Investing in new office space in Buenos Aires probably represents the best real estate opportunity in Argentina today. Since the country’s economic crisis of 2001-02, there has been little new build of class A offices but the expanding economy means vacancy levels have fallen to a record low of 3%. The economy has grown at about 8.5% a year for the past three years and conservatively is predicted to grow by 6.5% this year.

Office space

Iuri Izrastzoff, chief executive of Izrastzoff, a large Buenos Aires-based real estate agent, says: “Very few triple A office blocks have been built in the capital in the past few years and, because it takes a couple of years for new offices to be ready, the city will soon face zero vacancy levels. This can only push up rental values.”

According to Cushman & Wakefield Semco (CWS), a major real estate consultancy in Argentina, class A office space in Buenos Aires has had an historical average rental value of $24 per square metre, hitting a low of about $12 during the economic crisis. Prices are between $16 and $18 per square metre but CWS expects them to increase to between $20 and $22 by the middle of this year.

Florencia Aguilar, head of advisory services at CWS in Buenos Aires, says: “The main companies looking for office space are either industry or services-related and they are looking for areas of between 800 and 1500 square metres. Equivalent class A office space in São Paolo, Brazil, fetches about $22 per square metre and in Caracas, Venezuela, about $24 per square metre.”

Prime locations

Companies are looking for office space in two prime city-centre areas of Buenos Aires, Retiro and Catalinas, and in the northern part of the capital, where many executives live. There is a total stock of class A space of about 1 million square metres but only 37,000 of this is vacant.

Until recently, deluxe residential real estate represented the best opportunities in Argentina but most experts feel the value of such property is levelling off. Mr Izrastzoff says: “The value of top-end residential real estate is now approaching pre-crisis levels. I cannot seeing it rising much more this year. The main opportunities now lie in new residential space for the middle classes, especially if the mortgage market takes off in the country.”

Mortgages granted to the private sector as a proportion of gross domestic product (GDP) is 1.6%, against 7% in pre-crisis December 2001. This compares with 14.4% in Chile.

However, José Rozados, founder of Reporte Inmobiliario, an Argentine internet site for real estate, says: “Some more favourable mortgages have come on to the market but I think it will be a couple more years before there is significantly higher mortgage lending. Argentines cannot raise the 20% equity that many lenders require and salaries are not high enough to service the mortgage repayments.”

The number of new title deeds for residential properties issued by the Buenos Aires authorities rose by 15% between 2004 and last year. Within the capital, 1.2 million square metres of new residential housing is under construction.

Residential property in Buenos Aires sells at between $2000 and $3000 per square metre. The most expensive areas lie in the city centre – for example, property in Palermo Chico sells at up to $3800 per square metre; in Puerto Madero, the refurbished docks area near the city centre, at up to $3000 per square metre; and in Belgrano, a fashionable outlying residential district, at up to $2700 per square metre.

There are about 200 new residential complexes being built in Buenos Aires. CWS estimates that it costs between $600 and $650 per square metre to build a residential tower with amenities (construction costs have increased by 30% over the past two years). It says that the price of land is between $400 and $600 for every square metre that can be built on.

Ms Aguilar says: “Those behind the new developments are mainly local groups of investors with their own capital, without bank finance. Meanwhile, the buyers are the middle and upper-middle classes, a high percentage of whom are speculative investors.”

It is estimated that Argentines hold more than $100bn outside the country (a huge flight of Argentine money took place just before the 2001 crisis). The public does not trust the banks and has been reluctant to invest in the volatile national stock markets. They believe bricks and mortar is a more attractive investment and the country is said to have one of the most efficient land registries in the world.

Cheap destination

The other main real estate area attracting international investors relates to tourism. According to the Argentine ministry of tourism, more than 3.8 million tourists visited the country in 2005 (against 2.6 million in 2001) and they spent more than $3.2bn. The reason for this flood of new tourists is mainly because Argentina has become much cheaper since peso parity with the US dollar ended early in 2002 (one US dollar now equals about three pesos).

Last year, a survey by investment bank UBS revealed that Buenos Aires is one of the cheapest major cities in the world compared with London, which is 4.4 times more expensive, and New York (3.76 times more expensive).

Paul Reynolds, managing director of JR Reynolds, a major real estate agent based in Buenos Aires, says: “Investors come to Buenos Aires but it is difficult to find gold here. You can start off in the capital but it’s important to look beyond, at the opportunities in other parts of the country.

“There are opportunities in resort destinations in Patagonia, in cities such as Bariloche and San Martín de los Andes, and in towns on the coast such as Pinamar and Cariló. You can buy land near Punta del Este in Uruguay for $11 per square metre, for example.”

Smart hotels

The ministry of tourism says that 150 new hotels were opened in Argentina in 2005, with a total investment of $530m (35 of them are four or five star). As well as Buenos Aires, new hotels have opened in major tourist destinations in Patagonia such as Ushuaia, Bariloche and El Calafate.

The Design chain has opened a hotel in Bariloche and plans to open two more in El Calafate y Cafayete. The Sheraton will be opening a hotel in Salta and the Hilton in Ushuaia.

Mr Reynolds says there are also opportunities in buying vineyards and land for cattle raising. Vineyards can be bought in the country’s main wine-producing region, Mendoza, for as little as $15,000 per hectare (at least 10 hectares are needed to be productive). Raw land in Salta, a dry, northern province, can be bought for $100 to $200 per hectare. Mr Reynolds says he recently sold an 88,000-hectare ranch in this region, with 3000 head of cattle, to North American investors for $1.5m.

Opportunities exist in all types of real estate throughout Argentina, but new class A office space in Buenos Aires stands out because of the expanding economy and the low vacancy rate.