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. Last Updated: 07/27/2016

Property Is the New Oil, Says Cushman

The real estate market is the country's "new oil" and will fuel economic growth as investors such as billionaire Oleg Deripaska buy property and construction companies, Cushman & Wakefield's director in Moscow said last week.

"Deripaska is investing in the new oil," said Sergei Riabokobylko, the Russia director for Cushman & Wakefield, the world's second-largest real estate services company, said in an interview. "Construction is the new economic driver in Russia."

Demand for office, residential and retail space is rising as Russia's economy continues to expand. Investment in building projects surged more than 35-fold in the past five years to about $4.5 billion in 2006, Michael Lange, chairman of Jones Lang LaSalle's Russian office, said in February.

Growth in Russia's regions will drive the real estate market as developers expand beyond Moscow and St. Petersburg, Riabokobylko said.

"Across the Russian Federation, the cities of 300,000 to 500,000 people are seeing rapid development of various infrastructure for real estate, be it shopping centers, warehouses or office buildings, certainly not to forget hotels," he said. "The regions are really where the story has been for the last two or three years."

International retailers such as IKEA, the world's largest seller of home furniture, and Metro, Europe's third-largest retailer, are opening outlets across Russia as wage growth increases consumer demand. The average monthly pay packet reached 12,580 rubles ($488) in March, according to the State Statistics Service, as the economy expanded 7.9 percent in the first quarter.

Mirland Development, a Russian developer whose shares trade in London, two weeks ago opened a $55 million shopping center in Yaroslavl. Its stores include Metro's Real supermarket and Israeli do-it-yourself chain Home Center, Norman Asset Management, the project's manager, said May 10.

Riabokobylko said the greatest worry now for foreigners investing in the real estate sector is what is known as counterparty risk.

"How strong is your partner, how able is he to perform to the standards that you expect as an investor, or as a development company," is a major concern, he said.

Another risk for real estate investors in Russia is the lack of information about consumer spending patterns, "particularly in the very rapidly developing retail sector in the regions," said Riabokobylko. He said there is "a lack of information about consumption, about patterns of shopping, that in many countries are taken for granted, but not in Russia."

Domestic retail real estate projects drew 238 million euros ($322 million) in investment in the first quarter, making it the second-biggest market in Europe after Germany, Jones Lang said in a report May 10.

European projects attracted a total of 3.1 billion euros over the period, Jones Lang, the world's No. 2 real estate broker, said in the report.