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Russian Real Estate Investment Market Lags Stabilization in Macro Indicators in H1 2015

​In H1 2015 total investment volumes decreased by 33% YoY despite stronger rouble and stabilized oil prices

​​​​Moscow, 30 June, 2015 – In H1 2015 Russian real estate investment volumes decreased by 33% compared to the same period of the previous year, with total investment volumes at USD1.1bn, according to JLL analysts’ calculations. This number includes Q2 investment volume of USD578m, down 33% YoY.

“Following the market dislocation of 2014 and Q1 2015, during Q2 2015 we have seen evidence building that the economy is starting to stabilize, which, in our view, will have a positive impact on the real estate market in the medium to long term,” - Tom Mundy, Head of Research, JLL, Russia and CIS, commented. – “First, the market has upgraded its GDP growth forecasts for Russia. For example, The World Bank lifted its forecast for 2015 forecast to a contraction of 2.7%, up from the contraction of 3.8% it predicted in April. In addition, it has revised up its growth forecast for 2016 to 0.7% from the decline of 0.3%. However there is unlikely to be a positive impact on Russian real estate market in short-term since inflationary expectations remain elevated which is leading to continued pressure on domestic demand. Furthermore, though the central bank continues to decrease the policy rate it remains high which is keeping the cost of debt financing beyond the reach of most. As a result we maintain our forecast for Russian real estate investment volumes for this year at USD3.0bn.”

Russian Real Estate Investment Volume Dynamics, USD bn*g​​

Russian Real Estate Investment Volume Dynamics, USD bn_30062015.png

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

Source: JLL

In Q2 2015, JLL experts estimate that prime yields in Moscow remained at 10.5% and 10.75% for offices and shopping centres respectively, at 12% for warehouses. That rates remain at the previous levels may indicate that Moscow commercial real estate market is passing through the trough. 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 Moscowg

Prime Yield Dynamics in Moscow_30062015.png

Source: JLL

In H1 2015 investors’ interest was still focused on office segment with 40% of the total investment volume. Moreover the share of warehouse sector reached 21% because of the sale of PNK-Chekhov I industrial park to BIN Group. It is worth noting that this deal is the biggest deal among all commercial real estate acquisitions from H2 2014 to H1 2015.

Russian Investment Volume Breakdown by Sector

Russian Investment Volume Breakdown by Sector_30062015.png​​

Source: JLL

Investors continued to be focused on assets which are located in Moscow, accounting for 86% of total investment volume in the first half of 2015. Investments in St. Petersburg real estate market reached USD53m in H1 2015 compared to USD165m in the same period of previous year, as a result its share decreased to 5% from 10% in Q1-Q2 2014. The share of foreign capital came to 18% for H1 2015 vs. 16% in respective period of 2014.

​Investors by Origin

Investors by Origin_30062015.png

Source: JLL

Saydam Salaheddin, Regional Director, Head of Capital Markets, JLL, Russia and CIS, noted: “The primary obstacle for investors which has continued to influence on the market in Q2 2015 remains the mismatch between pricing expectations for buyers and sellers. Nonetheless, new negotiations and renewals, as well as the closure of some comparatively big deals during H1 2015, are certainly positive signals for Russian real estate market.”

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. A Fortune 500 company 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 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $55.3 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, 2014 and 2015 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg; Consultant of the Year at the RCSC Awards in 2015, and The Best Real Estate Consultancy in Ukraine at the Ukrainian Property Awards in 2013.

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