Local occupiers were responsible for the lion's share of Russia's investment volumes in 2010, and are expected to continue to play a key, but more balanced role in 2011 as they seek to take advantage of a lack of competition for vacant office products, according to Tom Cashel, head of C&W's Capital Markets Russia.
Local occupiers were responsible for the lion's share of Russia's investment volumes in 2010, and are expected to continue to play a key, but more balanced role in 2011 as they seek to take advantage of a lack of competition for vacant office products, according to Tom Cashel, head of C&W's Capital Markets Russia.
'With foreign and institutional investors focusing primarily on prime, well-let assets, we are seeing corporations buying large, empty blocks for their own corporate use at reasonable values,' Cashel told PropertyEU in an interview.
Although foreign institutions are showing renewed interest in the Russian market, the focus is still on lower-risk acquisitions of fully occupied properties. However, these kinds of opportunities are hard to find in the first-tier market, Cashel said, given the scarcity of new development projects undertaken in the past three years. Cashel: 'At the upper end of the quality spectrum, there is undersupply for both tenants and investors and as a result we will likely see rental prices and capital values increasing in 2011.'
He continued: 'Some large corporations are trying to take advantage of this situation by buying large, empty blocks. They see opportunities in quality vacant buildings, not risks.' Key examples of this trend were the acquisition in 2010 of the Green Wood office by the ChenTun Corporation for $350 mln (EUR 256 mln), Evraz Group acquiring Western Gate for $160 mln and Sogaz buying the Wave tower for a further $100 mln.
In total, Russia saw around $3.73 bn of real estate transacted in the market in 2010, the vast majority of which was in the office sector ($3.25 bn). Just $237 mln of retail properties changed hands in the course of last year, highlighting the scarcity of new product coming to the market. In 2011, Cashel expects the retail sector to gain greater market share although offices will continue to be the most sought-after product.
Cashel also pointed to the gradual return of debt financing during the fourth quarter with lenders VTB, Sberbank and several foreign banks judiciously re-opening the taps with a focus on existing client relationships. Main borrowers include developers Sistema Hals, AFI Development, Mirax Group and Renova StroiGroup.
