Why are cross-border investors back in a market notorious for its opacity and political risk, asks Shayla Walmsley.

US developer Hines has raised €390m from pension funds and other investors for an opportunistic fund primarily targeting Russian assets. The oversubscribed vehicle will be the fourth such fund the US developer has raised so far.

It is no surprise that Hines has opted for retail property, although the specificity of some of the investments already made - outlets in Moscow and St Petersburg - suggests a focused approach to the market gained from relatively long experience. Hines is one of the few cross-border investors successfully to pull off development projects single-handedly in Russia; most go in for partnerships with local players.

Retail is the sector most obviously exposed to positive demographic and macroeconomic trends. Tom Devonshire-Griffin, Russian director at Jones Lang LaSalle, describes the high level of Russian consumer spending as "bonkers" - according to the World Bank, 74% of their income - citing as an example a shopping centre sold last year in St Petersburg that recorded footfall of 130,000 in one day. To put that in perspective, the Westgate shopping centre in Oxford, UK recorded almost the same footfall during one week, while Westfield's flagship UK store in Stratford, close to the new Olympic village, averaged 150,000 a day in its opening week, amid heavy promotion.

"There are two kinds of assets I love in Russia: income-producing logistics and regional retail," says Devonshire-Griffin. "Office can be over-leased or under-leased, and there are big swings in rental. Retail is market-rented."

There are caveats. Moscow has a different consumer dynamic than the so-called milioniki, the 13 provincial markets with a population of more than a million. Salaries in the capital are significantly higher than the Russian average, for example.

Yet in the milioniki, and even in the next tier of 49 cities with populations of more than 300,000, there are opportunities to invest in retail. "There are few modern facilities, but the population is such that there is demand for them," says Christopher Peters, director of research in CBRE's Moscow office. "It would have to be led by Russian investors - international investors won't go beyond Moscow and St Petersburg - but if it was seen to be successful, it would encourage cross-border investment."

Even if regional returns are lower than those in the capital, Peters says cross-border investors need to diversify away from euro-zone exposure, and the albeit limited number of investable assets at least come with near-guaranteed income.

The good news for these provincial cities is that the government has made attracting investment a priority. "Some of them have good infrastructure but they don't have good PR," says Peters, pointing to the satellite cities that come within Moscow's catchment.

Given the clout of provincial mayors, investors need to be choosy. Regional market dynamics are variable. In some West-facing cities, where mayors have welcomed investment, there is a danger of oversupply. Others are best left well alone.

There are a couple more market and sector risks to bear in mind. Russia has shown willingness in the past to plug financial gaps with capital from its sovereign wealth fund and so in macro-terms the country is well placed to weather external financial shocks. But it is not immune to, say, a sudden shift in the price of oil. Given that consumer confidence is closely tied to Russia's macro growth story, the impact on retail would likely be swift.

In real estate specifically, the risks associated with investing in development -from greenfield site to completed asset - are "exponential" according to Devonshire-Griffin. "If it is a high quality development of strategic importance, it could be looked at [by the authorities]," he says, even leaving aside a supremely opaque planning system.

"It's a mistake to think it's easy to build in Russia. That's not the case. Planning is excessively restricted."

On the other hand, Devonshire-Griffin believes the risk investors are most likely to cite - political risk - has been overstated. "Like it or not, democracy or not, the political situation is stable. You know who'll win the next election, and you know there'll be no huge changes in the tax system," he says.