Russian commercial real estate investment to reach US$7.2 billion in 2012
2012 saw a minor contraction in overall investment activity in Russian commercial real estate. According to Cushman and Wakefield, the expected volume of commercial property investments will reach about US$7.2 billion (€5.5 billion) by the end of 2012.
The YoY volume will be 5% less that in 2011.
In 2012 the retail sector will contribute more than 45% of the total volume, the office segment’s share will be about 30% and about 15% and 7% for the hospitality and Warehouse and Industrial segments respectively.
Investors are again focused on the most developed and stable markets, Moscow and St. Petersburg, and more averse to riskier regional projects.
Moscow remains the 3rd largest investment market in Europe, following London and Paris (Real Capital Analytics data).By the end of 2012 the total transactional volume in Moscow alone is expected to exceed US$6 billion (approx. €4.6 billion). Being stable and substantial, the Moscow property market is the most attractive location in Russia for large international investors. The city remains the no.1 market for office and Warehouse & Industrial investments, whereas the competition in the retail and hospitality sectors from large regional cities, especially from St. Petersburg, has become more tangible.
St. Petersburg, the second largest property market in Russia, was ranked 14th among the top European property markets in 2012 (RCA), largely due to the Galleria shopping center transaction which is the largest transaction in the Russian investment market so far and is thus unique. Although there is significant investment interest in St.Petersburg, the city, however, suffers from a lack of investment quality properties which limits its investment capacity. Investment volumes here will remain modest, at about US$800 million (approx. €618 million) annually over the next few years.
Regional markets showed further contraction in 2012 with US$ 75 million (approx. €58 million) of investments, 55% down compared to 2011 and almost 75% down from 2010. As the preferences of investors move towards more liquid markets, we do not expect significant changes in regional markets in 2013.
Capitalization rates for prime property were stable throughout 2012 and are at 8.75% for offices, 9.25% for shopping centers, 9.5% for hospitality and 11% for W&I property accordingly. Capitalization rates in St. Petersburg market are 75 – 150 bps higher, and regional markets’ numbers show a 150 – 350 bps premium. The capitalization rates for trophy assets are 40 – 50 bps lower. We do not expect any major changes in rates in 2013.
“We see a return of some normalcy to the investment market with both large Russian and foreign investors playing important roles. In 2012, retail was probably the most sought after asset class given its proximity to the consumer while office remained strong and industrial was also attracting attention. Banks were lending to good owner/operators and developers were also able to tap funding. Barring any systemic events, as the global economy continues its recovery we will see growing interest in the Russian real estate market where yields are healthy and opportunities abound. Our expectation is that growth in total investment volumes will push 2013 results to exceed those we expect this year”, commented Tom Cashel, Partner, Head of Capital Markets at Cushman & Wakefield Moscow.
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