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Approximately $350 Million Invested in Moscow Retail Real Estate in Q1 2014

In Q1 2014 volatility on currency markets and increased economic risks hampered investment activity in Russia. Nonetheless, key players on the market continue to show interest in quality commercial properties, albeit in lower volumes. In the first three months of 2014 the greatest share of investment was in the retail sector, which saw $350 million in deals. Investment in the office sector totalled $151 million while $142 million was invested in land assets.
According to experts of Colliers International, the total volume of investment in commercial real estate in Russia in the first three months of 2014 amounted to $642 million, which is approximately 35% of the volume seen in the same period last year. The lower level of investment activity can be attributed to volatility on the currency market, which led to the postponement of several major transactions to the second quarter. Most investors are waiting for stabilisation on the currency market before closing out deals now in process and moving on to new ones. The second factor impacting investment activity in the short term has been Russia’s direct involvement in the political crisis in Ukraine and the negative reaction of Western countries.

Colliers International estimates that in Q1 2014 retail real estate accounted for 54% of total investment in commercial properties. The share of the office market stood at 24% while the land market accounted for 22%. Investor interest, as in the previous year, has been focused on assets in or near Moscow. All transactions were carried out exclusively by Russian companies.
    
Specialists of Colliers International report that capitalisation rates in Q1 2014 in the Moscow region remained unchanged at the level seen in 2013. For the prime class office, retail and warehouse properties they were 8.5%, 9% and 11%, respectively. There have been no recent transactions on the Moscow commercial real estate market which would indicate any changes in capitalisation rates. 

In the Q1 2014 large deals were seen in the retail and office segments and land was acquired for construction. Entities controlled by businessman Sergei Gordeev purchased the River Mall shopping centre for approximately $300 million. The developer KR Properties acquired the magazine printing house Almas Press on Krasnaya Presnya from VTB for approximately $25 million. Another major transaction was the purchase by Vnesheconombank of a piece of land on Zemlyanoy Val for around $50 million.

Analysts of Colliers International project a 30-40% reduction in the volume of investment in commercial real estate in Russia in 2014 to a level of $5-6 billion due in part to capital outflow, lower business activity in the country and the unstable situation in Ukraine. However, much will depend on the further development of the political and economic situation not only in Russia but in Western markets as well.

Stanislav Bibik, Executive Director, Head of Capital Markets, Colliers International Russia, notes: “The beginning of this year saw volatility on stock and currency markets and tensions in the geopolitical situation stemming from events in Ukraine. Despite the slowdown on the commercial real estate market, investors continue to analyse new acquisition opportunities as they await stabilisation of the current situation. As a financial instrument, commercial real estate is less prone to volatility, and investment deals involve a process that is drawn out in time. This means that the impact of the events in Ukraine on the real estate investment market will only become apparent when looking at the results of the entire year. The Russian commercial real estate market remains attractive for investment and is capable of drawing both Russian and international investors as the geopolitical and economic situation stabilises.”