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News Release


EU/US Sanctions – Impact on the Russian Commercial Real Estate Market

​​​The elevated phases of the US and EU sanctions against Russia that have been introduced between July 16 and July 31 will in our view have a significant impact on the Russian commercial real estate market. The key sanction that concerns us is the limitation on access to US and EU debt markets for state banks. As risk perception remains elevated, the effective closure of the EU as an IPO and SPO destination for Russian companies will also have implications as will the broad deterioration in the macro-economy. 

The big unknown, and what will largely determine the impact of these sanctions, is not so much the market’s ability to assess the immediate effects, rather it is a question of timing. In our view if the sanctions are short-lived and Russia’s relationship with the US and the EU can be resolved or improved over the next few months, and the sanctions lifted before the end of the year, then the impact will be not be too severe. Predictions are challenging given the fluidity of events in Ukraine, however, we remain confident that come Autumn energy issues will take precedent and sanctions will give way to other priorities. 

However, the longer the sanctions persist the greater the risks to the economy and to the commercial real estate market. Vacancy rates across all segments of the market have been under pressure for some time, and rents too have started to be squeezed, however Russia is still fortunate to benefit from what is still a huge market – certainly in terms of retail turnover - and significant underpenetration of stock relative to European levels. The current sanctions will inevitably cause some dislocation, and some pain, but, assuming they are short-lived – which we believe they will be – we expect investment levels to pick up in 2015, consumer demand pressures to retreat and ultimately, as Russian risk perception moderates, for European IPO markets to open again. 

In this report JLL looks at the three main transmission points between the US and EU imposed sanctions and consider the risks for the Russian commercial real estate market:

• The cost of debt will increase

• The economy (and the ruble) will come under pressure

• Russian real estate companies will be shut out of European equity capital markets

For more details see the report. ​