RUSSIA - Consumer spending power is driving resurgent growth in Russian retail real estate, according to Swedish fund manager East Capital following the launch of a retail property fund.

In its first UK roadshow, the US$6.9bn (€4.3bn) Swedish fund manager based its positive prognosis for retail real estate on rapid turnover growth.

"International retailers are already strong and they're willing to expand," said Peter Elam Håkansson, chairman of East Capital chairman, who further claimed "Russians have money to spend".

The €200m target fund will stay clear of investing in Moscow and St Petersburg, but instead focus on value-added opportunities in provincial capitals.

To achieve this, the fund manager said it will redesign the shopping centre layouts and re-jig the tenant mix with a focus on international retailers.
"There's a lack of space in existing shopping centres. These are grim, high-rise suburbs," said Håkansson.

East Capital has not ruled out investing in other real estate segments, buoyed by optimistic forecasts for macro growth and political stability as Håkansson cited the potential for investment in Russian infrastructure assets.

More specifically, he expressed optimism over planned reform of the electricity sector, scheduled for completion in 2011.

"We'll see deregulation within a couple of years," he said. "Given the size of the reform - it's been massive - the delays have in fact been very small. The sector is seeing good growth on the back of the Russian economy and it's selling at real market prices," he continued, noting the the firm forecasts quintupling of prices from 2002—2010.

Comparing the Russian market now to this time last year, Håkansson also said: "Last year, emerging markets money was going elsewhere, you had upcoming presidential and parliamentary elections, and there were spy scandals. Now there's trouble in China, the Russian market is being rediscovered, and there's a strong economic recovery. The problems are behind us."

That said, he acknowledged the perception of the market still lagged behind recovery and political stabilisation. "It's a perception problem. The best thing they could do is get a good public relations consultant," he said.