Argentina Real Estate Report Q4 2013 - New Market Study Published

The Argentine commercial real estate sector is set for continued suffering to the end of 2013 and beyond in light of persistent economic challenges and political uncertainty. While we are confident that the leasing market will retain a certain level of stability braced by basic demand dynamics and a lack of new supply, risks are certainly weighted to the downside. As such, the private sector will remain depressed, and opportunities for growth in the short term remain limited.

Growth in the commercial real estate segment is predicated upon a healthy macroeconomic environment. Argentina's real estate sector has been suffering as a result of economic policies enacted by the government. High inflation and a slowing economy have been hitting the sector hard - particularly the construction and supply pipeline. While this has yet to have a tangible effect upon the commercial rental market, our latest data show that growth has been constrained and market sentiment is veering towards when, rather than if, we will start to see an impact unless the economy resurges. Poor economic growth will adversely impact the sector as it has the potential to dampen both property fundamentals and capital markets placing downwards pressure upon tenant retentions, rental growth, yields, development activity, financing and asset values.

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Initial signs of weakness are beginning to emerge - particularly in the industrial sector - and the impressive growth in the real estate segment over the last decade looks set to grind to an imminent halt. Nevertheless, Buenos Aires and the retail segment have both performed well over H113.

Key Points:

* Our view for a sharp slowdown in the Argentine construction sector played out over 2012 and the trend continued through Q113 with a reported contraction of 3.2%. Given the underlying weakness in the market, a result of fundamental policy and regulatory constraints, we maintain our bearish near-term outlook for the sector with a contraction of 2.6% forecast in 2013. There is some upside potential from residential construction - given strong base effects in place - and the oil and gas infrastructure with a number of projects in the pipeline which will contribute with some stable, but weak, growth. However, this will not be enough to offset the downward trend in the industry in 2013.
* Signs indicate that Argentina saw economic activity pick up more than expected in the second quarter of the year, raising the likelihood that we will revise up our 2013 real GDP growth forecast of 1.8% once we see data from Q213. That said, we believe over the longer term there are significant downside risks to Argentina's growth picture, as long-building imbalances both in the domestic economy and in the external accounts persist.

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