2011 a record year for investment volume into Russian commercial real estate
2011 was the record year in terms of investment volume into Russian commercial real estate according to the latest research by CBRE. Russian investment market grew over 200% above the level reached in 2010 to €4.55 billion.
There were 43 investment deals last year compared to 27 investment deals in 2010 and 50 deals closed in the record 2008. The average deal size was approximately €105.6 mln. This compares with an average deal size of €71 mln in 2008. According to CBRE report 2011 was a record year for investment in Russian real estate, which is over 1.5 times higher than in 2008, the previous record year.
The largest deal in 2011, was the purchase by Morgan Stanley of the 191,000 m² (GBA) Galleria shopping center in St. Petersburg in December, for an estimated €840 million, from Meridian Capital CIS Fund, with an estimated yield of sub 9%.
The stabilization of the Russian economy in 2011 saw a level of confidence return to the real estate investment market. Domestic investors continued to pre-dominate – 59%. The share of foreign investors rose significantly from that in 2003-2010 and this was much more balanced than in recent years, when 70-80% of investments was accounted for by Russian money. In pre-crisis years the balance was usually 70-80% foreign money.
Unusually, the retail sector attracted slightly more investment than the office sector in 2011 – 38% versus 37%. The hotel sector also featured prominently (13%) due to the Ritz-Carlton sale. The industrial sector accounted for just 3%, and mixed-use projects for 9%.
Moscow accounted for the majority of investments, with over 74% of all investments (91% excluding Galleria). St. Petersburg accounted for 22%, or 4% excluding Galleria. Other Russian cities which received investment in 2011 included Kaliningrad, Kaluga, Murmansk, Ulan-Ude and Samara. The majority of foreign investment outside Moscow was directed to St. Petersburg.
Yields are rarely disclosed in Russia, however we believe that yields for prime objects in Moscow at the end of 2011 were 8.75% (offices), 9.5% (retail) and 11% (industrial). Prime objects in St. Petersburg can expect to attract similar levels in retail, as it is a very large city (and the fourth largest in Europe) with a population of 4.8 mln that has greater wealth than the national average.
According to CBRE, overall economic growth in Russia is believed to have been in the region of 4 to 4.5%. The consensus view is that growth will be of a slightly lower level in 2012, though still far higher than the expected levels in the European Union. As such, the record volumes of investment in 2012 are unlikely to be repeated.
As it is specified in the report Moscow will remain severely undersupplied in terms of quality new office centres in the short and medium term. In turn, this may propel investors towards other sectors such as retail and hotels.
Christopher Peters, Director of Research, CBRE in Russia, said: “2011 was a record year for investment in Russian real estate. €4.55 billion was invested, which is over 1.5 times higher than in 2008, the previous record year. For the first time in a few years, Retail attracted the largest portion, and accounted for the largest deal: the sale of the Galleria shopping centre in St. Petersburg for over €800 mln in December. The share of foreign investors rose significantly from that in previous years, though domestic investors have accounted for the majority since the onset of the financial crisis. Yields in all sectors fell compared with 12 months ago. With slightly lower economic growth in Russia and globally in 2012 than in 2011, the record level is unlikely to be exceeded or repeated this year.”
