Russia Real Estate Report Q3 2010 - New Market Report Published.
New report provides detailed analysis of the Real Estate market
“Green shoots” of recovery can be seen in the Russian economy and real GDP growth is expected throughout H110. Increased macroeconomic stability has come alongside a recovery in oil prices. However, the country suffers from a weak labour market and a financial system under pressure from the effects of the banking sector crisis in 2009 and so the overall economic recovery will be subdued.
Growth data for retail sales and industrial production highlight the difference between the performance of sectors directly linked to oil and those reliant upon domestic demand. Industrial production growth has strongly bounced to 1.5% year-on-year (y-o-y) in December, but real retail sales growth has remained firmly in negative territory, contracting by 3.6% y-o-y over the same period. In the commercial real estate market, our sources in Moscow, St Petersburg, Ekaterinburg and Samara confirmed that rental rates have fallen in each of the main sub-sectors (offices, retail and industrial) over the last year or so.
In Moscow, rental property rates for office and retail premises have decreased by almost 25% in 2009 as compared to 2008 and for industrial premises the decrease was about 20- 25% and local sources put this down to the global economic crisis causing the departure of many international investors and therefore producing lack of financial deals.
Local sources in Ekaterinburg describe many new projects that are currently under construction and estimate the total vacant rental space for the commercial properties to be around 25% for office space, 10% for retail space and industrial space at 18%. Samaran sources tell us that it has an over-supply of commercial real estate. In the first half of 2009, the office space market St Petersburg saw drops in rental values but by the end of the year, rates in the business centres virtually ceased to fall, levels of vacant space stopped growing and it has since been in a period of stabilisation.
One theme common to all four cities is the abundance of new projects. New supply will, in general, be extensive and cover all three subsectors. Capital values have dropped over the last year or so but by less than the extensive falls that rental prices have achieved - rents dropped between 20% and 35% in 2009, across all sub-sectors of the commercial real estate market. We expect that capital values will not pick up until the market has absorbed the amount of new developments coming online in the next two years. Therefore, in projecting yields, we assume that they will grow gently across the country for the next few years, until capital values catch up with rental prices. Interviews with our in-country sources were conducted in early March 2010.
Key Features Of This Report This is the latest edition of a new series of industry reports published that seeks to identify the key dynamics of the real estate sectors of 44 countries around the world, some of which are developed and some of which are, in every sense, emerging markets.
Once again, the questions that we seek to answer for each country remain as follows:
What are the main issues that will matter to actors in and around real estate development in the country concerned, both over the long and the short term?
What are the main constraints that they face?
What are the key insights that one garners when one compares the real estate sector of the country concerned with its peers in other countries?
For Q3 we have introduced a very substantial new improvement to the reports. We have incorporated data and qualitative observations provided to us by commercial real estate agents operating in the countries we survey. As a result we have gained a much clearer picture of the balance between demand and supply in each of three main sub-sectors - office, retail and industrial. We have also introduced a new approach to the forecasting of rental yields, which is discussed in the methodology sector of this report.