Big-ticket deals on the rise in Russian real estate

The Russian real estate investment market has seen a sharp increase in the number of big-ticket deals of over $300 mln (€221 mln), resulting in the full volume for 2013 keeping pace with previous years despite sluggish economic conditions.

Colliers International reported a full-year volume of $8.2 bn (€6 bn) for 2013, while Jones Lang LaSalle recorded a volume of $8.1 bn.

Since 2012, the average deal size has increased, reaching $186 mln (up 29.5%), attracting both Russian and foreign institutional investors, Colliers said.

The largest transaction of 2013 was the sale of the Metropolis shopping centre to a Morgan Stanley real estate fund for $1.2 bn. Other notable players on the market in 2013 included: Millhouse Capital, Hines CalPERS, BIN Group and 01 Properties. Millhouse Capital acquired the White Gardens business centre for a price assumed to be close to $740 mln. The warehouse market saw a major investment transaction by Renova, of its MLP warehouse portfolio to BIN Group for an estimated price of $900 mln.

Sayan Tsyrenov, director of the capital markets department, Colliers International Russia, said, 'Over the course of 2014, we predict that major institutional investors will continue to increase the size of their investment portfolios in line with their respective strategies. Since the numbers of institutional quality assets are limited, several good acquisitions could significantly improve their positions.'

Similarly, JLL noted that investment volumes in 2012 were bolstered by significant residential property deals, excluding direct sales to end-users. Factoring this out the 2013 result was quite close to the two previous years.

Olesya Dzuba, deputy head of research, Jones Lang LaSalle, Russia and CIS, commented: 'The Russian real estate investment market has undergone significant changes over the past few years. Today it exceeds pre-crisis levels, despite the sluggish economic growth. Transaction volume remains stable at around $8 bn for the last three years compared to $4-5 bn in 2006-2008. These results were made possible because of large transactions (over $300 mln), which have increased their share from 20-25% in 2007-2008 to 40-50% in 2010-2013, with ‘billion’ deals closing each year (Galeria SEC, White Square BC, Metropolis SEC).'

Moscow’s market is still the priority for investors accounting for around 84% of the total real estate investment volume in 2013 compared to 88% in 2012. St. Petersburg’s share also decreased from 10% in 2012 to 6% in 2013 due to increased investment volumes to regional cities.

Investors are still focused on office and retail market segments, their shares accounted to 37% in 2013 respectively. Increased investment volume into retail sector (compared to 21% in 2012) is the result of the sale of Metropolis shopping centre. It’s worth noting that investments into warehouses reached 14% compared to 7% in 2012, this became possible thanks to the MLP transaction and several built-to-suit deals.

Capitalisation rates in Moscow remain among the most attractive for investors in Eastern Europe. The average rate of return in 2014 will remain at about the same level as in 2013: 8.5% for the purchase of high-class office centres, 9% for quality retail properties and 11% for Class A warehouse complexes. The largest volume of investment in 2013 went into quality retail and office assets ($2.93 billion and $2.87 billion, respectively). Smaller investment volumes went into warehouses and hotels ($1.54 bn and $210 mln, respectively).

Stanislav Bibik Stanislav, executive director and head of the capital markets department, Colliers International Russia, said: 'Russia’s investment market continues to be attractive for institutional investors. Major players continue to build their portfolios with quality properties in all market segments and 2013 saw several landmark acquisitions. At the same time, in the year ahead we do not expect record volumes due to the lack of a substantial number of major investment quality assets.'

Do you want to know more about the Russian market? PropertyEU is holding its first Russian Investment Briefing at Colliers International, 50 George Street in London on 6 February 2014. CLICK HERE for information on the speakers and to register to attend. Attendance is complimentary but spaces are limited. Please register in advance.