction, while April was the worst month in recent is the result of the drop in value added by manufacturing industry (-1.4%), history, in May real revenue, hours worked in manufacturing and construction (-2.4%) and services (-1.6%), barely offset by an increase in installed capacity utilization all grew. During the two months of the agriculture and ranching (0.6%). The largest drop was felt in the extraction report manufacturing activity increased, following two months (March industry (3.2%) due to a slow-down in iron ore production that is not and April) of diminished activity due to social distancing measures. Nevertheless, real revenue remains 18.2% below what it had been in pandemic-related. In the service industry, impact of the pandemic has led February, and hours worked dropped 15.8% in the same comparison. to drops in trade (0.8%), transportation, storage and mail (2.4%) and other Installed Capacity Utilization increased 7 percentage points between services (4.6%), in particular activities impacted by mobility restrictions May and June, reaching 62%. Unlike the many challenges faced by the such as food services, hotel and personal services. On the demand side, different manufacturing segments, the pandemic led to a significant the pandemic has impacted household spending, which not only stopped increase in online (e-commerce) transactions, both for established growing, but actually dropped 2.0% in the quarter. This is the largest organizations such as Amazon, Mercado Livre and Magazine Luíza, and quarterly drop since the electric power crisis of 2001, when it dropped other retailers venturing into the online world. Retailers that had 3.1%. Given the current scenario, the Central Bank's June Inflation Report expected this type of transaction to grow gradually over the course of a is calling for -6.4% growth this year. The basic interest rate dropped 0.75 few years moved their plans up due to the pandemic, as they were percentage points to 2.25% a year, a new record. According to the Focus forced to shut the doors to their B&M stores to prevent spread of the Bulletin, inflation should be about 1.6% this year, and the US Dollar should virus, and in response to new behaviors by online consumers, brought end the year at R$ 4,90. on by social isolation. This in turn drove up the market for high-end What will happen when things get back to normal is still an open question, storage and logistics properties. as there are risks of new waves and so far, research into a possible vaccine MARKET OVERVIEW is inconclusive. This drives up the level of uncertainty regarding economic The overall vacancy rate in the main markets (São Paulo and Rio de recovery in the 2nd half of the year. Janeiro) dropped this quarter. Absorption was especially positive in metropolitan São Paulo, where demand is highest right now. © NEWMARK KNIGHT FRANK | 2020 RESEARCH | 1 2Q 2020 SÃO PAULO INDUSTRIAL/LOGISTIC MARKET NET ABSORPTION AND ASKING RENTS Demand remained high this quarter, ending at 287.5 thousand sq.m, NET ABSORPTION VS. AVERAGE ASKING RENTS (R$) the highest since 1Q19. The year-to-date volume in the year is equivalent to 76% of the total volume in 2019, the second highest in recorded history. Of this, 217 thousand sq.m is the net absorption in 700 R$ 28 metropolitan SP, confirming tenant preference for locations close to 600 21,0 21,0 R$ 24 20,4 19,5 the city. A single multinational retailer occupied 100 thousand sq.m of 18,5 19,4 18,6 18,4 500 18,0 17,7 R$ 20 a built-to-suit warehouse in a new logistics park in Cajamar, leveraging 400 R$ 16 /mês results for the quarter. Guarulhos is another preferred area, with 35.5 2 (.000 sq.m) thousand sq.m absorbed in the region. The average asking monthly 300 R$ 12 601 R$/m 519 lease was R$ 18.40/sq.m, 6.5% above the previous quarter. 200 R$ 8 394 Absorption 348 340 340 263 385 100 225 R$ 4 Net 187 0 R$ 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 HIGHEST ASKING (YTD) RENT LARGEST ABSORPTION Net Absorption Asking Rent Barueri: Cajamar: 135 thousand R$ 26,00/sq.m sq,.m TOTAL INVENTORY VS. NEW INVENTORY DELIVERED VACANCY RATE VS. VACANCY RATE 1.800 100% Although 223 thousand sq.m of new space was delivered this quarter, 1.600 90% ) 80% the vacancy rates in the main regions of the state of São Paulo dropped 1.400 1.200 70% from 17.9% to 17.7%, the lowest it has been in 2 years. The largest 47,3% 60% hts.sq.m 1.000 Rate (%) 38,9% 50% 33,1% percent increase came in São Paulo due to new deliveries that have yet in ( 800 13,1% 40% 20,7% 600 19,0% 18,2% 16,9% to be occupied. The actual amount of vacant space is quite small. The 16,5% 30% 13,2% 13,1% Vacancy 400 7,9% 20% 2,5% vacancy rate in metropolitan São Paulo remained essentially unchanged Inventory 200 10% compared to the first quarter of the year. 13.7% (vs. 13.6%), despite 0 0% more inventory. Embu Atibaia Barueri Jundiaí ABCDM Cajamar Sorocaba Campinas São Paulo Guarulhos LARGEST INCREASE: LARGEST DROP: Piracicaba RibeirãoPreto Vale Paraíbado São Paulo (7.1 p.p) Sorocaba (6.3 p.p) Total Inventory New Inventory Delivered - 2Q Vacancy Rate MAIN TRANSACTIONS AVERAGE ASKING RENTS BY REGION Tenant Property Leased area (sq.m) Kuehne+Nagel GLP Louveira II 24,526 35 Overall Average Monthly Asking Rent: R$ 18,50/sq.m 30 26 Mercado Livre GLP Cajamar II 22,190 24 26 25 25 23 23,9 23 23 22,3 21 23,2 19 23 19 21,2 18 Amazon Prologis Cajamar II 18,436 20 19,8 22 19,3 23 month 15 17,1 17,2 14 17,5 17,4 15 14,8 17 18 15,0 17 13,5 18 15 15 15 Mercado Livre Goodman ABCD 17,681 R$/sq.m/ 10 12 13 10 CLIS - Centro Logístico e 5 Lojas CEM 15,516 Industrial Salto 0 Embu Atibaia Barueri Jundiaí ABCDM Cajamar Sorocaba Campinas São Paulo São Guarulhos Piracicaba Ribeirão Preto Ribeirão Vale do Vale Paraíba S. J. doPreto S. Rio J. © NEWMARK KNIGHT FRANK | 2020 RESEARCH | 2 2Q 2020 SÃO PAULO INDUSTRIAL/LOGISTIC MARKET DEVELOPMENTS UNDER CONSTRUCTION IN SÃO PAULO – NEXT 12 MONTHS Total Leasable Expected Property Region Axis Area (sq.m) Delivery Anhanguera / GLP Jundiaí III Jundiaí 90.000 3Q/2020 Bandeirantes Anhanguera / Icon Realty Cajamar Cajamar 77.000 4Q2020 Bandeirantes Anhanguera / Prologis Cajamar III Cajamar 46.000 4Q2020 Bandeirantes Anhanguera / GLP Cajmar III Cajamar 57.944 1Q 2021 Bandeirantes Anhanguera / Bresco - G2 Viracopos Campinas 50.800 1Q 2021 Bandeirantes Bresco Last Mile V Osasco São Paulo 20.400 1Q2021 GLP Mauá ABCD Anchieta/Imigrantes 81.470 2Q2021 CLO - Centro Logístico Osasco São Paulo 46.650 2Q2021 Osasco (fase II) © NEWMARK KNIGHT FRANK | 2020 RESEARCH | 3 2Q 2020 SÃO PAULO INDUSTRIAL/LOGISTIC MARKET NEWMARK KNIGHT FRANK OFFICES IN BRAZIL AND LATIN AMERICA BRAZIL São Paulo Rio de Janeiro Av. Dr. Cardoso de Melo, 1460 – 7º andar Rua Lauro Muller, 116, cj. 3201 Vila Olímpia, São Paulo Botafogo, Rio de Janeiro 04548-005 22290-160 + 55.11.2737.3130 + 55.21.3283-9001 MARINA CURY MANFREDO COSTA NETO PATRICK N. SAMUEL JOANA SILVA CEO Director Industrial Valuation & Consulting [email protected] [email protected] [email protected] [email protected] ngkf.com.br RESEARCH | 4 Av. Dr. Cardoso de Melo, 1460 cj. 71, Cep. 04548-005, São Paulo, SP T.