Retailers Reinvesting in Russia: Record-Breaking Investment Activity Has Eluded Most Markets Curing the Economic Downturn, but a Few Areas in Russia Have Bucked That Trend

By Hunt, Kristin Gunderson | Journal of Property Management, July-August 2012 | Go to article overview

Retailers Reinvesting in Russia: Record-Breaking Investment Activity Has Eluded Most Markets Curing the Economic Downturn, but a Few Areas in Russia Have Bucked That Trend


Hunt, Kristin Gunderson, Journal of Property Management


In 2011, Russia experienced record commercial real estate investment growth-200 percent above 2010 levels, according to research from CB Richard Ellis. The pace has slowed in 2012, but growth continues.

Matjaz Cerjak, director of the Investment Services Department at Colliers International-Moscow said depending on macroeconomic and political factors, he anticipates the record will be broken in the near future.

In December 2011, an agreement on borders between Moscow City and Moscow Region was signed. As a result, Moscow will become twice as large, creating many opportunities for further real estate development, said Veronika Lezhneva, associate director and head of research for Jones Lang LaSalle in St. Petersburg.

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"Despite record investment volumes last year and the presence of strong international names in the market, the volumes still remain relatively low compared to the size of the economy ... I believe that with the market development over the years, we should easily see last year's record broken," Cerjak said.

Recovery in an Unprecictable Market

The investment market in the two largest Russian cities is currently being hindered by unclear city administration policies regarding new developments, Cerjak said. Both the mayor of Moscow and governor of St. Petersburg stopped construction activity last year.

"Market players cannot predict what laws, restrictions or permissions will be delivered this year," Cerjak said. "Thus, major construction sites have been stalled until further notices."

Investment activity aside, the commercial real estate market in both cities is recovering.

"In general, the current situation can be described as stable with quite low completion levels; stable rents, which have slightly increased in some sectors; and average market demand in the office sector," Lezhneva said.

Commercial office rental rates in Moscow were stable during the first quarter, capping at $1,200 per square meter for prime Class A space, while vacancies in all submarkets decreased, according to the CB Richard Ellis' Moscow Office MarketView report for the first quarter.

A similar report from CB Richard Ellis shows that in St. Petersburg, rental rates for Class B space increased by 3 to 4 percent, while vacancies decreased to 9 percent in the first quarter. Class A vacancies remained unchanged from 2011 at 17 percent keeping rents from increasing.

"We still cannot say the Russian market has returned to precrisis levels in terms of rental rates, supply pipelines, prime yields, etc.," Lezhneva said. "We are still experiencing the recovery process in the market."

Retail Leads Recovery

The retail sector is especially stable, experts said. In March, Jones Lang LaSalle named Moscow the third most attractive cross-border retail destination out of 150 European markets analyzed, attributing the capital city's attractiveness to the continued, sustainable growth of its residents' disposable incomes. …

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