All commercial real estate rents decreased in 2009 by 30-50%. The decrease of rents played a positive role for business in general, because it helped tenants to control their costs during a difficult period. As a result business activity started to recover and today tenants are much more active on the market, looking for real estate options.
However, the speculative potential of real estate market is not bright and clear. And now the question is: how the market will move in 2010-2011? Will this be a steady growth or we will see a new bubble?
Structural problems, specific for the Russian economy, are the major factor for real estate bubble. Opportunities for private investments in Russia are limited, while oil exports create numerous flows of cash (controlled by individuals and institutions) coming into the country. The real estate market provides natural investment opportunities under these circumstances. Limited offer of quality product also speaks for anticipated recovery of prices.
Obviously the office market is suffering from oversupply. But this sector is very sensitive to changes in economy trends. When GDP fell by 8% - immediately a number of offices were vacated and all tenants put on hold their expansion plans. However there is another side of the coin. If macro forecasts are correct and next year we will see 3-4% GDP growth, the office sector will be the first to react. Also replacement of C class stock with B had started and this process will not revert. Tenants move from C class to B and C stock is shrinking. We estimate the decrease of C stock over last 5 years at 2-3 million m