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. Last Updated: 07/27/2016

LaSalle Sees No Worries on Horizon

VedomostiConstruction work at Moskva-City. Jagger said too many big developers were working on the project for it to fail.
The real estate market is set for a brief hiatus as participants take stock of the situation following the recent global credit squeeze, Mark Jagger, Jones Lang LaSalle director for Russia and CIS, said in a recent interview.

Jagger played down the possibility of any long-term repercussions for the Russian property market, however, saying the situation would return to normal at the beginning of next year.

"If anything, there will only be a small ripple effect rather than a wave hitting the Russian market," Jagger said.

Jagger put the resilience of the domestic market down to a combination of factors.

With a very strong macroeconomic picture for the country's economy as a whole, demand in the commercial real estate sector is soaring as Russia plays catch-up with the developed economies of the West.

"When you have that sort of underdeveloped situation, one way or another the market will find a way to provide what the demand is looking for," he said.

Also, since the vast majority of the primary money for development still comes from Russian banks, the local market remains relatively insulated against crises abroad.

In addition, Jagger pointed to pledges from the cash-rich government to boost investment as an insurance against the liquidity crunch spilling over into Russia.

The government is currently sitting on a bumper cash pile thanks to a massive influx of petrodollars into the coffers.

And while the credit crunch has primarily affected foreign banks looking to refinance loans for development projects, Jagger said investors from around the globe were still showing growing interest to get into the local market.

"This is a growing market, the fundamentals are strong and it is too big to ignore," he said.

Investment is increasingly coming from a widening number of countries, from established players, such as Britain, Scandinavia, Germany and Austria, to newcomers such as Ireland and the Middle East.

With the presidential election just five months away, Jagger said that although some newcomers might hold back, many investors were unconcerned by any potential change in the country's political landscape.

As the Russian market matures, Jagger said, foreign institutional investors, such as pension funds, would increasingly be looking to invest in the country.

The past twelve months have seen a flurry of listings from Russian real estate firms, and Jagger predicted that, despite the downturn in the international atmosphere, the trend is set to continue as the companies look to raise capital.

Despite a perception that real estate stocks have not fared too well, there is not a sense of investor fatigue for Russian real estate IPOs, he said,

One offshoot of the IPO boom has been a growth in transparency in the Russian market, with investors now more comfortable with the perceived and actual risks of putting their money into the country, Jagger said.

Speaking about the city's office sector, Jagger dismissed talk of a bubble. Despite prices for prime office rents for Moscow topping those in Manhattan, he said the gulf between supply and demand was still so great that new office projects were being snapped up way ahead of completion and prices would remain buoyant.

The vacancy rates for offices in Moscow remains very low, hovering at around 4 percent.

Over the next few years the flagship Moskva-City development is set to add 4 million square meters, a space three times larger than London's Canary Wharf, to the office market.

Jagger also downplayed fears that infrastructure and transport problems could scupper the success of the multi-billion-dollar project.

"So many of the biggest names in development are involved in that project that it will not be allowed to fail," he said.

Jagger singled out the mushrooming retail development sector as being particularly promising. The current ratio of built retail space per capita in Russia is less than half that of Western Europe.

Looking beyond Moscow, Jagger highlighted growing interest in the so-called milliyoniki towns, population centers with more than one million inhabitants, such as Nizhny Novgorod and Kazan.

Although regional markets are still lagging several years behind Moscow, Jagger said increased investment in retail development around the country was a sure sign that the markets are picking up.