Investments into offices dominate Russian market (RU)

Total investment volume in Russian real estate reached $490 mln (approx. €450 mln) in Q1 2015, down 34% compared with Q1 2014, according to JLL analysts.
The slowdown in economic growth, limited and expensive financing, as well as political tensions, have had a significant influence on the Russian investment climate in 2014, and continue to put a pressure on investor sentiment this year. However, some positive signals are emerging: oil prices have stabilized, rouble exchange rate volatility has decreased indeed the rouble has appreciated by 19% from the end of January.
Olesya Dzuba, Deputy Head of Research, JLL, Russia and CIS, comments, “Investors are aware that uncertainty has diminished, and there is increasing confidence in Russian real estate as an asset class. We maintain our Russian real estate investment volume forecast for this year at $3.0bn (approx. €2.8 mln) with upside risk potential.”
According to results of the first three months of 2015, investments into offices dominated the market, accounting for 58% of total volumes, compared to 35% in the corresponding quarter of previous year. The dominance of the office sector is typical during a period of economic weakness – some tenants prefer to move to other offices with better terms, and those deals are used as a guideline for office pricing. Moreover, on the back of rental rate decline and consequently lower office capital value, many prefer to buy office space for their own use – the share of those deals in 2009 accounted for 23% of total real estate investment volumes. The buyers in 2009 were mainly companies with the government share, while this time JLL experts expect higher activity from foreign private companies.
Investor interest was mainly focused on Moscow market, the share of those deals accounted for 98% of total deal volume versus 85% in Q1 2014. Market uncertainty and limited liquidity resulted in the only one deal on the regional market with 2% of total investment volume. Russian investors continue to dominate the market, the share of foreign capital came to 35% for Q1 2015 vs. 32% in respective period of 2014. It is interesting to note that purchasing of Metropolis office building by Hines is the largest and the only one deal with the participation of foreign capital for this quarter.
Source: Jones Lang LaSalle