RUSSIA BRIEFING: Best investment picks

The retail and logistics sectors in Russia’s regional cities offer the best investment opportunities, according to market experts at PropertyEU’s recent Russia Briefing.

Increasing demand for modern warehousing across Russia from retailers and third-party logistics providers (3PLs) is creating interesting opportunities in the smaller regional cities, the briefing heard.

Russia is currently underpenetrated relative to its global peers in terms of e-commerce. With a 44% compound annual growth rate in online sales expected by 2020, the need for modern warehousing facilities is likely to increase significantly.

While Moscow currently dominates the market with 66% of modern logistics stock, more affordable options - and therefore opportunities - for these facilities may be found outside the capital city.

In terms of yields, the industrial sector is leading the way at 11% over the past four years, with yield stability expected to continue in 2014. Retail and office yields are expected to remain steady as well, at 9% and 8.5% respectively

But the general consensus among briefing participants was that retail in the regional cities offers the most attractive investment potential.

Panellist Timothy Fenwick, managing director at Quantum Potes, put it succinctly: ‘The big play is undoubtedly retail.’ In the longer term, a number of cities outside Moscow and St Petersburg may offer good growth prospects in this segment, the briefing heard.

Ten other cities across the country currently have a population of a million people or more, and most if not all are underdeveloped in terms of office and retail space. Colliers’ Kazanskiy added: ‘It’s not just the 1,000,000-plus or even 500,000-plus cities, but in the past few years developers are coming in to cities of 200,000 or more inhabitants’.