This edition highlights: Europe, Brazil, India, and Mexico

Welcome to the 5th edition of "The Real Estate Insights." I'm Gustavo Favaron, here to guide you through the latest developments and trends shaping our industry. In this edition, we’ll talk about significant movements across global markets, starting with the European Central Bank’s much-anticipated rate cut and its implications for the real estate sector.

We then turn our focus to Brazil, where the first quarter brought positive results for developers, highlighting the impacts of the Minha Casa, Minha Vida program. We also explore India’s rise as a leader in the Asia-Pacific data centre market, driven by substantial investments and strategic partnerships. Lastly, we examine the effects of nearshoring on Mexico City’s office market, showcasing how international companies are reshaping the landscape amidst hybrid work models and regulatory changes.

Stay tuned for an in-depth look at these trends and their potential to transform the real estate landscape.

The ECB’s long-awaited rate cut

The moment we have all been waiting for: the European Central Bank (ECB) cut rates by a quarter point on Thursday (6th) to 3.75% in their first cut since 2019, widening its gap with the US Federal Reserve.

However, the immediate impact is minimal, with ongoing economic uncertainties and future rate cuts already priced in, suggesting that substantial relief may require more aggressive monetary easing.

This cautious stance by the ECB is further influenced by the US Federal Reserve's recent move to scale back its easing plans, signaling only one rate reduction in 2024 instead of the three that had been expected.?

?? Christine Lagarde, ECB President, attributed the rate cut decision to “confidence in the path ahead,” which has been increasing in the past months.

The rate cut materialized despite a slight uptick in inflation in May - from 2.4% to 2.6% - however, the ECB also released new inflation forecasts, altering the previously estimated 2% for 2025 to a more modest 2.2%.

Growth forecasts were also amended from 0.6% to 0.9% for this year, followed by 1.4% growth for 2025 and 1.6% for 2026.

?? Speculation remains regarding a second rate cut next month, as ECB remarks reveal no commitments to further cuts, although experts believe encouraging recovery from the euro area recession last year, plus slowing inflation and easing wage growth, justify a second reduction over the summer.

Across the pond, as price pressures prove stubborn, the US Federal Reserve is expected to maintain rates at a 23-year high range of 5.25% - 5.5% next week.

So, what’s next for the struggling real estate market? With avid anticipation for such rate cuts and hope that they will be the magic key to reviving real estate transaction volume, the following months will be critical.

Developers have a positive first quarter in Brazil

The first quarter earnings season ended positively, in general, for publicly traded real estate developers.

A survey by Valor Data carried out with 32 companies - listed and unlisted - points to a 158.6% growth in net profit.

The highlight goes to those who work in Minha Casa, Minha Vida, such as Direcional and Cury.

It’s not all sunshine and roses. The high demand, also driven by the update of the housing program, has raised concerns at Caixa Econ?mica about the availability of resources for housing financing in 2025.

The warning comes amid a scenario of draining resources from FGTS and savings, which have recorded more withdrawals than deposits for at least two years.

?? Furthermore, projections for the economic scenario also moved the week with the release of the Focus bulletin indicating higher inflation and the Selic still in double digits, going from 9% to 10%.

With high construction costs, some smaller developers seek to renegotiate CRIs to complete their work.

Among the investors' strategies are a grace period for debt payment and the release of resources from reserve funds in projects in the final phase.

India Leads Data Centre Market in APAC

India is rapidly emerging as the data center leader in the Asia-Pacific region (excluding China), surpassing countries like Singapore, Australia, South Korea, Japan, and Hong Kong in installed capacity.

Significant investments and strategic partnerships fuel this growth to bolster the country's digital infrastructure. Between 2018 and 2023, India's data center industry secured more than $40 billion in investment commitments from global and domestic investors.

?? A notable player in this surge is AdaniConneX, a joint venture between Adani Enterprises and EdgeConneX. The company has secured up to $1.44 billion in funding to construct new data centers across India.?

Tata Consultancy Services and Bharat Sanchar Nigam Limited are also jointly investing ?15,000 crores to expand their data center facilities, aiming to enhance the capacity and reliability of India's data storage and processing capabilities.?

?? Reflecting the increasing demand for robotic process automation in the Indian market, UiPath is expanding its presence with new data centers in Pune and Chennai. Additionally, Adobe India is setting up new infrastructure to support its Adobe Experience Platform customers.

India currently holds 20% of the world’s data but hosts only 2% of global servers. This disparity underscores the urgent need for more data centers to support the country's burgeoning digital economy. However, the outlook for the future is positive, as the country's capacity is expected to exceed 1,800 MW by 2026, according to a report by CBRE.

?? Learn more about this exciting asset class by reading GRI Club’s “India’s Digital Destiny” report.

Nearshoring impacts offices in CDMX

Nearshoring is positively impacting the office market in Mexico City. This is indicated by Ignacio Arellano, Newmark office director, who highlights the arrival of international companies to the country.

It is confirmed that, despite a surplus supply, the market is recovering and there is an increase in the return to offices.

Companies are implementing hybrid models, with employees going to the office at least three days a week, and some even returning to 100% presential work.

?? The implementation of NOM-037 in December 2023, which regulates teleworking, has also encouraged this return to avoid penalties.

The regulations establish guidelines to guarantee adequate conditions for employees in home offices.

Regarding the rising segment, Class A spaces are the most sought after by companies, which prioritize high-quality buildings.

The current inventory of these offices is 8 million m2, with the addition of 91,900 m2 in seven new buildings in Q1 2024, located in areas such as Insurgentes, Lomas Palmas, Reforma Centro and Polanco.