July 05, 2017

Russia real estate investment volume exceeds USD 2 billion in H1 2017

Russia real estate investment volume exceeds USD 2 billion in H1 2017

In Q2 2017, Russia’s real estate investments more than doubled vs Q2 2016 and reached USD 1.4 billion, according to JLL calculations. This brought the H1 2017 volume to USD 2.2 billion, 39 percent up from H1 2016 (USD 1.6 billion).

Olesya Dzuba, Head of Research, JLL, Russia & CIS, comments: “The Rouble is trading in a range of 56-61 per US dollar and displays lower volatility compared to H1 2016. Along with currency stability and the recovery of the Russian economy, investor activity on the real estate market also improves. Several deals from 2016 were closed in H1 2017, raising the overall number of completed transactions. We expect several other deals started in 2016 to be completed this year.”

JLL analysts expect investments to continue growing in the near future. According to their forecast for 2017, investment volume will reach USD 4.5 billion.

In H1 2017, retail transactions dominated, with 41 percent of the total volume. The office sector accounted for 32 percent. The sale of Vozdvizhenka Centre to Fosun Group and Avica Management Company became a major transaction of the year. The share of foreign investments increased from 6 percent in 2016 to 21 percent in H1 2017.

“Investment activity continues to recover along with the rental market stabilization. There is a noticeable improvement in the presence of foreign investors. Western, Asian and Middle Eastern companies are interested in quality Russian assets. Fosun Group became the first Chinese investor into Russian real estate assets since 2010. We also expect a number of deals with foreign players to reach advanced stages by the end of the year,” said Evgeniy Semenov, Regional Director, Head of Capital Markets, JLL, Russia & CIS.

In H1 2017, the main activity was concentrated in Moscow, with 73 percent of all deals closed there, although its share declined from 82 percent in H1 2016. At the same time, a growth of investments was recorded in St. Petersburg, the share of which increased from 6 percent in H1 2016 to 18 percent in H1 2017 due to several large transactions (sales of Leto SEC and of EPI Russia I Ky portfolio). In absolute terms, the St. Petersburg investment volume increased four times to USD 393 million in H1 2017 from USD 96 million in H1 2016.

Prime yields remain flat. As benchmarks for the market players, JLL analysts consider Moscow prime yields between 9.0-10.5 percent for offices and shopping centres and 11.0-12.5 percent for warehouses; St. Petersburg prime yields at 9.5-11.5 percent for offices and shopping centres and 11.5-13.5 percent for warehouses. On the back of recent key rate cuts by the Central Bank of Russia, the cost of bank financing will continue declining and will likely lead to yield compression.

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