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Russia saw record commercial real estate growth in 2011, unlikely to be repeated

There were 43 investment deals last year compared to 27 investment deals in 2010 and 50 deals closed in the record 2008. Investment rose to €4.55 billion and the average deal size was approximately €105.6 million. This compares with an average deal size of €71 million.

The largest deal in 2011 was the purchase by Morgan Stanley of the 191,000 square meters Galleria shopping centre in St. Petersburg in December, for an estimated €840 million.

The research report says that the stabilisation of the Russian economy in 2011 saw a level of confidence return to the real estate investment market. Domestic investors continued to dominate at 59% but the share of foreign investors rose significantly from that in 2003 to 2010 and this was much more balanced than in recent years, when 70 to 80% of investments were accounted for by Russian money. In pre-crisis years the balance was usually 70 to 80% foreign money.

The retail sector attracted slightly more investment than the office sector in 2011, some 38% versus 37%. The hotel sector also featured prominently at 13% due to the Ritz-Carlton sale. The industrial sector accounted for just 3%, and mixed use projects was 9%.

Moscow accounted for the majority of investments, with over 74% of all investments. St. Petersburg accounted for 22%. Other Russian cities which received investment in 2011 included Kaliningrad, Kaluga, Murmansk, Ulan-Ude and Samara. The majority of foreign investment outside Moscow was directed to St. Petersburg.

Yields are rarely disclosed in Russia however, the report suggests that yields for prime objects in Moscow at the end of 2011 were 8.75% for offices, 9.5% for retail and 11% for industrial. Prime objects in St.Petersburg can expect to attract similar levels in retail, as it is the fourth largest city in Europe with a population of 4.8 million that has greater wealth than the national average.

According to CBRE, overall economic growth in Russia is believed to have been in the region of 4 to 4.5%. The consensus view is that growth will be of a slightly lower level in 2012, though still far higher than the expected levels in the European Union. As such, the record volumes of investment in 2012 are unlikely to be repeated.

CBRE expects that Moscow will remain severely undersupplied in terms of quality new office centres in the short and medium term. In turn, this may propel investors towards other sectors such as retail and hotels.
‘2011 was a record year for investment in Russian real estate with €4.55 billion invested, which is over 1.5 times higher than in 2008, the previous record year. For the first time in a few years, retail attracted the largest portion, and accounted for the largest deal,’ said Christopher Peters, director of research, CBRE in Russia.

‘The share of foreign investors rose significantly from that in previous years, though domestic investors have accounted for the majority since the onset of the financial crisis. Yields in all sectors fell compared with 12 months ago. With slightly lower economic growth in Russia and globally in 2012 than in 2011, the record level is unlikely to be exceeded or repeated this year,’ he added.