Commercial real estate transactions in Russia could reach $4.5 billion (approx. 3.6 billion) according to new research from CBRE, the global real estate advisor.
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. The IMF forecasts GDP growth for both 2012 and 2013 of 4% in the country. Current positive economic trends in Russia are expected to persist - however the major factor in determining this trajectory will be oil prices.
Russia's relative economic stability and the lack of investment grade stock are likely to support asset prices. International investors are increasingly forming long term investment strategies for Russia. Immofinanz Group and Raven Russia are established investors with large portfolios with Hines' recent closing of the 900 million Hines Russia & Poland Fund due to see c. 80% of its capital invested in the country.
The acquisition of the Galeria Shopping Center in St. Petersburg for $1.1 billion (approx. 0.88 billion) in late 2011 by Morgan Stanley was also a watershed transaction.
In H1, CBRE tracked 13 major investment deals totaling $1.5 billion (approx. 1.2 billion) (H1 2011: 12 / $2.7 billion (approx. 2.1 billion)) with the average deal size reducing to $117 million (approx. 94 million) from $193 million (approx. 155 million). 81% of these transactions took place in the Moscow region.
Overall, the market is expected to grow in H2 up to a maximum of $4.5 billion (approx. 3.6 billion), albeit this will be a decline on the $6.4 billion (approx. 5.1 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 H1 2012, 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 year end.
In the industrial sector, 320,000 m² of new space was delivered in H1, nevertheless vacancy remains below 2%, demonstrating the pent-up demand for high quality warehouses in the market. Average rents remained at $135 (approx. 108) per m²/year but in the most constrained sub-markets this grew to $150 (approx. 121) per m²/year.
Valentin Gavrilov, Director in the Russian Research team, commented:
"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 (approx. 3.6) billion in 2012.
"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. 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."
Source: FTI Consulting