Moscow is a fundamentally interesting place to invest in real estate. It is just a question of pricing – at least in most cases. In previous years we have seen investors buying income-producing office space in Moscow at capital values above $12,000 per leasable square meter. This is all in the past. Now investors are much more focused on the current reality and what can be expected in the future. Very few are expecting an immediate return to the past.
Signs that the global economic downturn was going to derail the development of Russia’s industrial real estate market started to appear late in 2007, but it was not until the third quarter of 2008 that the market both in Moscow and Russia’s regional centers really started to feel its effect.
In Russia’s embryonic retail market, property management is still a relatively new concept. In the five months that Jones Lang LaSalle has offered this service line in Russia, developers have faced a steep learning curve as they overcame prejudices and made efforts to forge a more transparent relationship with tenants. Improvements in tenant relationships will be a boon this crisis year as transparency translates into savings for tenants. But if they want to navigate their way to creating successful shopping malls, it is no longer enough that tenants and developers are in the same boat. They have yet to jump into the same boat as the shopper.
As the ramshackle suburban train slowly trundles across the bridge over the Moscow River, a view of cupolas and bell towers unfolds like a museum diorama. Still, Kolomna is a modern, evolving city of modest size and closer inspection reveals a sharp contrast of old and new, of the well preserved and the largely derelict. The struggle for architectural preservation in Kolomna faces challenges common to all of Russia’s historic cities.
The response was unambiguous. “Of course!” they replied. Certainly, the buyers, sellers and consultants questioned by REQ were always likely to be positive about the market, even in difficult economic conditions. Yet, it appears that now really is the time to invest in land. However, beyond that the picture is slightly less clear.
Besides oil, a rich literary tradition and lots of snow, what’s one thing Russia has a ridiculous amount of? That’s easy – just look at a map. As the world’s largest country, Russia has millions of acres that are completely untapped for agricultural development, not to mention inexpensive. Combined with rising global food prices and the country’s need to tie its economy to something other than oil, which has proved to be an unstable resource recently, this mass of cheap, undeveloped land could be a boon for would-be buyers. But there are some serious caveats.
While reaching a price equilibrium establishes a balance between supply and demand, most goods and services markets, including the real estate market, have ways of making this journey smoother. These additional tools allow buyers and sellers, as well as tenants and landlords, to reach an agreement on mutually acceptable terms. In the office segment one of these tools is to fit out leased premises or to reimburse the costs for fit-out work.
In recent times, it has been standard market practice for rent to be calculated in reference to either the US dollar or the euro. Due to the unprecedented financial crisis, the ruble has lost significant value against these currencies and market rates for rents are tumbling, so it is not surprising that many tenants are seeking to terminate their leases or amend them to favorable terms.
Investment is something many Russian developers are lacking at the moment. So it may be good to know there is help at hand, for some at least. For that is one of the main aims of the Russia Development Fund, which in April acquired a 30 percent stake in Kvartstroi, after generating returns for its investors of course. Maxim Kunin, the managing partner of Investment Management Group, talks about setting up the fund and where he thinks the investment market in Russia is headed.
The financial crisis had already touched all segments of St. Petersburg’s commercial real estate market by the first quarter of 2009. Demand has significantly dropped, rental rates are gradually falling and the amount of space up for let is also decreasing. There have been practically no investment deals on the market, as investors are waiting for further price drops. Naturally, what is increasing are capitalization and vacancy rates.
When we saw our results from the first quarter we had to ask ourselves, is there really a crisis?” said Galina Tkach. What surprised the director of IntermarkSavills’ leasing department was a trend she noticed when analyzing the changes in clients’ expectations since the beginning of the year. It appears that the estate agent’s clients are looking for larger apartments in more prestigious areas of the city.