Keys to investing in 2021

2020 was a year of significant challenges. Many business models underwent or accelerated transformation processes to meet new demands and adapt to the new social dynamics imposed by the pandemic. In addition to that scenario, there were added financial challenges to cover liabilities, hedge capital or invest in a very complex context for decision-making. There were extraordinary local and international liquidity levels, the real interest rate remained negative, and our currency suffered a 79% devaluation against the US dollar (considering the stock market exchange rate). Also, in the local context, there have been new regulations on the foreign exchange market which restricted access to other currencies and the international transfer of funds. The economic activity, in general terms, showed a poor performance. The monthly economic activity estimate for October –the latest published – recorded a year-on-year decrease of 7.4%, while, measured in dollars, the Merval index –Argentina’s leading stock market index– recorded a 30% decrease and loans to the private sector fell by 32%. To find true north in this challenging situation it is important to consider the outlook of those who know best. 

Where do companies and high-net-worth individuals invest in today?

One sector that once again shows its strength is the office market. Banks, multinational companies and insurance firms are consistent investors in the corporate real estate sector. As a case in point, in the last ten years, there were transactions for nearly 1.5 billion dollars, with banks and private investors accounting for more than 50% of these investments. In 2020 sales exceeded 200 million US dollars (16 billion Argentine pesos, according to the official exchange rate), with a volume of 66,300 square meters sold, very close to the annual historical maximum of 67,000 square meters, reigstered in 2013. It is a particularly relevant number considering the impact of the pandemic on the use of workspaces. The most active sectors in these acquisitions were multinational companies, with 40% of the recorded volume, followed by banks, which closed businesses for 32% of the market volume.

^{Commercialized area in registered sale / purchase transactions. Class A and B buildings}

The regulatory framework, the opportunities that open up in these contexts, and the hedging against inflation and devaluation risks, were undoubtedly key criteria driving these operations. Also, Ramón García Llorente, Senior Associate of Capital Markets for JLL –a professional services and investment management company specializing in real estate businesses– stresses that these investments are made considering the shortage of Class A office space in our market, which buttresses a sustained level of prices. "Even in times of recession or circumstances that generate a collapse in demand, such as the pandemic, one can see that prime assets tend to better defend prices and absorption," he says.

^{Prices per sq. m.}

On the other hand, according to specialists, in the coming months we will see the launch of many projects of this type, some of considerable scale for the industry, driven by the reduction of construction costs as measured in US dollars. "The new projects are promoted not only by the dollar cost differential that we have been seeing these last months, but also by the historical deficits that our country has in the offer of quality residential, office and logistics spaces", explains Guido Mosin, Research Manager at JLL Argentina.

What should be kept in mind while investing?

Taking advantage of the opportunities that recession cycles open up is an ordinary feature of the most sophisticated investors. Taking into account the scenario of this challenging year, Ramón García Llorente states: "Investment decisions in these contexts require maximum precision in the definition of investment objectives and criteria, as well as an orderly process to analyze and weigh risks and potential benefits." Clarity of objectives and strategies is the first step to develop an accurate investment strategy. Some basic questions should be asked to be clear about the type of asset, the profit targets, the investment horizon, the tax burden, the degree of participation in the business, the access to credit, and the risks that one might be prepared to assume.

Those who venture to restructure assets, change their business model or invest their liquidity can find these times favorable to find good deals. In this sense, to accompany investors in their decisions and help them achieve their goals, last year JLL started the Capital Markets team for Argentina. Gonzalo Meira, the local Brokerage Director of the firm, states that investors can find in JLL a professional commitment and access to unique information, with the analysis of a team of experts of more than twenty years of presence in the country.

This article was originally published in La Nación