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Stabilising macro indicators suggest upside to Russian real estate investment volumes forecasts in 2015

Although investment volumes were down by 34%, investors are gradually coming back to negotiations on previously suspended deals

​Moscow, 02 April, 2015 – Total investment volume in Russian real estate reached USD490m in Q1 2015, down 34% compared with Q1 2014, according to JLL analysts. 

The slowdown in economic growth, limited and expensive financing, as well as political tensions, have had a significant influence on the Russian investment climate in 2014, and continue to put a pressure on investor sentiment this year. However, we are starting to see some positive signals emerging: oil prices have stabilized, rouble exchange rate volatility has decreased indeed the rouble has appreciated by 19% from the end of January.

Russian Real Estate Investment Volume Dynamics, USD bn*Russian Real Estate Investment Volume Dynamics_02042015.png

* Investment deals, excluding land acquisitions, JVs, direct residential sales to end-users

Source: JLL

“Renewal of negotiations on deals which have started last year is a positive signal for the Russian market. Despite the continued uncertainty surrounding economic growth and the rouble, interest in the Russian market is slowly improving,” - Olesya Dzuba, Deputy Head of Research, JLL, Russia and CIS, commented. – Many investors consider the current period as potentially attractive at crisis level of pricing, though they are limited by lack of offers of this type of assets. Investors are aware that uncertainty has diminished, and there is increasing confidence in Russian real estate as an asset class. We maintain our Russian real estate investment volume forecast for this year at USD3.0bn, with upside risk potential.”

Prime yields continued to react to the current market situation, when rental rates are decreasing, financing is expensive, risks are higher, and there still some volatility of rouble. In Q1 2015, JLL experts estimate that prime yields in Moscow increased by 50bps to 10.5% and 10.75% for offices and shopping centres respectively, and by 25bps to 12% for warehouses. Due to the limited number of transactions, these yields are indicative and are defined by understanding of the market by JLL experts.

Prime Yield Dynamics in Moscow

Prime Yield Dynamics in Moscow_02042015.png 

Source: JLL

According to results of the first three months of 2015, investments into offices dominated the market, accounting for 58% of total volumes, compared to 35% in the corresponding quarter of previous year. The dominance of the office sector is typical during a period of economic weakness – some tenants prefer to move to other offices with better terms, and those deals are used as a guideline for office pricing. Moreover, on the back of rental rate decline and consequently lower office capital value, many prefer to buy office space for their own use – the share of those deals in 2009 accounted for 23% of total real estate investment volumes. The buyers in 2009 were mainly companies with the government share, while this time JLL experts expect higher activity from foreign private companies.

Russian Investment Volume Breakdown by Sector

Russian Investment Volume Breakdown by Sector_02042015.png 

Source: JLL

Investor interest was mainly focused on Moscow market, the share of those deals accounted for 98% of total deal volume versus 85% in Q1 2014. Market uncertainty and limited liquidity resulted in the only one deal on the regional market with 2% of total investment volume.

Russian investors continue to dominate the market, the share of foreign capital came to 35% for Q1 2015 vs. 32% in respective period of 2014. It is interesting to note that purchasing of Metropolis office building by Hines is the largest and the only one deal with the participation of foreign capital for this quarter.

Investors by Origin

Investors by Origin_02042015.png 

Source: JLL

Saydam Salaheddin, Regional Director, Head of Capital Markets, JLL, Russia and CIS, noted: “The supply of assets for sale is currently limited. Owners are reluctant to sell because of the economic environment, while buyers are looking for distressed pricing, which is not yet common as banks are yet to put pressure on owners. Furthermore, because of limited debt financing availability, potential buyers are constrained by the amount of equity capital required for many assets and therefore there are few buyers for medium to larger sized assets unless they already have good financing in place.”

About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316.0 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $53.6 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.

In Russia and CIS JLL has offices in Moscow, St. Petersburg and Kiev. JLL, Russia & CIS was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010, 2011, 2012 , 2013 and 2014 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg and The Best Real Estate Consultancy in Ukraine at the Ukrainian Property Awards in 2013.

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