According to Rosstat, the cost of construction of 1 sq. m in Moscow and St. Petersburg in 2017 was almost equal: 61,244 rubles versus 60,403 rubles. Developers in both capitals complain that they have to work with a minimal margin, but continue to increase the supply of new buildings. In the Northern Palmyra, it has exceeded 5 million sq. m, in the White-Stone City – over 3 million sq. m. Several million more square meters are at various stages of construction, and this process is receiving unprecedented acceleration in light of the upcoming changes to the law on shared construction. Developers are acquiring new sites for construction, including in “neglected” industrial zones, and announcing their active development.

"There has never been such a variety in terms of prices or locations. Developers hope that no matter how much overproduction there is, housing in Moscow and St. Petersburg will be bought up, albeit not at the speed and prices they would like," Lyubov Tsvetkova, head of the Moscow Investors Association, said at the Vedomosti conference at MIPIM. According to her data, 95% of applications from the development community to the United Bank of Moscow Projects are requests for housing construction.

"Housing built on the territory of former industrial zones [of St. Petersburg] is in demand. Last year we noticed a trend of demand shifting from the outskirts to the city limits, despite the fact that prices there are higher. Many buyers who have money prefer to buy more expensive housing, but closer to the center, where there are no problems with transport, social or commercial infrastructure. The reserves for dense development in the city are almost exhausted, so redevelopment remains the main resource for housing construction," said Nikolay Pashkov, CEO of Knight Frank St. Petersburg.

Housing on the site of factories

Redevelopment of industrial areas is one of the promising areas of capital development. In St. Petersburg, industrial zones cover 40% of the territory, they occupy more than 15,000 hectares, in Moscow, industrial sites are located on more than 17,000 hectares, of which industrial zones themselves occupy about 7,800 hectares, their share in the overall structure of city lands looks more modest - less than 20%.

The scale of the projects announced at these venues is impressive in both capitals.

By 2030, as a result of the redevelopment of industrial zones in St. Petersburg, approximately 12 million square meters (4.4 million square meters have already been built) of housing may appear; in 2018–2020, more than 2.3 million square meters are planned to be commissioned on the sites of enterprises. According to Knight Frank St. Petersburg, there are currently about 2.9 million square meters of housing on sale in 80 redevelopment projects. The largest projects are Civilization by LSR Group (200,600 square meters for sale), Ligovskу City by Glorax Development (150,000 square meters for sale), Barrikada and Tsarskaya Stolitsa by Etalon Group (131,700 square meters of housing for sale).

In Moscow, in 2017, projects for planning territories for 6.5 million square meters were approved in the reorganized industrial zones, and projects for another 5.5 million square meters are in the works for 2018. So far, the total area of housing that may appear on the site of old Moscow factories and warehouses is about 7.3 million square meters, the rest in the above-mentioned projects is commercial real estate. It is possible that the number of projects will soon increase and these figures will be revised (read - will increase).

Grey Belt Potential

Reorganized industrial zones are complex sites, and this is recognized by both developers and authorities. The former need to spend money on land reclamation, negotiate with property owners on the territory, develop an interesting and marketable project, and find money for construction. The latter need to ensure balanced development: without a bias towards residential development, with a sufficient number of green areas and social infrastructure. Vladimir Grigoriev, the chief architect of St. Petersburg, spoke at the Vedomosti conference at MIPIM about the fact that the situation when the average Russian developer understands a business project as “closing an enterprise and building a residential building in its place” requires adjustment. And this adjustment has already begun.

With Russian money

According to the Minister of Construction and Housing and Utilities Mikhail Men, who spoke at the Financial Forum organized by REPA, it is the end buyers of housing who pay for the construction of new buildings: "80% of industrial housing in Russia is built with citizens' money." According to various estimates, Russians invest from 1.5 trillion to 6 trillion rubles in construction per year.

"A large amount of industrial real estate is concentrated within the boundaries of St. Petersburg, and it is known that the capacities of enterprises are underutilized," the press service of the Committee for Urban Development and Architecture reported. The city intends to "intensify the use of the territory of the gray belt, which occupies disproportionately large areas between the historical center and the outlying residential areas, characterized by extremely low population density and employment locations." To this end, St. Petersburg held an international competition called "Gray Belt. Transformation." The declared goal of the transformation is to create a multifunctional urban environment on the site of "historical" industrial territories, where residential development, employment locations, and social infrastructure with green areas would harmoniously coexist in a 30/30/40 ratio.

Three sites of approximately 100 hectares each from the Yekateringofka River in the west to the Neva in the east and from the Obvodny Canal in the north to residential areas in the south were selected for pilot projects in St. Petersburg. "Yekateringofka", "French Bucket" and "Volkovskaya" became the first territories of future integrated sustainable development (KURT). This new term, which amendments to the Urban Development Code of the Russian Federation propose to introduce from January 1, 2017, will be tested on them. One of the KURT pilots - "Bolshaya Ligovka" or Ligovsky City within the boundaries of the "Volkovskaya" territory, which Glorax Development is developing according to the project of the Dutch architectural bureau MLA+, has already received the prestigious international European Property Awards, entering the number of the best projects in the field of residential real estate in Russia.

When MLA+ started working on this project, its architects were hooked by the developer’s idea to create a project that would change the city, recalls Yana Golubeva, director of the bureau’s St. Petersburg branch. “We are creating a prototype of an ideal reconstruction, renovation of urban areas, an area that will have beautiful city streets, city squares, and greenery. We are creating diversity, a unique city within a city with several lifestyles, where there will be a place for those who love the active life of the metropolis, and for those who want to live closer to the silence, a place for both singles and families,” Golubeva paints a picture of the bright future of the formerly depressed area. The new city district will be built around a unique social infrastructure – non-standard kindergartens and schools, specialized district centers. Glorax Development is currently developing 25 hectares on Ligovsky, and the developer plans to increase the development area to 100 hectares.

Moscow has also selected three pilot sites for KURT, which city officials prefer to call simply KRT – integrated development of territories. They are located in the industrial zones of Bratsevo, Biryulevo and Korovino. In total, 47 industrial and production areas with a total area of just over 491 hectares are to undergo such reorganization. “Moscow does not have the task of eliminating industrial zones,” noted Yuliana Knyazhevskaya, Chairperson of the Moscow Committee for Architecture, at a meeting with journalists. “The task is to improve their health and create new comfortable jobs.” Therefore, the ratio of industrial, public and residential development in the reorganized territories should be 49/38/13, respectively.

The legislation proposes to stimulate the owners of real estate located in the territories selected for transformation in a radical way: if they do not want to follow the new logic of the city's development, they will lose their property, which the authorities consider ineffective. "As a result, the owners got going and started talking to each other about joint development of the territory," reported Knyazhevskaya.

"For entrepreneurs, the industrial zone is potential," says Yulia Zubarik, founder of the Master's Plan design bureau. She divides this potential into internal and external. Internal is the opportunity to apply the most advanced urban planning and architectural solutions in complex redevelopment projects, which are not always possible with point development, external is the development, so to speak, of urban "communications", not only engineering, but also social. Her bureau, for example, is developing a planning project for the reorganized industrial zone on Ryazansky Prospekt. "Currently, this is a closed industrial zone, with railroad tracks running through it, and residential development on three sides. This year, construction will begin on a large multifunctional center, creating a commercial cluster. It will house not only housing, but also schools, kindergartens, and a city clinic. A boulevard with a sports facility will appear in place of the dead-end railroad tracks," Zubarik describes. Another example is the project to reorganize the V. Kazakov Plant on Kutuzovsky Prospekt. The Japanese bureau Kengo Kuma & Associates took part in creating the concept. It envisages the placement of two blocks on a 14-hectare site, consisting of buildings of different heights, both residential and commercial, and an “educational core”, which, in addition to its main function, will also serve as a landscape decoration, framing an intra-block garden in the Japanese style. “Currently, this territory is torn out of the urban context, but the project solves this problem,” says Zubarik. Plans for the development of the territory of the former plant provide for the improvement of green areas, the formation of new streets and bicycle and pedestrian routes. A through pedestrian route will run through the center of the inner garden, connecting Kutuzovsky Prospekt and the embankment of the Moscow River. Cafes, shops, exhibition spaces, and a sports complex will appear along the way. The composition will be crowned by an artificial hill with a pond, stream, bushes and trees. The redevelopment project also takes into account the city's plans to build a pedestrian bridge across the Moskva River, which will continue the route from Kutuzovsky Prospekt to the opposite bank and the high-rise buildings of Moscow City.

In terms of progressive development, St. Petersburg is not lagging behind Moscow's creative trends. And even surpasses them in some ways. The city on the shores of the Gulf of Finland plans to build almost 2 million square meters of housing, as well as about 0.7 million square meters of commercial properties on reclaimed land in the western part of Vasilievsky Island. Glorax Development, LSR, Lider Group and Seven Suns Development have purchased sites here. The companies' projects are large-scale, divided into phases, and construction has already begun on about 0.5 million square meters of housing. Glorax Development began active construction and installation work on its territory last year. According to company representative Alexander Motorin, the project has earned recognition from the expert community and is in high demand among buyers and investors. In total, about 450,000 square meters of housing and commercial premises will appear on six sites with an area of 15 hectares. The development site is adjacent to the new passenger seaport of St. Petersburg. “The port is the first thing that cruise ship passengers see when they arrive in St. Petersburg,” says Motorin.

How to stimulate demand

Developers are forced to be creative and take on complex projects because life is not good. Buyers simply do not have time to earn enough money to buy everything that is currently offered on the capital's markets, Tsvetkova complains. The average price of a standard-class square meter in Moscow is 165,000 rubles (data from irn.ru), while in St. Petersburg they are asking about 102,000 rubles for similar housing (data from the Real Estate Bulletin). The upper limit of the cost of apartments is as agreed upon by the seller and buyer. Clients in all real estate segments are increasingly voting with their rubles for quality. At least, realtors and developers in the capital are talking about this more and more loudly.

Developers are trying to stimulate demand both economically – with discounts, installments, compensation of mortgage rates – and visually: with beautiful architecture, play of colors, multi-colored prints and glare of metal plates on facades. So far, their efforts are bearing fruit. According to Rosstat, if in 2016 48,867 DDUs were concluded in Moscow, and 57,518 in St. Petersburg, then in 2017 – already 71,298 and 62,959 respectively.

From the Moscow River to the Neva