©shutterstockECONOMIC OUTLOOK
The Russian economy remains one of the most stable among the European countries due to relatively low external debt, which amounts to 7% of GDP. According to the Russian Ministry of Economic Development, the GDP growth in 2013 should reach 2.4%. In the first half of 2013, GDP grew by 1.8% in annual terms. The main restraining factor for the Russian economy has been the decline in exports due to the very bleak economic situation in the world. Russian economy was also affected by the warm weather in Europe, which substantially decreased the amount of energy exports. Decline in inflation became one of the most important trends in the first half of 2013. Given the gradual decline in the inflation rates, the reduction of the refinancing rate can be expected. These measures by the regulator can help to stimulate growth of the long-term investments, including investments in commercial real estate.
INVESTMENT MARKET
The total value of completed purchase and sale transactions in St. Petersburg’s commercial real estate sector, including purchase of land in 2013 is expected to reach $1bln, which is comparable to 2012. St. Petersburg’s investment market demonstrates increasing investor’s interest in the land marker for commercial and residential development. In the first half of 2013, Russian investors were the primary players on the market with 70% of total market transactions in terms of volume. Despite the domestic dominance, the share of foreign market participants increased to 30%.
©shutterstockOFFICE MARKET
The total A&B-class office stock at the beginning of Q4 2013 reached 1.86 mln m², with 32% of A-class office space. Construction in the pipeline is at high level. In total, there are around 40 office buildings currently under construction with a total rentable area of 420,000 m². The majority of these projects belong to A-class, which shows that developers are focusing more on modern, high quality projects, including projects applied for LEED/BREEAM certification. The first Gold LEED office building was completed this year by Renaissance Development.
Market activity in terms of demand remains stable. The major share of requests for office space comes from tenants that require 300-500 m² office. The demand for office space is formed mainly by companies, which already have established their business in the city. New office space is absorbed via expansions and relocation from poor, low quality buildings to new ones. New companies account for approximately 20% of the total demand. In terms of business sector, the most active demand was sourced from companies, operating in energy industry, IT, and construction. Manufacturing companies are active on the local market as well.
Pearl Plaza©Colliers InternationalRETAIL MARKET
In Q3 2013 the shopping center stock in St. Petersburg reached 2.4 mln m². Six shopping centers were opened in Q1-Q3 2013, including three projects by Adamant, the largest local retail developer. Until year-end we expect the opening of regional shopping center London Mall, developed by Fort Group (GLA 61,300 m²), a unique example of redesign and re-conception. The total volume of new retail space completed this year is expected to reach 370,000 m², the highest completion level since 2006.
The grocery segment is growing actively both in the premium segment (Zeleny Perekrestok, Azbuka Vkusa, Land), and in the middle-price segment with hypermarket chains expanding their presence in St. Petersburg. Entertainment tenants continue to strengthen their positions becoming an important part of shopping centers. The noticeable expansion of new formats of children entertainment is escorted by the emergence of ‘non-standard’ operators such as zoo park. New formats of entertainment will help to increase the inflow of visitors to shopping centers. Movie theaters keep on extending their presence in the city as well. As for fashion operators, this summer a number of prime and luxury brands entered the market with monobrand shops, including Michael Kors, DKNY, Braccialini, Tous, Barker and others.
Europolis©Colliers InternationalINDUSTRIAL/LOGISTICS MARKET
The total speculative modern warehouse stock in St. Petersburg totaled 1.9 mln m² at the end of Q3 2013. By year-end two warehouse complexes of 67,200 m² will enter the market, i.e. Orion Logistics (40,200 m² of leasable space) and St. Petersburg Terminal Complex (27,000 m²). St. Petersburg’s warehouse market faces strong demand for space accompanied with limited construction activity. As a result, the vacancy level reached its historical minimum with no space for lease in existing warehouse complexes. The majority of lease deals are closed before the completion of the projects. For example, the volume of lease transactions in Q1-Q3 2013 exceeded 120,000 m², of which 80,000 m² were leased in warehouses currently being under construction.
There is a growing demand in construction of industrial and warehouse facilities and logistics terminals implemented under built-to-suit scheme. The main demand for such properties sourced from retail companies, which are focused on construction of their own distribution centers with the help of professional developers. Imbalance of supply and demand in the market has led to the rental increase throughout the year. The latest deals in class-A properties are closed in range of $125-130/m²/year (net of VAT, operating expenses and utilities).
©shutterstockHOTEL MARKET
Over the last two years, St. Petersburg’s hotel industry developed actively. Almost all hotel projects that were at the early implementation stage before the crisis entered the market. As of the beginning of July 2013 the St. Petersburg hotel market had 132 properties with 18.9 thousand rooms in total (excluding mini-hotels, departmental hotels and hostels, as well as hotels located in suburbs). Since the beginning of the year, two 5-star hotels were officially opened for guests, including Four Seasons Hotel Lion Palace St. Petersburg with a capacity of 177 rooms, the first hotel managed by Four Seasons Hotels and Resorts operator in St. Petersburg; and the official hotel of State Hermitage Museum with a capacity of 170 rooms.
In 2014-2015 we expect approximately 1,400 rooms to be added to the hotel supply. By the end of 2014 the market will add 515 rooms, in 2015–814 rooms. The existing level of tourists’ provision with hotels in St. Petersburg along with the potential of tourist flow growth (at 9%/year from 2012 to 2015 on average) allows considering St. Petersburg hotel market as perspective. The profitability of the hotel segment in St. Petersburg is increasing due to sustainable growth of the city’s average occupancy and accommodation rates. This trend can also be confirmed by the expansion of the existing hotels preserving the occupancy rate.
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