Russian commercial property market stable as demand exceeds supply
22-08-2012
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Retail and office assets are the most popular investments and despite a difficult global economic backdrop, the Russian economy has so far exhibited an ability to resist the short term volatility in financial and commodities markets, its latest analysis report says. It points out that the International Monetary Fund forecasts GDP growth for both 2012 and 2013 of 4% in the country and current positive economic trends in Russia are expected to persist. The report points out that Russias relative economic stability and the lack of investment grade stock is likely to support asset prices. International investors are increasingly forming long term investment strategies for Russia. The acquisition of the Galeria Shopping Centre in St. Petersburg for $1.1 billion in late 2011 by Morgan Stanley was a watershed transaction and in the first half of this year CBRE tracked 13 major investment deals totalling $1.5 billion with the average deal size reducing to $117 million from $193 million. Some 81% of these transactions took place in the Moscow region.
Overall, the market is expected to grow in the second half of 2012 up to a maximum of $4.5 billion, albeit this will be a decline on the $6.4 billion in investment transactions in 2011.This is mainly attributable to wider regional economic uncertainty and a tighter lending market year on year as well as the absence of a significant single asset transaction like the Galeria sale.
Retail and offices remain the most popular asset classes. In the first six months of the year retail deals amounted for a greater proportion of transactions, but taking into account deals in the pipeline, CBRE expects the balance between the two sectors to be restored by the end of the year. In the industrial sector, 320,000 square meters of new space was delivered in the first half of the year, nevertheless vacancy remains below 2%, demonstrating the pent up demand for high quality warehouses in the market.
Average rents remained at $135 per square meter per year but in the most constrained sub-markets this grew to $150. ?CBRE expects a 4% growth of GDP in Russia for the third year in a row, unless economic problems in Europe and the USA trigger a sharp medium term drop in oil prices. The Russian economy is expected to outperform the majority of its counterparts. Provided wider macro economic conditions do not deteriorate considerably. CBRE expects the Russian commercial real estate investment market to reach up to $4.5 billion in 2012, said Valentin Gavrilov, director in the Russian Research team.
Investors are increasingly examining opportunities in Russia as they are attracted to markets where pricing can remain supported in times of difficulty, but also those that might be able to recover quickly once these systemic risks have subsided. With a continued lack of high quality supply to meet the demands of office, retail and industrial occupiers, new prime developments will meet strong demand for the foreseeable future, he explained. ?We therefore expect to see continued strong levels of interest from both international and domestic investors for well placed high quality assets in Russia, and more particularly in Moscow, he added.
