According to the latest research by CBRE, in the fourth quarter of 2012 the volume of investment in Russian commercial real estate amounted to US $1.73 billion (approx. 1.28 billion).
In 2012, the office sector was the most popular, with investment volumes totaling US $2.6 billion (approx. 1.9 billion), accounting for 52% of the total volume of registered investment. In absolute volumes, investment in the office sector is at an all-time high.
The biggest buyers of office real estate were established domestic investors, who continued to enlarge their portfolios in the center of Moscow. Foreign investors acquired assets totaling about US $345 million, or 13% of the total investment in the sector. 2012 saw the closing or final stage negotiations on major prime office properties such as Ducat Place III, Four Winds, Galereya Actor (MFK), Silver City, Summit (MFK), and the sale of stakes in the fund that runs Geneva House and Berlin House.
Across all sectors, investment volume in 2012 amounted to US $4.98 billion, which was 22% down from the record levels of the previous year. However, it is worth noting that if all the deals on which negotiations began in 2012 were closed, then 2012 would have set another new record for investment volumes.
Persistently high oil prices, the wider macroeconomic situation and Russia's continued economic growth were largely the reason for significantly faster growth in the investment volumes in Russian commercial real estate compared to European market.
The volume of registered investment in retail real estate amounted to US $1.38 billion, or about 28% of total investment. Almost all big deals in this sector were sales of stakes, including Vremena Goda, Golden Babylon, Leto, and Megatsentr Gorizont.
Third place on investment volume went to the hotel sector, with a total of US $665.7 million. This is 13% of total investment in commercial real estate in 2012. Most deals in this sector were on sales of shares in hotel properties by the Government of Moscow. The noteworthy transactions include Metropol (US $272 million), Radisson SAS (50%, US $171 million), Intercontinental (US $111 million), and Krasniye Kholmy (19.87%, US $35.2 million).
Investment in the warehouse and industrial real estate sector amounted to US $305 million, equivalent to 6% of total investment.
92% of all investment activity in 2012 occurred in Moscow. Out of the US $391 million invested in regional commercial real estate, US $364 million were in retail and US $27 million were for other properties. The most popular destinations were St. Petersburg, Rostov-on-Don, and Nizhny Novgorod.
After a fairly long "flat" period, capitalization rates on prime properties dipped slightly in the fourth quarter of 2012. In the office sector the dip was 25 basis points, from 8.75% to 8.5%. In retail it was 50 basis points, down from 9.5% to 9%. In the warehouse and industrial sector capitalization rates held firm at 11%.
In Q4 2012, the investment market showed higher than expected growth. This was primarily due to the stream of good news from Europe and the US, which had a positive effect on investor sentiment and on their readiness to take risks. CBRE observed a rise in interest in assets perceived to be more risky which may continue in 2013 and become a driver of a cycle of growth in prices. Investors are expected to remain focused on the retail and office sectors.
Valentin Gavrilov, Director, Research Department in CBRE, Russia, said:
"At the moment, we see positive signals that lead us to forecast modest capital value appreciation in 2013. Broadening risk appetite amongst investors is supported by the flow of good news from Europe and decreasing yields on fixed income assets, like bonds. In this context, the surge in investment activity, observed in H2 2012, does not seem surprising and we are seeing a continuation of this momentum in Q1 2013.
Nonetheless, it's worth mentioning that fundamental macroeconomic indicators in Eurozone remain weak. Due to this fact, interest in secondary prop