RESEARCH
Q1 2015
INVESTMENTMARKET
COMMERCIAL REAL ESTATE INVESTMENT CLIMATE FORECAST
In Q1 2015, Brent oil prices were in the range of $47.09–$62.48/barrel
barrel
INVE
STM
ENT
MA
RKET
After hitting a new low in February 2015, the ruble strengthened against the US Dollar and Euro in March at 57.8 rubles and 62.7 rubles per US Dollar and Euro, respectively
With the ongoing crisis and pessimistic forecasts for the Russian economy as well as for the commercial real estate market in particular, we witnessed very few investment deals in Q1 2015, most of which resulted from negotiations that started back in 2013 and 2014.
Some of the new players coming to the real estate investment market are Russian companies which find the current risks acceptable and believe that real estate investing guarantees that their money will be secure. Sometimes these are companies for which real estate investment is not a core area of business.
The few investors are focusing their attention on problem assets and expecting a further decline in the market: in the current environment, some commercial real estate owners will have to put their assets for sale at a reduced price after failing to meet their loan commitments. Such deals are likely to make up a large part of investment in 2015.
Another type of deals that might account for a certain proportion of the investments are acquisitions of high-quality assets with revised lease contracts, which will adequately reflect the current market conditions.
$ 47.09–62.48/
$410million
The amount of investment in the Russian commercial real estate sector decreased by 30% in Q1 2015 as compared with Q1 2014 and by 80% from Q1 2013, totaling
Retail
Industrial
Sunny
Sunny intervals
Overcast
Rain
Stormy
Offices
CZECH REPUBLIC
NORWAY
IRELAND DENMARK
BELGIUM
UK
GERMANY
FRANCE
SPAIN
PORTUGAL ITALY
FINLAND
SWEDEN
NETHERLANDS
RUSSIA
POLAND
GREECE
ROMANIA
UKRAINE
TURKEY
INVESTMENT MARKET | Q1 2015
Source: Knight Frank Research, 2015
KEY INTEREST RATE
Net capital outflow Investment volume
Foreign investors Russian investors
COMMERCIAL REAL ESTATE INVESTMENT VOLUME DUNAMICS BY SEGMENT
COMMERCIAL REAL ESTATE INVESTMENT VOLUME DYNAMICS IN RUSSIA AND NET CAPITAL OUTFLOW*
INVESTMENT VOLUME DYNAMICS BY THE INVESTORS’ ORIGIN
0
1
2
3
4
5
6
7
8
9
10
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F
INVE
STM
ENT
MA
RKET
-160
-120
-80
-40
0
40
80
120bln $bln $
bln $
43.7
87.8
-57.5
-30.8
-81.4
-53.9 -61
-151.5-131.0-133.6
0
2468
10
2014 2015F201320122011201020092008
2009 2010 2011 2012 2013 2014
17% 22% 34% 29% 14%
2015F
The massive outflow of capital Russia faced in 2014 is forecasted to continue this year. According to the Central Bank of Russia, if the “risk scenario” for the nation’s economy occurs (i. e., if oil prices are at $40–$45/barrel), the outflow of capital from the country will reach
20072006
The Central Bank cut the key interest rate two times in the first quarter of 2015. As of April, the key rate was
$131
14%
bln
25%43%
5.5%7.0% 7.5% 8.0%
9.5%
17.0%15.0% 14.0%
13/0
9/20
13
3/03
/201
4
25/0
4/20
14
25/0
7/20
14
5/11
/201
4
12/1
2/20
14
16/1
2/20
14
30/0
1/20
15
16/0
3/20
15
10.5%
Retail Hotel Warehouses Offices Other
Source: Knight Frank Research, 2015
INVESTMENT MARKET | Q1 2015
850–1,100$
560–80022,000–35,000
$₽
560–80022,000–35,000
$₽
300–70020,000–25,000
$₽
700–85023,000–37,200
$₽
300–70020,000–25,000
$₽ 700–
850$ 625–78020,000–35,000
$₽
Rental rates
$/sq m/year (triple net)
rub/sq m/year (triple net)
Central business district(Garden Ring)
Kremlin district
Leningradskoe direction
Belorusskiy business district
Moscow-City
Paveletsky business district
South-Western direction
The number of Western companies willing to invest in real estate in the current conditions dropped dramatically; however, Q1 2015 saw completion of a major deal by the US investment fund Hines, which bought an office building in the Metropolis complex
OFF
ICE
MA
RKET
Rents Bottoming Accelerating Rental GrowthRental Growth Slowing Rents Declining
WarsawZurich
AmsterdamBrusselsBucharestBudapestCopenhagenGenevaParis
BerlinHamburgMunichOsloStockholmVienna
FrankfurtHelsinki
BarcelonaDublinEdinburgh LisbonLondon (City)London (West End)MadridMilan
MoscowPrague
Office marketinvestment volume, bln $
GDP growth, %
bln $
0
1
2
3
4
-10-8-6-4-20246810
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F
%
GDP AND OFFICE REAL ESTATE INVESTMENT DYNAMICS IN RUSSIA
OFFICE RENTAL CYCLE
4,000–5,200 $/sq m200,000–260,000 rub/sq m
140,000–260,000 rub/sq m
29.0%
$160
16.7% Class A
Class A
Class B
RENTAL RATES IN THE MAIN BUSINESS DISTRICTS OF MOSCOW
10.5–11.0%
8%
7%6%
4% 4% 4% 4%
Moscow Bucharest Dubai Warsaw London Singapore Tokio
PRIME YIELD IN BUSINESS CENTERS IN THE WORLD
New York
VACANCY RATE
SALE PRICE
PRIME YIELD
2,700–5,000 $/sq mClass B
10.5–11.0%
In the first three months of 2015, investment in the office real estate sector totaled
million
Source: Knight Frank Research, 2015
INVESTMENT MARKET | Q1 2015
RENTAL RATES IN SHOPPING CENTERS OF MOSCOW
THE DYNAMICS OF INVESTMENT IN RETAIL MARKET OF RUSSIA AND CONSUMBER CONFIDENCE INDEX*
The consumer confidence index (CCI), which reflects consumers’ overall expectations, decreased by 14 p. p. in Q1 2015 as compared with the previous quarter
RETAIL MARKET
* CCI is an indicator designed to measure consumer confidence, which is defined as the degree of optimism about the state of the economy that people express through their consumption and savings.Determined on the basis of quarterly surveys by Rosstat in all regions of Russia, CCI is the relative value of the number of positive and negative responses from the total number.
* Rental rate, $/sq m/year; the share paid based on retail turnover, %
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F
Retail investment volume Consumer Confidence Index (CCI*)
0
1
2
3
4
-25
-30
-35
-20
-15
-10
-5
0
%bln $VACANCY RATE
PRIME YIELD FOR SHOPPINGCENTRES IN THE WORLD
6.00% 6.00%
4.25%4.50%
8%
PRIME YIELD
10.5–11.0%
Warsaw Milan LondonParis
In Q1 2015, investment in the retail
property market declined by more
than 70% year-on-year
In the first quarter of 2015, Russia’s retail turnover fell by 6.7% versus the same period last year
Urban hypermarket (3,000–7,000 sq m)$150–350; 2–4%
Hypermarket (>7,000 sq m)$100–250; 2–4%
Accessories (10–70 sq m)$2,500–4,500; 10–16%
White & Brown (1,500–3,000 sq m)$250–500; 2.5–6%
Sporting goods (1,500–2,500 sq m)$400–800; 6–8%
Goods for children (1,000–2,500 sq m)$250–450; 9–14%
Apparels (50–300 sq m)$800–2,500; 10–14%
Footwear (50–300 sq m)$900–3,000; 10–15%
Supermarket (1,500–3,000 sq m)$250–500; 4–6%
Entertainment centres (100–1,500 sq m)$250–500; 8–12%
DIY (>5,000 sq m)$200–350; 4–6%
Entertainment centres (2,000–5,000 sq m)$100–200; 4–7%
Source: Knight Frank Research, 2015
INVESTMENT MARKET | Q1 2015
bln $
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2006 2015F2007 2008 2009 2010 2011 2012 2013 2014
VACANCY RATE
PRIME YIELD
9.8%
12–13%
Rental rates
WAREHOUSE INVESTMENT VOLUME DYNAMICS IN RUSSIA
PRIME YIELDS AND RENTAL RATES FOR WAREHOUSE COMPLEXES IN EUROPE
>20%4,500–5,000
0–5%4,500–5,000
10–20%3,200–4,000
>20%3,500–4,400
10–20%4,200–5,000
5–10%5,000–5,500
5–10%5,000–5,500
5–10%5,000–5,500
0–5%5,000–5,500
WA
REH
OU
SE M
ARK
ETRENTAL RATES AND VACANT SPACE IN TERMS OF DIRECTION
Lond
on
Gen
eva
Ham
burg
Osl
o
Amst
erda
m
Hes
linki
War
saw
Lisb
on
Buch
ares
t
Mos
cow
Although the first quarter saw no acquisitions of warehouse property completed, we can expect that a number of deals will be closed by the end of 2015, with companies buying warehouses either for their own needs or for investment purposes
204
223
73 91 129
71 48 48 103
0
50
100
150
200
$/sq m/year
136
4.75%6.00% 6.25% 6.25% 6.75% 7.00% 7.50% 7.75% 9.50%
12.00–13.00%Prime yield
SALE PRICE
40,000–45,000 rub/sq m
NORTH
NORTH-WEST
MKAD
NORTH-EAST
EAST
WEST
SOUTH-WESTSOUTH-EAST
SOUTH
Moscow
Asking rental rates, rub/sq m/year
Vacancy rates
Source: Knight Frank Research, 2015
INVESTMENT MARKET | Q1 2015
© Knight Frank LLP 2015 – This overview is published for general information only. Although high standards have been used in the preparation of the information, analysis, view and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects.
Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank.
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ICES
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