Retail in Russian regions set to draw institutionals: CBRE

International institutional investors are expected to start buying into retail in Russian secondary cities next year as the segment offers secure opportunities at attractive cap rates of 11-12%, Bill Lane, board member of CBRE in Russia told PropertyEU in an interview.

'Institutions will soon realize that shopping centres and hypermarkets in Russian secondary cities are secure investment assets - dominant in their region and with strong covenants,' Lane said. 'As more international investors understand this opportunity, investment in the regions will start increasing.'

Hypermarkets in the regions are often anchored by European retailers such as Auchan, Real, Metro, Decathlon, OBI and Leroy Merlin, which are expanding heavily in Russia. With firm leases of up to 20 years, these assets grant a secure cash flow and offer strong covenants, but are still trading at 200 to 300 basis points over prime which does not reflect the assets' low level of risk.

'I believe retail in the regions is mispriced and this is likely to become more visible next year,' Lane said.

Appetite for commercial real estate in Russia's two major cities - Moscow and St. Petersburg - is also expected to remain strong in the next 12-18 months, Lane added, largely driven by Russian strong economic outlook and higher returns for commercial real estate.