Local investors dominated real estate investment in Russian during the first quarter of 2014 as currency speculation and growing unease about the geopolitical situation kept foreign buyers to bidding their time in the wings.

Local investors dominated real estate investment in Russian during the first quarter of 2014 as currency speculation and growing unease about the geopolitical situation kept foreign buyers to bidding their time in the wings.

Total real estate investment came to $636 mln (€460 mln) in Q1, according to CBRE's latest MarketPreview on Russia. This is just over 26% of the €2.4 bn volume for the same period in 2013. That said, 2013 was a particularly strong period, and 2014 saw the 2nd largest Q1 volume since 2007.

Local investors were responsible for over 93% of investment volume in January to end-March this year, with some 90% of the action confined to Moscow. In the largest transaction, according to consultancy Bulwiengesa and to Colliers International, Moscow-based Praktika Development acquired the stalled River Mall shopping centre project from the Bank of Moscow for €250 to €300 mln.

Outside the capital, a Russian pension fund spent €50 mln for the Jupiter 1 and 2 office towers at St Petersburg Airport. And, CBRE reported that listed Russian company Mirland Development purchased a 49,5% stake in Vernisage Mall in Yaroslavl’ for an undisclosed sum.

Concerns about the Rouble currency, and more recently the growing political crisis in Ukraine, led to foreign investors playing a waiting game, waiting for stabilisation before closing deals or initiating new ones.

But this could change in the second half of the year, according to CBRE. After more than 100 basis points increase in yields of Russian sovereign Eurobonds, the situation stabilised, CBRE said, with bond yields gradually reducing back to that observed at end-2013. CBRE said that this suggested a 'more balanced approach to the assessment of country risk premium' had started to prevail and that yields could return to pre-2014 levels in the second quarter of the year.

Colliers, in its analysis, has projected a 30-40% reduction in full-year 2014 volumes to $5-6 bn due to a combination of capital outflows, lower business activity and the unstable situation in Ukraine.

Stanislav Bibik, head of capital markets, Colliers International Russia: 'The beginning of this year saw volatility on stock and currency markets and tensions in the geopolitical situation stemming from events in Ukraine. Despite the slowdown on the commercial real estate market, investors continue to analyse new acquisition opportunities as they await stabilisation of the current situation.

'As a financial instrument, commercial real estate is less prone to volatility, and investment deals involve a process that is drawn out in time. This means that the impact of the events in Ukraine on the real estate investment market will only become apparent when looking at the results of the entire year. The Russian commercial real estate market remains attractive for investment and is capable of drawing both Russian and international investors as the geopolitical and economic situation stabilises.'

A round-up of the top European real estate investment transactions during Q1 2014 appears in the May edition of PropertyEU Magazine.