Commercial real estate could be short by about $1.5 billion

Worsening relations between Russia and the West and the weak ruble have scared commercial real estate investors. The volume of investments in this sector at the end of 2014 may be on average 20% lower than planned, real estate consultants interviewed by Kommersant predict. Instead of the predicted $7-7.5 billion, investments may fall to $6 billion.

The largest real estate market consultants have already begun to revise their forecasts for investment in Russian real estate. For example, if at the end of last year JLL predicted the volume of investments in commercial real estate at $7 billion, now it does not rule out that this year will be one of the most unsuccessful for investments in real estate. “We are now revising our investment forecast; it will be significantly reduced,” warns JLL head of research Tom Mundy. The optimistic forecast is $6 billion (previously $7.5 billion was forecast), but it may also be revised, say Cushman & Wakefield. “The macroeconomic and political background puts pressure on investment activity,” the company explains. At the end of last year, Colliers International expected $8.2 billion in investments (the company takes into account land transactions and the purchase of development projects, not just finished objects) of investments; now the forecast has been reduced to $6-7 billion.

The market is being pressured by a stream of negative news - about currency fluctuations and possible sanctions against Russia from the international community due to the annexation of Crimea, consultants list. “The first to respond were tenants whose contracts were fixed in foreign currency, then demand began to be restrained by the caution of developers who fear the consequences of Russia’s geopolitical activity,” explains Valentin Gavrilov, director of the market research department at CBRE.

In office real estate, the deadlines for closing the deal began to be postponed. According to Valentin Gavrilov, in the first quarter, demand for offices decreased by 5-15%, but there was no massive decline in activity. Warehouse owners hedged their bets and reduced rental rates for a number of properties by 7-9% ($10-15) per 1 sq. m. m per year. But in high-quality properties, the market average level of rates remained - $135 per 1 sq. m. m per year.

Managing partner of Colliers International Nikolai Kazansky says that according to the results of the first quarter, the volume of investments in commercial real estate will be two and a half times lower than in the same period last year. From January to March 2014, seven transactions were concluded for a total amount of $640 million, the largest was the purchase of the River Mall shopping center from the Bank of Moscow - it was acquired by ex-senator Sergei Gordeev ($300 million). Cushman & Wakefield estimates a fourfold decline in investment for the first quarter. “At the beginning of last year, transactions that began in 2012 were closed, hence the difference in estimates,” explains Valentin Gavrilov, noting that the first quarter is usually not indicative due to the strong seasonal factor. “The slowdown in business activity is obvious. Such low quarterly figures were recorded only in the crisis year of 2010,” insist Cushman & Wakefield.

According to Nikolai Kazansky, there is no catastrophe yet, since it is necessary to take into account the effect of the high base of previous years. “In 2011, 2012 and 2013, the volume of investments was huge, at the level of $8 billion. Although before the crisis, this figure was at the level of $4 billion (2007), and then it was a record,” he argues.

Investment manager of Nordic and Baltic (Kaliningrad Plaza shopping center in Kaliningrad, Sokos Hotel Palas Bridge in St. Petersburg) Elena Levitskaya says that the fund has suspended all planned transactions and is taking a break for three months. “There are concerns about possible sanctions against Russia as a result of the annexation of Crimea,” she explains.

Ekaterina Gerashchenko

Investors are leaving offices