OVERVIEW
ExEcutIVE SummaRy• TherewasmoderatepositivetrendintermsoflendingtotheconstructionsectorinQ32011.
• Investmentactivityremainedatthehighlevelsobservedsincethebeginningof2011.Internationalinves-
tors’activityrosesignificantly-foreigncapitalaccountedfor44%oftotaltransactionsonthecommercial
realestatemarketinninemonthsof2011.
• Retailkeptitsleadershipamongcommercialrealestatesegmentsbylevelsofinvestment,mainlyitwasdue
tolargevolumeoftransactionstypicalforthesegment.
Q3 2011InVEStmEnt maRkEt Moscow
Q3 2011InVEStmEnt maRkEtMoscow
2
Main events
• Moscowgovernmentplanstooffermore
than700lots(modestly-sizedrealestate
assetsandsharesininvestmentcontracts)
forsalebytheendoftheyearaspartofits
programmeofmunicipalassetsales.Thefirst
lotsforauctionwillbeapartofGostinyDvor
theOktaybrcinemaonNovyArbatstreetand
municipalstakesintheInternationalTrade
CentreandtheNovinskyPassazhmixed-use
complex.
• Anumberoftransactionsinvolvingwestern
investorswereclosedinQ3.Themost
significantwereasfollows:
HeitmanEuropeanPropertyPartnersfund
acquiredabuildingattheMetropolismixed-
usecomplex.Thiswasthefirsttransactionby
thefundsinceitenteredtheRussianmarket
in2007.
CapitalGroupcontinuedsaleofvarious
assetstoamasscashforimplementationof
largeprojects.UFGRealEstateboughtthe
PushkinskyDom(“PushkinHouse”)business
centreaswellastheConcordbusinesscentre
andMetromarketshoppingcentre(both
locatedinthesamebuilding),allfromCapital
Group.
OneofthelargesttransactionontheRussian
commercialrealestatemarketpromise
tobetheacquisitionofSCGalereyainSt.
PetersburgbyAmericanbankMorganStanley.
Thedealisestimatedatthelevelof$1.1bln.
InVEStmEnt maRkEt OVERVIEW
Evgeny SemyonovDirectorofInvestmentandSales
The third quarter of 2011 saw heightened
interest of many commercial real estate market
players in regional projects. Investors have
been drawn to regional projects by a lack of
investment-quality projects in Moscow, while
developers have been motivated to seek op-
portunities outside the capital due to Moscow
government policies, which have limited
construction in the city.
Foreign investors are more conservative in their
choice of investment projects, so their interest
has stayed focused mainly on the Moscow and
St. Petersburg markets.
Main indicators
Segment Office Shopping Warehouse Hotels1
centres 3-5Class A B A B
Newsupply,thousandsqm, 51.1 141.2 — 91.5 — —
Change,% (+2.2%) (+1.5%) (+2.1%)
Vacancyrate,%; 13.3% 18.3% 2.5% 0.6% 4.5% 66.7%
ChangefromQ2,p.p (-1.2p.p.) (-0.9p.p.) (-1.0p.p.) (-2.4p.p.) (-1.5p.p.) (-1.3p.p.)
Rates,$persqmperannum; 835 480 100-500/700-4,0002 130-135 100-120 167
ChangefromQ2,% (+2.4%) (+2.0%) (+5.0%) (+2.2%) (+4.8%) (+11.8%)
Yield3,%; 8.5-9.0% 10.5-11.0% 9.0–10.0%10.0-11.0%11.5-12.5% 12.0-13.0%
ChangefromQ2,p.p.
Averagesaleprice,$persqm 6,500-8,000 4,500-6,500 3,000-7,000 1,200-1,400 600-800 200-1,000
1Forhotelstherespectivelinesshow:numberofnewrooms;roomoccupancy(%);averagedailyrate($perroomperday);andaveragesellingpriceperroom
(thousand$perroom)2Figuresforanchortenantsandretailgalleryoperators3Estimatedcaprate
Source:KnightFrankResearch,2011
*Asof10October2011the24.99%municipalstakeinOJSC
NovinskyBulvar,31,whichownstheNovinskyPassazhshopping
andofficecentre,hadbeensold
Q3 2011InVEStmEnt maRkEtMoscow
3
Financing
Thefirstninemonthsof2011sawanupturnin
lending.Totallendingtotherealsectorofthe
economyinQ3was6475blnrubles,whichis
43%morethaninthesameperiodof2010.The
constructionsectoraccountedfor5-6%oftotal
lendingtolegalentitiesandtoself-employed
individualsin2010-2011.
BorrowingincreasedinQ3comparedwithQ2,
buttherateofgrowthwasmuchslower.Thiswas
primarilyduetoreductionofthemoneymassin
Russiaandalsotostabilizationofaveragebank
interestratesat8%followingaperiodofsteady
decline.
Asbefore,largeRussianandforeignbanksare
mainlyfinancingprojectsthatarealreadyatan
advancedstageofcompletion.Alargeshareof
lendingisforcompletionofexistingobjects,
Lending to the construction sector con-tinued to grow in Q3 2011, but the rate of growth was slower
Source:KnightFrankResearchbasedonCentralBank
data,2011
Money mass and interest rates
Source:KnightFrankResearchbasedonCentralBank
data,2011
bln rub. bln rub.
Average rates under credits
Monetary weight
,
,
,
,
,
Source:KnightFrankResearchbasedonopen-accesssources,2011
Main transactions for financing/refinancing of commercial real estate projects in Q3 2011
Lender Borrower Purpose Transaction details Non-renewable credit line
Arban Construction Company LLC for construction of an office 1.24 bln rubles
and hotel complex in Krasnoyarsk
RGI
Refinancing of a loan for construction of the
Sberbank Tsvetnoy Central Market shopping centre in Moscow $150 mln
Tashir
Loan for purchase and development of the Raikin
shopping and entertainment centre $220 mln
Credit line for construction of the 2nd
MLP Podolsk LLC phase of the class-A $143.8 mln
MLP Podolsk warehouse complex
VTB Adamant Non-renewable credit line for construction of
2 phase of Kontinent shopping centre 44 mln euro
City Palace LLC
Credit line for construction of Evolution Tower
mixed-use complex $345 mln
Gazprombank Credit line for financing
Stroitel and refinancing of construction projects 4.2 bln rubles
Stroitel
Credit for completion of
KIT Finance DVI Holding onstruction work at the KomsoMALL 1.65 bln rubles
Rosbank Immofinanz shopping centre in Volgograd $70-72 mln
Russky Kapital Dmitry Kulkov, Vladimir Razumnov, Partial financing for construction
Vyacheslav Shikulov of Vnukovo Outlet Village $20 mln
UniCredit Bank Credit line for the Ducat Place III business centre $205 mln
Nordea Bank with
Marfin Popular Bank Finstroy Refinancing of completed shopping centres in
Ufa
and Lipetsk1.1 bln rubles
Refinancing of a $143 million credit
Nordea Bank AFI Development and Snegiri Development line at MDM Bank for construction $170 mln
of the Four Winds business centre
Source: Knight Frank Research based on open-access sources, 2011
Hines
Q3 2011InVEStmEnt maRkEtMoscow
4
Retailremainedthemostattractivecommercial
realestatesegmentinQ3:itsshareincreasedby
7p.p.incomparisonwiththefirstquarterand
reached50%oftotalinvestmentsincommercial
realestate.
Office real estate
Relativelylowvolumeofinvestmenttransactions
intheofficesegmentwasmainlyduetoshortage
ofqualityprojectscapableofattractinginves-
tors,althoughforeignfundsshowedsomeinter-
estinthesegment.HeitmanEuropeanProperties
closedacquisitionofabuildingattheMetropolis
businesscentreandUFGRealEstateboughttwo
businesscentres(ConcordandPushkinskyDom)
fromCapitalGroup.
Growthofsupplyremainedsluggish:about
620,000sqmofnewqualityofficespacecame
ontothemarketinninemonthsof2011.Demand
wasrelativelystrongatabout650,000sqm,ac-
cordingtopreliminaryestimates.Weexpectsome
slowdowningrowthofdemandandstabilization
ofrentalratesifthecurrenteconomicuncer-
taintycontinuestoprevail.
involvingforeigncapitalwereclosedinthethird
quarter,includingpurchasebyHeitmanEuropean
PropertyPartnersofabuildingintheMetropo-
lismulti-usecomplexinMoscowfromCapital
Partners.
Foreigncapitalrepresented44%ofthevalue
oftransactionsinthefirstthreequartersof
2011.Inviewofthetraditionallyconservative
approachofwesterninvestors,thispointsto
loweringofrisksontheRussiancommercialreal
estatemarketanditsincreasingattractiveness
onglobalcapitalmarkets.
Duringthefirstninemonthsof2011theshare
oftheRussiancapitalsankto63%intotal
transactionvolume,whilein2009-2010more
than90%ofinvestmentswereinMoscow.This
wasaccompaniedbysubstantialgrowthinthe
shareofSt.Petersburg,whichaccountedfor34%
oftotalcommercialrealestateinvestmentsin
thefirstthreequartersof2011.Investorsalso
showedinterestinotherregionalcities(acquisi-
tionbyDVIGroupoftheprojectforconstruction
oftheKomsoMALLshoppingcentreinIrkutskis
oneexample).
constructionofsecondphasesandproject
refinancing.Newandsmall-scalecompanies,
developmentprojectshadtoattractfundingon
lessfavourableterms,whichconsecuentlyreduce
thebusinessprofitability.Someofthemdon’t
sustainthecompetitionandleavethemarket.
sThisledtotheexclusionfromthemarketof
weakplayersandconsolidationoftheconstruc-
tionsectoramongthemajorrealestatedevelop-
ersandbanks.
Asfortheterritorialdistributionoffinanc-
ing,therehasbeenanincreaseintheshareof
regionalprojectsintotallending.Thisisbecause
manydevelopershavereactedtolimitedoppor-
tunitiesinMoscowbyexpandingtheirbusiness
inregionalcities.
Supply and demand
InvestmentactivityremainedathighlevelsinQ3
andtotalinvestmentsinthefirstninemonthsof
2011werenearlydoubletheirlevelinthesame
periodof2010.
Increasedactivitybyinternationalinvestors
wasadefiningfeatureofcommercialrealestate
investmentsinQ3.Anumberoftransactions
Source:KnightFrankResearch,2011
The market is moving back to the situ-ation in 2007-2008, when more than half of transactions represented foreign capital
The share of Moscow in total commercial real estate investments declined signifi-cantly in the first nine months of 2011
Source:KnightFrankResearch,2011
Retail real estate was in first place by level of investments in nine months of 2011
Source:KnightFrankResearch,2011
Russian companiesForeign companies
Moscow Saint Petersburg
Other regionsHotel real estateWarehouse & Industrial real estate
Office real estate
Retail real estate
Q3 2011InVEStmEnt maRkEtMoscow
5
Main hotel real estate transactions in Q3 2011
Buyer Seller Assets Transaction value
(estimate)
MirtekGroupRosatomBaikalhotel$13.8mln
IndividualbuyerMoscowcityhallMoskvahotel(49%ofOJSCDekmos)$150mln
Individualbuyer-RushotelinSvetlogorsk$8mln
RegionalhotelchainIzhevskHotelLLCParkInnhotelinIzhevsk$23mln
Source:KnightFrankResearchbasedondatafromopen-accesssources,2011
Retail real estate
Transactionvolumesintheretailsegment
exceeded$3blninthefirstninemonthsof2011,
representingabout50%ofthetotalvalueof
commercialrealestatetransactionsinthepe-
riod.Thelargesttransactionforthreeyearswas
closedinthethirdquarterof2011whenMorgan
StanleyinvestmentbankboughttheGalereya
retailandleisurecomplexinSt.Petersburg.
InvestoractivityontheMoscowmarketwasalso
intense:TashirGroupboughttheRaikinshopping
andleisurecentreinMarinaRoshchadistrictand
UFGRealEstateacquiredtheMetromarketshop-
pingcentre.Anumberofotherlargetransactions
arealsobeingfinalizedatpresent,severalof
whichconcernstreetretail.
TheretailpropertymarketinMoscowisstill
experiencingverylowlevelsofnewsupply.No
shoppingcentreswereopenedinQ32011.Rapid
expansionbyretailoperatorshasthereforeled
toashortageofretailspaceinMoscow,which
isconfirmedbyloweringofthevacancyrateto
2.5%.
Hotel real estate
Investorinterestinthehotelsegmentwas
significantlygreaterduringthefirstninemonths
of2011thaninthesameperiodof2010.Market
developmenthasbeensupportedbythepolicy
ofMoscowcityhall,whichissellingoffits
non-coreassets.Cityhall’ssharestakeinOJSC
Dekmos,whichisrebuildingtheMoskvahotel,
wassoldinQ32011andcitystakesinvarious
hotels–theNational,RadissonSASSlavyanskaya,
30%ofsharesintheHiltonLeningradskaya,and
otherassets–willbeofferedforsaleinthenear
future.
Hotelscontinuedtoshowstrongoperating
indicatorsinQ3.Totalsupplygrewby770rooms
inninemonthsof2011despitepostponementof
severalscheduledopenings.Thisisarelatively
highrateofgrowthfortheMoscowmarket,
althoughitisbelowtheratesachievedin2010.
Weexpectthepositivetrendstobecontinued
incomingmonths,althoughsomeslowdownis
possible.
Main retail real estate transactions in Q3 2011
Buyer Seller Assets Transaction value
(estimate)
RomanovProperty
HoldingsFund — DreamHouse
—
MorganStanley — GalereyaS&EC $1.1bln
DVIGroup Retailquarter Projectforconstructionof
-Irkutsk theKomsoMALLSC$80mln
Tashir Opin Raikinshoppingand
entertainmentcentre$100mln
RMBInvest CapitalGroup 3Metromarketshoppingcentre $117mln
UFGRealEstate CapitalGroup Metromarketshoppingcentre $57mln
Source:KnightFrankResearchbasedondatafromopen-accesssources,2011
Main office real estate transactions in Q3 2011
Seller Buyer Assets Transaction value
(estimate)
UFGRealEstate CapitalGroup PushkinskyDomand
Concordbusinesscentres$243mln
Orcoproperty RadishchevskyBC —
SuttonHoldings Moscowcity 25%ofshares$47mln
Limited Hall inNovinskyPassage
O1Properties — EvokomPlaza $25mln
Source:KnightFrankResearchbasedondatafromopen-accesssources,2011
Q3 2011InVEStmEnt maRkEtMoscow
6
Warehouse real estate
Investorsinalargenumberoftransactionsinthe
thirdquarterof2011wereend-users.Twotrans-
actionswereclosedinvolvinglargeRussianretail
companies,whichinvestedtheirownmoneyin
constructionofwarehousesdesignedandbuilt
tomeettheirspecificneeds(build-to-suit).PNK
Groupwasthedeveloperinbothcases.
Foreigninvestmentfundsarestudyinginvest-
mentprojects.RavenRussiaplanstoinvestin
constructionorpurchaseofwarehouses,andthe
AmericanfundHinesGlobalREIThasannounced
itsintentiontoacquirethePNK-Chekhov
warehousecomplex.Valueofthecomplexis
estimatedat$450miln.
Warehousepropertyiscurrentlyinshortsupply:
vacancyintheclass-Asegmenthadfallento
0.5-1%bytheendofQ3.About770,000sqmof
newspaceisscheduledtoopenin2012,butnew
propertiesarealready70%lettotenantsbefore
opening.
Forecast
Weexpectcommercialrealestateinvestmentsto
exceed$7bln2011,whichwillbearecordlevel
fortheRussianmarket.Ifvarioustransactions
nowatthenegotiationstagearecompletedin
Q4,theshareofforeigncapitalcouldriseabove
50%ofthevaluealltransactionsin2011.How-
ever,theuncertaineconomicclimateandhigh
levelsofvolatilityonworldfinancialmarketscan
inhibitexpansionofinvestmentmarketin3-6
monthsterm.
Main warehouse real estate transactions in Q3 2011
Buyer Seller Assets Transaction value
(estimate)
Dixy PNKGroup Multifunctionalwarehouse
(44,000sqmtotalspace) $83mln
Largeretailer PNKGroup Warehousecomplex
(50,000sqmtotalspace) —
Source:KnightFrankResearchbasedondatafromopen-accesssources,2011
Cap rates in commercial real estate segments will remain at 3Q levels until the end of 2011
Source:KnightFrankResearch2011
Office Retail Warehouse & Industrial
OVERVIEW
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Americas & CanadaBermudaCaribbeanCanadaUSA
Office Real EstateStanislav TikhonovPartner [email protected]
Warehouse Real Estate, landViacheslav Kholopov Director [email protected]
Retail Real EstateSergey Gipsh Regional Retail Director, Partner [email protected]
Professional Consulting ServicesKonstantin RomanovPartner, Director [email protected]
Elite Residential Real EstateElena YurgenevaDirector [email protected]
Financial Markets and InvestingEvgeniy SemyonovPartner, Director [email protected]
Valuation ServicesOlga Kochetova Director [email protected]
Saint PetersburgNikolai Pashkov
General Director [email protected]
KyivMikhail YermolenkoGeneral Director [email protected]
Marketing, PR, Market Research, HRMaria KotovaPartner, Executive Director [email protected]
Established in London more than a century ago, Knight Frank is the renowned leader of the international real estate market. Together with Newmark Company, Knight Frank’s strategic partner, the company encompasses 243 offices in 43 countries across six continents.
Knight Frank has been a symbol of professionalism for tens of thousands of clients all over the world for 116 years. After 16 years, Knight Frank has become the leading company in the commercial, warehouse, retail and residential real estate segments of the Russian real estate market. More than 500 large Russian and international companies in Russia have already made use of the company’s services.
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