Office Market Segmentation in Emerging Markets: A Study of Sao Paulo

Abstract

This study uses a unique dataset from Sao Paulo, Brazil, to investigate how corporate and smaller occupiers differ in their willingness to pay for principal office rent determinants. We partition our sample of buildings based on the average size of lease-able units to test whether rent premiums associated with property attributes, locational submarkets and economic change can be generalized or are localized to each group. Results from hedonic regressions show that corporate and smaller occupier properties form both spatial and non-spatial submarkets, but not in terms of temporal changes in market rent which are found to be highly correlated across office market segments. These findings suggest that these property-type segments can be classified as imperfect substitutes with distinct underlying pricing differences for building vintage, specification, size and location, but not as independent real estate markets.