Exclusive: Amazon Shelves Plans to Occupy São Paulo’s Iconic FL Plaza

The technology giant negotiated for two years to lease 215,000 square feet and be one of the largest tenants of the Faria Lima Plaza building, part of FII XP Properties’ portfolio

A building located at Largo da Batata, in São Paulo, which is part of the portfolio of real estate fund XP Properties
October 05, 2022 | 12:11 PM

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Bloomberg Línea — After two years of negotiations, Amazon (AMZN) has shelved plans to occupy around 215,000 square feet of space in São Paulo’s Faria Lima Plaza Building, known as FL Plaza, the iconic new tower in the Brazilian financial hub’s Largo da Batata square, at the northern end of Avenida Faria Lima, people familiar with the matter told Bloomberg Línea.

The company’s adaptation to the hybrid-and-remote work model, the challenging market scenario with rising global interest rates and slowing e-commerce sales growth are among the main justifications for the company pulling out of the move, the people said on condition of anonymity.

The company founded by Jeff Bezos was to be a major tenant of the property, along with Singapore e-commerce giant Shopee, which leases seven floors. XP () owns 40% of the building through the XP Properties real estate fund (XPPR11).

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“The big occupiers have not yet turned the page for the return to office space. They have come back very little in terms of percentages, because the hybrid model is working. These are companies with 15,000 square feet upwards of occupancy,” said one of the people, who asked not to be identified.

Amazon’s plan to move the company from Vila Olímpia to the northern part of Faria Lima, seen as a new frontier of commercial development in São Paulo, was reported more than a year ago, but the contract was never signed, despite negotiations that extended even longer.

Another source with knowledge of the negotiations and who asked not to be identified said that the eventual change in the macroeconomic scenario may lead Amazon to resume its plans, if there are still vacant floors.

Amazon said it “does not comment on speculation or future plans when contacted by Bloomberg Línea.

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In the United States, Amazon has been adopting and encouraging the remote work model in certain areas of the company, as reported by Bloomberg News.

“We are offering additional members of our customer service team the increased flexibility that came with virtual work,” Amazon spokesman Brad Glasser told Bloomberg News by email, clarifying that the company does not comment on specific cases.

“We are working with employees to ensure their transition is seamless, while continuing to prioritize best-in-class customer support,” Glasser said.

Surplus office space

Real estate fund XP Properties owns a 40% stake in the Faria Lima Plaza Building, a AAA building located at 949 Brigadeiro Faria Lima Avenue in São Paulo. The remaining 60% of the building is owned by Grupo VR, which is owned by Abram Szajman.

Among the largest tenants of the building, according to the most recent XPPR11 management report from August, are e-commerce giant Shopee, with seven floors and around 61,300 square feet leased), law firm Cescon Barrieu (with around 13,400 square feet) and Warren Investimentos, with 9,500 square feet.

In the document, the XPPR11 management team draws attention to the challenging office market in the post-pandemic scenario.

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“Although there has been some movement of tenants over the last few half-year periods, the corporate office space sector has been well below market expectations in general as a direct consequence of the legacy brought about by the pandemic (cost rationalization/optimization, home-office, hybrid working system, revision of companies’ strategic planning, slower decision-making processes in the face of the uncertain context, etc.), and by the unfavorable macroeconomic context (global inflationary pressure, uncertainties about the directions of the economy and domestic politics, more expensive credit lines, among other issues),” the report states.

The management team also highlighted the impacts of competition arising from an excess supply of space, and downward pressure on prices, especially in the Alphaville and São Paulo regions.

According to the document, FL Plaza’s occupancy rate was at 47% at the end of August.

“The management is actively prospecting for tenants and counts on the support of CBRE and other partners, with a view to reducing the vacancy of FL Plaza and other properties in the fund,” according to the report.

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Regarding the negotiations, the FII managers stated that in the last 12 months until August, 81 leasing processes were conducted with CBRE, but they were “unsuccessful”.

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Among the reasons for Amazon’s withdrawal from the deal, the XP management team cites its preference for another area, mainly in the city of São Paulo, in which there are districts with excess supply and downward price pressure; the suspension or cancellation of the process due to the adoption of the hybrid work system, employees’ resistance to return in person, economic and political uncertainties; and the prolongation of the analysis and decision making due to the considerations listed above.

Created in 2019, the XP Properties fund has just over 68,000 shareholders and, in addition to FL Plaza, it also has holdings in São Paulo in the Rebouças (occupied by Nubank), Box 298 (in Vila Madalena) and Santa Catarina (Paulista Avenue) buildings, as well as in Corporate Evolution and iTower, in Barueri.

On Tuesday, the shares of XPPR11 ended the day with a slight drop of 0.13%, at 45.44 reais ($8.72), while Ifix, the index that tracks the performance of the main real estate funds listed on the stock exchange, closed flat, at 2,985 points.

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So far this year the real estate fund’s performance is also negative, down 32.67%, compared to gains of 6.4% in the benchmark.

Expansion on hold

The high-interest-rate scenario and prospects of a recession ahead have led companies around the world to put their foot on the brakes in terms of expansion plans. Meta (the parent company of Facebook), for example, is planning to close one of its offices in New York after scaling back its expansion plans in the city.

People familiar with the matter told Bloomberg News that the tech company is exercising its option to terminate its lease at 225 Park Avenue South in Manhattan.

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Also in the United States, Airbnb has put its three-story building in San Francisco up for sublease amid a “work anywhere” policy, according to the San Francisco Business Times newspaper.

With information from Bloomberg.com