Business Conditions – Russia
The growth of the Russian economy was clearly slower than what forecasts expected. The weaker development is the result of lower-than-expected domestic consumption, weak development in investments and the slowing growth in consumption.
According to Russia’s Ministry of Economic Development, GDP growth slowed down to 1.4 per cent in 2013. The GDP growth forecast for 2014 is 2.5 per cent. Economic growth in the coming years will be based on export growth, higher purchasing power and increased investments.
The transaction market
In line with the previous year, the transaction market in 2013 was brisk. According to CB Richard Ellis, the transaction volume in 2013 was approximately USD 7 billion.
At more than 80 per cent, Moscow’s share of this volume remained high. The share of St. Petersburg declined, while transactions in smaller cities increased.
Office and retail premises retained their position as the most popular investment targets. Offices accounted for 36 per cent of the volume and retail premises for 41 per cent of the volume. Industrial and logistics premises increased their share to approximately 19 per cent.
The yield requirements for prime office and shopping centre properties in Moscow remained roughly on par with the 2012 levels. The yield requirement for office properties was approximately 8.5 per cent, while the yield requirement for shopping centres was approximately 9 per cent and for industrial and logistics premises approximately 11 per cent.
The market for office premises
The average vacancy rate for office premises in Moscow increased slightly in 2013. According to CBRE, the average vacancy rate at the end of 2013 was 12 per cent. The vacancy rate for Class A office premises increased to 17 per cent and the vacancy rate for Class B office premises increased to 11 per cent.
By the end of 2013 some 890,000 square metres of new office space was completed in Moscow, which is approximately 60 per cent higher than in 2012. Approximately 25 per cent of the new office space was Class A office space, while approximately 75 per cent of it was Class B office space.
In line with the previous year, rent levels remained stable. At the end of the year 2013, the rents for prime properties stood at approximately USD 1,200/m² per year. The rents for Class A office spaces were approximately USD 750/m² per year, whereas the rents for Class B office spaces were approximately USD 450/m² per year.
In 2013, the average vacancy rate of St. Petersburg office space did not undergo significant changes in comparison to the year before. The vacancy rate for Class A office space was approximately 13 per cent, while the vacancy rate for Class B office space was approximately 7 per cent.
The rents for both Class A and Class B premises increased slightly during the year 2013.
New construction activity for office premises in St. Petersburg in 2013 was fairly high in relation to the size of the market. In 2013, a total of approximately 280,000 square metres of new office space was completed. The total combined volume of Class A and Class B office properties currently stands at approximately 2.5 million square metres.
The market for retail premises
Shopping centre construction in Russia continued to be brisk in 2013. According to estimates, some 1.3 million square metres of new premises were completed in 2013. This is likely to be increased by a further 1.5 million square metres set for completion in 2014.
The average rent level in Moscow’s shopping centres remained in 2013 on par with the rent levels of late 2012.
Demand for Moscow’s shopping centre premises continued to be high, keeping the vacancy rate low. At the end of 2013, the average vacancy rate in Moscow’s shopping centres was approximately 2.6 per cent. The vacancy rate is forecast to increase slightly during the year 2014, due to a great amount of new construction.
According to CB Richard Ellis, some 260,000 square metres of new shopping centre premises were completed in Moscow in 2013. This represents a nearly 50 per cent increase in comparison to 2012. A record of approximately 600,000 square metres of new space is forecast for completion in 2014.
The market for logistics premises
The meagre supply did not impact the rent levels of logistics properties in the Moscow area in 2013. The rent level of prime logistics premises remained at USD 140/m² per year.
The vacancy rate for Class A logistics properties in 2013 was approximately 1.3 per cent. Some 930,000 square metres of new logistics space was completed in 2013, and a further 1,000,000 square metres is expected to be completed in 2014. The vacancy rate may increase as supply increases. Brisk demand and new properties leased prior to their completion are nonetheless likely to keep vacancy rates low and rents at their current levels also in 2014.
The average rent levels for logistics premises in St. Petersburg rose slightly in 2013, for both Class A and B properties. At the end of the year 2013, the rent level for Class B logistics properties stood at USD 90–110/m² per year, while the rent level for Class A premises stood at USD 100–130/m² per year.
Rental demand was high throughout the year and the vacancy rates for logistics properties in St. Petersburg decreased. During the second half of 2013, the vacancy rate for both Class A and Class B properties was less than 1 per cent.
Only 26,000 square metres of new logistics space was completed in St. Petersburg in 2013. This figure is expected to increase considerably in 2014, even to 600,000 square metres.
Bank of Finland
Ministry of Economic Development of the Russian Federation
CB Richard Ellis
Jones Lang LaSalle