At a press conference "Russian real estate market on the radar screen of international investors", organized by our Moscow office and held yesterday in Cannes, during MIPIM real estate exhibition, Michael Lange, chairman of Jones Lang LaSalle Russia & CIS, spoke on the state of the country's investment market.
In 2006 commercial real estate investment volumes in Russia reached €3.4 billion, setting an all-time high market record. While this is nearly 10 times more than in 2005, this figure is still behind Poland with €5 billion and well behind Western European markets like Germany (€50 billion) or the UK (€80 billion), suggesting room for significant growth for years to come.
While Russia is traditionally compared to its Central and Eastern European neighbors as an emerging market economy, it is now demonstrating a trend in commercial property acquisitions and sales that suggests the Russian investment market is on track to develop in a fundamentally different way. For an emerging property market the Russian investment horizon is looking distinctly long term and mature.
The property investment market in Russia continues to maintain a very strong domestic component. Local investors accounted for at least 44% of investment transactions by volume in 2006. Similar figures for Poland, the Czech Republic and Hungary and were a meager 2%, 6% and 8% respectively. Western European markets demonstrated a distinctly different composition, with domestic capital taking a healthy market share of 18%, 23% and 48% (Germany, France and UK respectively).
In European markets strong domestic capital seems to signal market maturity and healthy competition between international and domestic capital. For the Russian property market this means that market practice and investor expectations will mature alongside yield compression and capital value appreciation. The short term capital injections and withdrawals commonly associated with more volatile markets will play an insignificant role in Russian property, leaving the market more sustainable and attractive for the long term.
In Russia investor confidence stems from the country's long term potential. Long term, low risk players such as pension funds, mutual funds and insurance companies (institutional capital) are becoming aware of the shift in wealth that is occurring on a global level, in particular in relation to the so-called BRIC countries (Brazil, Russia, India and China).
As the accumulation of capital, global shift in wealth, and growing sophistication of the Russian financial sector continue, we expect Russian investors to hold on to a sizeable market share of investment even as the Russian market becomes increasingly exposed to western institutional capital.
Source: Jones Lang LaSalle