Russia real estate investment volume declined by 39%

Russia real estate investment volume declined by 39% YoY in 2018

Russia’s real estate investment volumes reached €2.5bn (USD2.8bn) in 2018, down 39% YoY from €4.13bn (USD4.7bn), with the investments in Q4 2018 totalling €848m (USD966m), half the levels of Q4 2017, according to JLL's latest study.


“2018 volumes almost approached the cyclical bottom of 2015, when the economy was in recession. The main reason for this decline is the caution of investors triggered by the sanctions against Russia, volatility in emerging markets and the oil price drop. The postponement of some large transactions until 2019 also further affected the investment volume decline in 2018. Nevertheless, unlike in 2015, the debt market in Russia is healthy, senior debt financing is available at relatively low interest rates causing a shortage of real estate products available for purchase,” commented Natalia Tischendorf, Head of Capital Markets, JLL, Russia & CIS.


Russia real estate investment volume dynamics, USD bn


In 2018, the office sector received the most investor attention, with 31% of the total volume. Among large office deals were the acquisition of Legion I BC by FC Otkritie and the purchase of Metropolis office building by Hines and PPF Real Estate. The retail sector accounted for 28% of investments, with the largest deal being the purchase of the RivieraSEC in Moscow. The residential sector (land plots for residential development) accounted for 23% of the total volume, up from 11% in 2017.


Russia real estate investment volume by sector



St. Petersburg continued to increase its share in 2018, from 17% in 2017 to 23% in 2018, although its volume had declined slightly in absolute terms. The Moscow share dropped from 78% to 66%. The share of regional investments reached 11% of the country’s volume versus 5% in 2017. Among notable regional transactions are the warehouse purchase by Raven Property Group in Nizhniy Novgorod, the Murmansk Mall acquisition in Murmansk, and KomsoMALL in Volgograd. 


Russia real estate investment volume dynamics by city, USD bn

While the foreign capital share in executed transactions increased from 18% in 2017 to 28% in 2018, the absolute figures were similar, at €696.2m (USD793m) and €722.5m (USD823m) respectively. The acquisition of Riviera SEC by KLS Eurasia Venture Fund from Kyrgyzstan became the largest 2018 deal by a foreign investor. The second largest deal done by foreign capital was the purchase of 12 K-Rauta stores by the French retailer Leroy Merlin. The purchase of a Metropolis office building by Hines and PPF Real Estate took the third place last year among transactions with foreign capital.


Olesya Dzuba, Head of Research, JLL, Russia & CIS, said: Russia economic growth in 2019 will remain at 1.5-1.7%, still limited by sanctions and the resulting uncertainty and volatility. Although there is no basis to expect an explosive growth of real estate investment transactions, the low 2018 base and the postponement of some deals may result in a 25% investment increase. As such, we forecast the 2019 investment to reach €3.1bn (USD3.5bn).”

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