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Q3 Investment Market Review: Commercial real estate investment in Russia reached $1.8 billion

In Q3 2014, despite the unstable economic and political situation in Russia, the commercial real estate market saw an increase in investment activity. The total volume of investment deals for the period reached $1.8 billion, which is 50% more than during the entire first half of the year, when approximately $1.2 billion was invested in commercial real estate in Russia.
According to Colliers International, investor interest in high-quality assets, which are largely concentrated in Moscow, remains high. In Q3 2014, the Russian capital accounted for approximately 91% of the investment deals. The office segment received approximately $861 million (48%) in investment while the retail segment attracted $410 million (23%). The remaining investment was distributed among hotel and large residential properties, the warehouse segment and land.

Investors continued a trend of investing money in already established portfolios of institutional assets which are under the management of an experience market player, showing a preference for indirect investments in commercial real estate. For example, Goldman Sachs acquired another 6% of the shares of O1 Properties.

In Q3 yields in Moscow remained at the same level they have been at since the start of the year: for prime office, retail and warehouse properties they were 8.5%, 9% and 11%, respectively. At present the Moscow commercial real estate market has yet to see any transactions which would indicate a change in yields. However, it is possible that yields could climb 0.5 to 1 percentage point before the end of the year.

The most notable deals of Q3 2014 included the purchase by BIN Group structures of the Novinsky Passage business and retail centre from VEB for 13.4 billion roubles in an auction, the purchase by the sovereign fund Qatar Investment Authority of the elite residential development Pokrovsky Hills as well as the sale of three Moscow business centres to Eastern Property Holdings Ltd. EPH bought back 90% stakes in the Berlin House and Geneva House business centres and also acquired full ownership of the Severnoye Siyanie office tower for $152.8 million.

Stanislav Bibik, Regional director, head of capital markets, Colliers International Russia: “Despite the negative environment, in the third quarter the Russian commercial real estate market demonstrated a positive dynamic characterized by increased activity on the investment market. In the fourth quarter we expect the completion of several major transactions, and according to our projections the total investment volume for the year will amount to $4-4.5 billion, which in the current situation can be considered a rather substantial achievement.”