Russia poised to rev up retail deal engine

A number of big-ticket shopping centres are currently in the deal pipeline in Russia, according to brokers active in the region. In terms of investment, Maxim Karbasnikoff, C&W’s recently appointed retail agency partner in Moscow, expects 2012 will match last year’s record of $7.5 bn (EUR 5.8 bn) with a number of sales due to come through by the end of this year or the first months of 2013.

Last year, the acquisition by Morgan Stanley Real Estate Investing of the Galeria shopping and entertainment centre - the largest retail scheme in St. Petersburg - for a price tag in the region of $1.1 bn (EUR 0.8 bn) gave a significant boost, and more large transactions are likely in the next 12 months, Karbasnikoff said. ‘There’s no lack of appetite for transactions, but the problem is that there aren’t many income-producing quality assets. The challenge in Russia is to find product. I think we may see more deals in terms of numbers in the next year, but smaller ticket sizes of between $200-400 mln.’

There is also strong appetite from sovereign wealth funds for investment, he said, pointing to SWFs from the Middle East and Asia.

Charles Boudet, Managing Director, Jones Lang LaSalle Russia & CIS, also said he expected a number of big-ticket shopping centres could be transacted by the end of the year. A select number may even exceed the size of Galeria, he noted: ‘Retail is the most active segment together with offices.’

Boudet claims that a fundamental structural change has taken place since the outbreak of the global financial crisis. The Galeria deal was also a major contributing factor, he argued. ‘The learning curve has been very steep. Regional developers dominate the local market, but there is a growing awareness that investors are looking for well-developed, sustainable and well-anchored centres. We’re getting a lot of requests from developers interested in forming partnerships and developing more creative concepts.’

While foreign investors are chomping at the bit to enter the Russian retail market, its relative immaturity may prove to be a blessing in disguise. With ecommerce making huge strides, the shape of the retail landscape is undergoing a massive metamorphosis and Russia’s virgin territory may well be an ideal test lab for new concepts, Karbasnikoff said. ‘Russians are very connected,’ he noted, pointing to the large number of Moscovites with smartphones who buy online. ‘There’s strong potential for ecommerce in Russia.’

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