REAL ESTATE REVIEW Обзор рынка недвижимости RUSSIA РОССИЯ 2010 ECONOMIC OVERVIEW I INVESTMENT I OFFICE I INDUSTRIAL I RETAIL I HOTEL 2009 НАГРАДЫ AWARDS by pid17270

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									REAL ESTATE REVIEW
Обзор рынка недвижимости
RUSSIA | РОССИЯ

2010
ECONOMIC OVERVIEW I INVESTMENT I OFFICE I INDUSTRIAL I RETAIL I HOTEL
                          2009
НАГРАДЫ | AWARDS          Colliers International в списке Top 20 Leaders on The Global Outsourcing 100 list.
                          Журнал FORTUNE
                          Colliers International in Top 20 Leaders on The FORTUNE Global Outsourcing 100 list




                          2008
                          Colliers International Санкт-Петербург – Консультант года.
                          Commercial Real Estate Awards, Санкт-Петербург
                          Colliers International St. Petersburg – Consultant of the Year.
                          Commercial Real Estate Awards, St. Petersburg


                          Colliers International в списке Top 20 Leaders on The Global Outsourcing 100 list.
                          Журнал FORTUNE
                          Colliers International in Top 20 Leaders on The FORTUNE Global Outsourcing 100 list




                          2007
                          Colliers International Москва – Консультант года. Российский Совет Торговых Центров
                          Colliers International Moscow – Consultant of the Year. Russian Council of Shopping Centers




                          2006
                          Colliers International Санкт-Петербург – Брокер года.
                          Commercial Real Estate Federal Awards, Россия
                          Colliers International Saint Petersburg – Broker of the Year. Commercial Real Estate Federal
                          Awards, Russia


                          Colliers International в списке Top 50 Leaders on The Global Outsourcing 100 list.
                          Журнал FORTUNE
                          Colliers International in Top 50 Leaders on The FORTUNE Global Outsourcing 100 list




                          2005
                          Colliers International Москва – Брокер года. Commercial Real Estate Awards, Россия
                          Colliers International Moscow – Broker of the Year. Commercial Real Estate Awards, Russia


                          Colliers International Москва – Консультант года. Российский Совет Торговых Центров
                          Colliers International Moscow – Consultant of the Year. Russian Council of Shopping Center

                   2005
11   Economic Overview

     MOSCOW
17   Investment
29   Office Sector
39   Warehouse Sector
47   Retail Sector
55   Hotel Sector

     ST. PETERSBURG
61   Investment
69   Office Sector
79   Warehouse Sector
87   Retail Sector
93   Hotel Sector
Dear Colleagues and Friends,                                 managed to solve
2009 became the decade’s most difficult year for our         their problems and
country and for the global economy as a whole. The           restructure      their
commercial real estate sector was not an exception.          loans. Nevertheless,
All of its segments were negatively affected; the mar-       banks began to active-
ket shrank considerably. And we do not expect a quick        ly participate in the
return to the indicators it demonstrated a year and a        commercial real es-
half ago. Nevertheless, it is worth noting that in           tate market as they
H2 2009 all market players could observe certain             became the owners of
stability and growth trends.                                 pledged assets with
                                                             low current liquidity
At the same time, as far as the office and warehouse         and often at the con-
property segments are concerned, the market has un-          struction stage. The
dergone qualitative changes, as well. While in the pre-      largest banks began
vious several years it was the landlords’ market as the      to create develop-
demand far exceeded the supply, in 2009, the tables          ment divisions with-
were turned: as most companies reduced their deve-           in their organizations to manage real estate.
lopment, and supply increased, the market became
                                                             Following the market, our company’s business acti-
more tenant-oriented. The vacancy rate increased
                                                             vity also decreased as compared to 2008, although,
sharply; a large number of sublease offers appeared in
                                                             thanks to our strong team, we managed to preserve
the market, which led to a noticeable decline in rental
                                                             all our business lines and retain leading positions in
rates.
                                                             many of them. All our business segments adapted to
Speaking of the retail property market, it is possible to    new market realities. Globally, integration of Col-
note that both chain developers and almost all retail        liers International continued; and now Colliers In-
operators scaled back their development plans. How-          ternational includes 480 offices in 61 countries of the
ever, Russia continues to experience a shortage of           world. As a result, our Russian division received even
quality retail space, and demand for high-quality            more expanded access to international resources and
professional properties remains stable.                      practices.
Despite a difficult situation in all segments of the         At present, we see room for sustainable growth in the
commercial real estate market 2009 was marked by             market and aim for active work and company growth.
the commissioning of several large-scale properties,         The key issue for us today is maintaining high quality
the construction of which began before the crisis.           of the services provided and focusing on the objec-
At the same time, construction of new properties al-         tives of our clients. We are certain that the Russian
most stopped.                                                commercial real estate market still has a period of
Interest in investing in the Russian commercial real         active growth ahead, and we will be glad to enter the
estate market was observed mainly from local inves-          new stage of the market development together
tors with somewhat high yield expectations. Foreign          with our clients.
investment funds expressed almost no interest, and           We are always open for cooperation.
focused on their domestic markets. As a result, there
were few investment deals.                                   Sincerely yours,
Despite the crisis affecting the economy, the forecasts
of mass bankruptcy of developers and banks leading           Maxim Gasiev,
to a considerable influx of distressed assets to the         Managing Director
market did not come to fruition. Most developers             Colliers International (Russia)




                                                        Russia I Annual Real Estate Review 2010 Colliers International   7
                                              Following the sharp drop in prices for oil and
                                              the majority of metals coupled with large-scale capital outflow,
ECONOMIC OVERVIEW                             the Government of the Russian Federation began to pursue
                                              the policy of controlled depreciation of the national currency


                                              By the end of 2008, it became obvious that Russia                  Later, the index fluctuated and, despite the
                                              is affected by changes in the global economy to a                  positive changes registered by the end of 2009,                             Retail trade turnover
                                              larger extent than other countries. Following the                  from November 2008 to November 2009 it declined                             in January–November
                                              sharp drop in prices for oil and the majority of                   by 10% overall. All these changes were accompa-
                                              metals coupled with large-scale capital outflow,                   nied by increasing unemployment and high
                                                                                                                                                                                             2009 amounted
                                              the Government of the Russian Federation began                     inflation, which resulted in a drop of the real                             to RUR 12,991 bln
                                              to pursue the policy of controlled depreciation of                 income of the population. Despite the significant
                                              the national currency. From January to March                       growth in consumer prices during Q1 2009, annual
                                              2009, the value of the Russian ruble decreased by                  CPI stabilized at the level of 8.8%. For comparison,                        The Central Bank
                                              more than 20% against the US dollar. Internatio-                   in the Eurozone inflation amounted to only 0.3%
                                                                                                                                                                                             of the Russian
                                              nal reserves during the same period decreased from                 in 2009. Retail trade turnover in January-Novem-
                                              $426 bln to $380.5 bln. As the prices for raw                      ber 2009 increased by RUR 531 bln as compared to                            Federation gradually
                                              materials went down, most enterprises reduced their                2008 and amounted to RUR 12,991 bln. However,                               lowered the
                                              activities, which influenced the industrial produc-                in US dollar terms, this indicator decreased by                             refinancing rate
                                              tion index – it dropped by 19.9% in January 2009.                  19.9%.                                                                      from 13% at the
                                                                                                                                                                                             beginning of the year
                                                                                                                                                                                             to 9% by Q4 2009
                                                                        Table. RUSSIA’S MAIN ECONOMIC INDICATORS
                                                 ECONOMIC INDICATORS                   2002        2003        2004        2005         2006        2007        2008          2009

                                               GDP growth rate, %                       4.7          7.3         7.2         6.4         6.8          8.1         5.6         -9.1*

                                               International reserves, $ bln           47.7         77.8        124.5       182.2       303.0       478.8         426         440.6

                                               Trade balance, $ bln                    46.3         59.9        85.8        118.3       140.7       128.7        179.3        110.6

                                               Budget surplus, % of GDP                 1.4          1.7         4.3         7.5         7.4          5.4         4.0          -5.9

                                               Consumer price index, %
                                               (as of the end of the period,
                                                                                       115,1        112         111,7       110,7        109        111,9        113,3        108,8
                                               as compared to December
                                               of the previous year)

                                               Retail trade turnover, RUR bln          3,765       4,529        5,642       7,041       8,690       10,866      13,919       12,991*

                                               Foreign direct investment flows, $ bln   2.46         4.82        5.65        13.07       13.68       27.80        27.03         10**

                                               Real income growth (RUR), %             10.8         14.6        11.2        11.7         13.9        12.1         2.7          1.1*

                                               RTS stock market index                  359.1       567.3        614.1      1,125.6     1,921.9     2,290.5       631.9       1,426.9

 * January–November 2009 year-on-year          US dollar exchange rate at the end of
                                                                                       31.8         29.5        27.7        28.8         26.3        25.5        29.4         30.24
** Accumulated by the end of September 2009    year, RUR
                                                                                               Sources: the Federal State Statistics Service, the Central Bank of the Russian Federation,
                                                                                                                      the Ministry of Economic Development of the Russian Federation




                                                                                                                                                        Russia I Annual Real Estate Review 2010 Colliers International   11
                                                                      In late December 2009 the international rating
ECONOMIC OVERVIEW                                                     agency Standard & Poor’s raised Russia’s rating
                                                                      from Negative to Stable


                                                                      In Q1 2009, the GDP in ruble terms decreased by        from 13% at the beginning of the year to 9% by
                                                                      more than 20%. However, it showed growth as            Q4 2009. As a result, closer to the end of 2009 most
                                                                      early as Q2 2009, and the growth continued             indicators started to stabilize, and some of them      The annual CPI
                                                                      through the rest of the year. As of the end of the     even increased slightly. Inflation rate declined,      stabilized at the
                                                                      year, the Ministry of Economic Development             international reserves increased, the stock market     level of 8.8%
                                                                      recorded a reduction of the GDP by 8.5–8.7%,           grew more than 2.2 times as compared to the end
                                                                      which is somewhat more optimistic than the             of 2008. Despite the net capital outflow during the
                                                                      estimates of this indicator as of the middle of the    year (according to the preliminary data, it
                                                                      year. The positive impact was due to the measures
                                                                                                                             amounted to $52.4 bln), October–December saw a
                                                                      of the Government of the Russian Federation to
                                                                                                                             capital inflow totaling $11.6 bln. Another positive
                                                                      support the country’s financial system, as well as
                                                                      an increase in prices for raw materials. RUR 3.2       aspect is that in late December 2009 the interna-
                                                                      trln, or 7.9% of the GDP, were allocated to support    tional rating agency Standard & Poor’s raised
                                                                      the financial and the labor markets, the banking       Russia’s rating from Negative to Stable. Russia’s
                                                                      system, various sectors of economy, and social         long-term and short-term foreign currency ratings
                                                                      services to the population. In nominal terms, it was   are BBB/A-3; its long-term and short-term
                                                                      20% higher than in 2008. The Central Bank of the       domestic currency ratings are BBB+/A-2. Value
                                                                      Russian Federation acted to ease the monetary          transfer and currency conversion risks for domestic
                                                                      policy and gradually lowered the refinancing rate      non-sovereign borrowers remains at ВВВ.




12   Annual Real Estate Review 2010 Colliers International I Russia
МОСКВА MOSCOW
                                                                                           Moscow and St. Petersburg remained in the focus of
                                                                                           investors’ interest. During 2009, the market awaited
INVESTMENT                                                                                 appearance of a large number of distressed assets,
                                                                                           which, by all accounts, never materialized


                                                                                           GENERAL OVERVIEW                                      currency loans. At the same time, a particular rate
                                                                                           In early 2009, the trends of late 2008 continued to   depended on the nature of collateral, developer’s                 The total value
                                                                                                                                                 financial state, its banking history, and other
                                                                                           develop in the investment market, including a                                                                           of deals in 2009
                                                                                           decline in bank financing, growing vacancy rates,     parameters. The most favorable lending terms were
                                                                                                                                                 offered to the developers securing loans by
                                                                                                                                                                                                                   amounted to about
                                                                                           a decrease in rental rates, and, as a result,
                                                                                           low investment activity. In H2 2009, against          pledging operating properties generating stable                   $2.26 bln
                                                                                           the background of measures taken to mitigate          income as collateral. Among recent lending deals,
                                                                                           the consequences of the global crisis, investment     it is worth mentioning the refinancing of two loans
                                                                                           activity increased somewhat.                          totaling $64 mln for 8 years, with the credit limit
                                                                                                                                                 increased up to $150 mln, by AFI Development.                     Foreign investors
                                                                                           For example, the total amount of deals in Q3 2009
                                                                                                                                                 The terms of the deal were not disclosed. One of
                                                                                           was $987.8 mln, which exceeded the aggregate                                                                            show interest
                                                                                                                                                 the largest financing deals in 2009 was the $338 mln
                                                                                           amount for the four previous periods (Q3 2008–
                                                                                                                                                 credit line for 7 years provided by Sberbank                      in the Russian market,
                                                                                           Q2 2009). However, one of the major deals                                                                               and this interest has
                                                                                           in 2009 took place in the first half of the year –    to Briz Construction Company, building Galleria,
                                                                                                                                                 the largest shopping center in St. Petersburg.                    been gradually
                                                                                           Sberbank purchased South Port business
                                                                                           center for $300 mln.                                                                                                    growing
                                                          Source: Colliers International
                                                                                           The following major deals of 2009 are also worth      DEMAND
                                                                                           noting:                                               Most of 2009 deals involved office properties.
                                                                                           ■ Nafta Moskva acquired control over Voentorg         Only five deals involving retail properties were
                                                                                             business center for $300 mln                        completed: sale of two shopping centers in
                                                                                                                                                 Novosibirsk (Kalina and Omega Plaza),
                                                                                           ■ B&N Bank purchased most of Horus Capital’s
                                                                                                                                                 SC Tryapka and SC Chocolate in Moscow,
                                                                                             portfolio of office properties for $270 mln
                                                                                                                                                 and SC Great in St. Petersburg.
                                                                                           ■ Silver City office center was sold to a Western
                                                                                                                                                 The average deal amount declined considerably.
                                                                                             fund, Evans Randall, for €180 mln
                                                                                                                                                 While in 2008, a number of deals amounting to
                                                                                           ■ BC Legion II was sold to Siemens for $150 mln1      $300–700 mln were closed, in 2009 no deals
                                                                                           The total value of deals in 2009 amounted to about    exceeding $300 mln were observed on the market.
                                                                                           $2.26 bln, decreasing about 60% year-on-year.         Buyers were mainly represented by Russian
                                                                                                                                                 companies. Western investment funds, which had
                                                                                           DEBT FINANCING MARKET                                 accounted for more than half of demand before the
                                                                                           In addition to declining interest on the part of      crisis, were largely focused on operating in their
                                                                                           foreign investors, tougher lending policy adopted     domestic markets and solving internal corporate
                                                                                           by banks became one of the major constraints for      problems. However, foreign investors show interest
                                                                                           investment demand. Loan interest rates in H1          in the Russian market, and this interest has been
                                                                                           2009 were prohibitive. In addition, in H2 2009        gradually growing. This assumption is based on the
                                                                                           banks were reluctant to provide loans to develo-      purchase of Silver City by the Evans Randall fund.
                                                                                           pers, although market average rates declined          Moscow and St. Petersburg remained in the focus
                                                                                           somewhat compared to the beginning of the year.       of investors’ interest. During 2009, the market
1
    This is not an investment deal, as the property was not purchased for investment
                                                                                           By the end of 2009, loan rates were in the range      awaited appearance of a large number of distressed
    purposes                                                                               of 17–19% for ruble loans, and 12–14% for foreign     assets, which, by all accounts, never materialized.


                                                                                                                                                                 Russia. Moscow I Annual Real Estate Review 2010 Colliers International   17
                                                                           By the end of 2009, loan rates were in the range of 17–19% for ruble
INVESTMENT                                                                 loans, and 12–14% for foreign currency loans



                                                                           SUPPLY                                                 yet leased out. In such cases, the betting was on
                                                                           During 2009, developers did not rush to decrease       the unrealized potential of these properties that
                                                                           prices of commercial real estate properties. This      can be captured in more favorable market condi-        The total amount
                                                                           was due to such reasons as the unwillingness of        tions. Usually, such properties have outstanding       of deals in Q3 2009
                                                                           banks to revise collateral values and the continuing   locations for their segments. In addition, it is the   was $987.8 mln
                                                                           expectation of recovery in the commercial property     properties under construction that could ensure
                                                                           market overall.                                        the desired capitalization rates of 16–18% and
                                                                                                                                  more, though at a much greater level of risk.
                                                                           As a result of this trend, by the middle of 2009 the
                                                                           developers who suffered from financial difficulties
                                                                           had to sell their assets on the account of their       CAPITALIZATION RATES
                                                                           debts. Thus, for instance, Alfa-Bank acquired the      Capitalization rates for functioning office and
                                                                           properties of Kopernik Group’s division, MIAN          retail properties experiencing no problems with
                                                                           Development; VTB acquired a majority interest in       attracting tenants did not rise above 13–15%.
                                                                           Sistema-Hals and Don-Stroy Invest; Sberbank            By the end of 2009, the gap between the investors’
                                                                           became a part owner of mixed-use complex Capital       and developers’ expectations decreased conside-
                                                                           City being developed by Capital Group on the           rably and did not exceed 2%.
                                                                           territory of Moscow-City, etc. As a result, assets     There is reason to believe that in 2010 the market
                                                                           changed their owners without being available on        will continue to stabilize, although everything will
                                          Source: Colliers International   the open market.                                       be determined by the state of the global economy
                                                                           Investors retained interest in developed income-       and investors’ confidence. The situation in the
                                                                           generating properties during 2009, but, as prices      Russian market will be largely determined by the
                                                                           remained rather high, they started to consider the     growth of energy prices, further decrease of rental
                                                                           opportunity to purchase either properties under        rates, and renewed interest on the part of Western
                                                                           construction or completed properties that were not     investors.




18   Annual Real Estate Review 2010 Colliers International I Russia. Moscow
              Capitalization rates for functioning office and retail properties
INVESTMENT    experiencing no problems with attracting tenants
              did not rise above 13–15%



                                         Table 1. MAJOR INVESTMENT DEALS OF 2009                                                              By the end of 2009,
                                                                                                                Deal amount
                                                                                                                                              the gap between
                         Investor                 Vendor                          Deal                         ($ mln, if not stated
                                                                                                                   otherwise)
                                                                                                                                              the investors’
                                                                                                                                              and developers’
                                           Midland Develop-
               Sberbank
                                           ment
                                                                BC South Port                                          300                    expectations
                                                                                                                                              decreased
               Nafta Moskva                AST Group            BC Voentorg                                           300*
                                                                                                                                              considerably
                                                                A portfolio of office buildings (BC Vympel                                     and didn’t exceed 2%
                                                                – 55,000 sqm, BC Burevestnik – 32,000
                                                                sqm, BC Diapazon, phase I – 40,000 sqm,
                                                                BC Diapazon, phase II – 50,000 sqm,
               B&N Bank                    Horus Capital                                                              270*
                                                                BC on Bolshaya Pochtovaya Ul. – 20,000 sqm,
                                                                BC Oasis – 63,000 sqm (planned),
                                                                BC on Akademika Pilyugina Ul. –
                                                                55,000 sqm (planned))

               Evans Randall               RP Capital           BC Silver City                                      €180 mln

               -                           AFI Development      Espace BC                                              195

               Gazfond                     Mosenergo            BC Energy House                                        150

               Siemens                     Legion Development   BC Legion II                                          150*

               INTER RAO                   Horus Capital        BC Lootch                                              140

               -                           OPIN                 BC Domnikov                                            99.5

               Development Capital Bank    А1                   BC Severnoye Siyanie                                    90

                                           National Reserve
               RUSNANO                                          BC Principal Plaza (15,000 sqm)                         75
                                           Corporation

                                           VTB and McKo
               MosCityGroup                Hotels               Budapesht hotel (55%)                                   60
                                           Management Ltd

               Fort Management Company     Adamant              Great furniture center, St. Petersburg                 50*

               Tashir Group of Companies   Avenue Group         SC Tryapka                                              30

               Sun Investment Partners     RID Group            SC Omega Plaza, Novosibirsk                            30*

               -                           Nevskoye             Count Kushelev-Bezborodko palace                 RUR 740 mln
* Estimates




                                                                                            Russia. Moscow I Annual Real Estate Review 2010 Colliers International   19
                                                                         There is reason to believe that in 2010 the market will
INVESTMENT                                                               continue to stabilize, although everything will be determined
                                                                         by the state of the global economy and investors’ confidence



                                                                                                  Table 1. MAJOR INVESTMENT DEALS OF 2009 (cont.)
                                                                                                                                                                                              Buyers were mainly
                                                                                                                                                                   Deal amount
                                                                                      Investor              Vendor                           Deal                ($ mln, if not stated        represented by
                                                                                                                                                                     otherwise)
                                                                                                                                                                                              Russian companies
                                                                              Storm Real Estate        Ruric AB            SC Grifon House, St. Petersburg                 17

                                                                              Trans Inter Trade        SibAcademInvest     SC Kalina, Novosibirsk                   RUR 400 mln

                                                                                                                           A building at 8 Moskovsky Pr-t,
                                                                              Piter Concern            Rosimushchestvo                                             RUR 188.4 mln
                                                                                                                           St. Petersburg

                                                                                                       The Property Fund   Tsyurupa House of Culture,
                                                                              Olda                                                                                  RUR 74.2 mln
                                                                                                       of St. Petersburg   St. Petersburg

                                                                                                                                                             Source: Colliers International




20   Annual Real Estate Review 2010 Colliers International I Russia. Moscow
                                                                                   By the end of H1 2009, the market hit rock bottom:
OFFICE SECTOR                                                                      the highest supply was coupled
                                                                                   with the lowest demand


                                                                                   The office market saw in 2009 perhaps the most               the highest supply was coupled with the lowest
                                                                                   dramatic crisis scenario among the market                    demand, which allowed the market participants to
                                                                                   segments, namely, substantial growth of vacancy              define adequate lease (and sale) terms. In H2 2009,                 In 2009, the vacancy
                                                                                   rates and sharp fall of rental rates, in particular,         a certain demand appeared, and we could trace its                   rate rose almost four
                                                                                   for new properties that were just put into operation.        gradual growth.                                                     times
                                                                                   As the real estate market is characterized
                                                                                   by inertness and is often several months slow to             SUPPLY AND NEW CONSTRUCTION
                                                                                   respond to changes in the general economic                   In 2009, the total new construction and reconstruc-
                                                                                   situation, in early 2009 we could witness some               tion of Class A and B office space amounted to
                                                                                   contrary trends, such as completion of the deals             1.689 mln sqm (Class А – 22%, Class В – 78%).                       Space take-up in the
                                                                                   started in 2008 and absence of any supply and new            At the same time, the total 2009 supply forecast                    office property sales
                                                                                   demand. Then a period followed when developers               performed in late 2008 amounted to 2 mln sqm.                       market declined 63%
                                                                                   began to freeze construction, thus limiting the              The percentage shares of new construction and                       in 2009 as compared
                                                                                   future supply, and tenants began to vacate                   reconstruction were 65% and 35% accordingly.
                                                                                                                                                                                                                    to 2008
                                                                                   premises, offering them for sublease. Thus,                  Thus, the total stock of Class A and B properties as
                                                                                   by the end of H1 2009, the market hit rock bottom:           of the end of 2009 was 11.67 mln sqm (see Chart 1).
                                                  Source: Colliers International

                                                                                                     Table 1. MAJOR PROJECTS PUT INTO OPERATION IN 2009
                                                                                                                   Buil-                               Total       Rentable
                                                                                                                                                                                     Commissioning
                                                                                               Building            ding          Developer             Area,         Office
                                                                                                                                                                                        Date*
                                                                                                                   Class                               sqm         Area, sqm

                                                                                    Capital City, Phase II            А      Capital Group            288,700**       52,100          December 2009

                                                                                    Rumyantsevo, Phase II             B      Stroyinvest               180,000       140,000           January 2009

                                                                                    MonArch                           B      MonArch                   167,900        55,000            March 2009

                                                                                    Nordstar Tower                    A      DS Developmet             147,800        79,700            March 2009

                                                                                    White Square                      А      Coalco, AIG/Lincoln       70,300         66,200         March–April 2009

                                                                                    65–66 Myakininskaya Poima,               Objedinennaya
                                                                                    Bldgs A, B,V, G, the Moscow       B      Stroitelnaya              66,900         39,300           January 2009
                                                                                    Region                                   Kompaniya

                                                                                                                             Kompleksnye
                                                                                    Smirnovsky                        В                                60,000         50,000             April 2009
                                                                                                                             Investitsii

                                                                                    Dvintsev                          А      Central Properties        57,848         49,100           February 2009
 * Act of State Commissioning is being received
                                                                                    Metropolis, Bldg 3                А      Capital Partners          50,400         36,000             April 2009
** The total area of the property




                                                                                                                                                                  Russia. Moscow I Annual Real Estate Review 2010 Colliers International   29
OFFICE SECTOR



                                                                                            Table 1. MAJOR PROJECTS PUT INTO OPERATION IN 2009 (cont.)
                                                                                                                                                                                                       The total stock
                                                                                                                   Build-                        Total    Rentable                                     of Class A and B
                                                                                                                                                                          Commissioning
                                                                                           Building                 ing        Developer         Area,      Office
                                                                                                                                                                             Date*                     properties as
                                                                                                                   Class                         sqm      Area, sqm
                                                                                                                                                                                                       of the end of 2009
                                                                                9 Akrov, Phase I                     В      Garmet               47,000     36,300              June 2009              was 11.67 mln sqm
                                                                                                                            Mezhdunarodny
                                                                                Alexeevskaya Tower                   B      Kommerchesky         44,000     31,600            January 2009
                                                                                                                            Soyuz

                                                                                Ryabinovaya Plaza                    В      Plaza Construction   43,700     35,400          December 2009

                                                                                                                            Legion
                                                                                Legion III, Phase II                 В                           42,500     37,000            March 2009
                                                                                                                            Development

                                                                                Brent City BC, Phases I and II       В      Favorit              41,400     30,500         January–May 2009

                                                                                23 Savvinsky B. Per., Bldg 1         В      Moscow Silk          35,000     30,300          December 2009

                                                                                Principal Plaza                      А      Principal Plus       33,400     25,300              July 2009

                                                                                Svyatogor 4                          B      Svyatogor            33,300     20,100          September 2009

                                                                                Burevestnik BC                       В      Horus Capital        32,500     29,100            January 2009

                                                                                Victory Plaza                        В      MR Group             31,000     21,700            January 2009

                                                                                                                            Midland
                                                                                South Port BP, Phases II and III     В                           30,400     30,000            January 2009
                                                                                                                            Development

                                                                                World Trade Center III               А      World Trade Center   29,600     25,754          December 2009

                                                                                Solutions BС                         B      MosKapStroy          28,000     11,500              July 2009

                                                                                Aviator BC                           В      Capital Group        27,400     20,400             April 2009

                                                                                                                            Garage Complex
                                                                                20–22 Berezhkovskaya Nab.            В                           26,700     20,800          November 2009
                                                                                                                            Plastic-2000

                                                                                Gorizont                             B      Novy Format          24,700     19,400          September 2009

                                                                                                                            Alfa Design,
                                                                                Solutions BP, Bldg 1                 B      MosKapStroy,         24,600     18,000              July 2009
                                                                                                                            MonArch

                                                                                Pavlovsky BC, Phase II               А      Central Properties   18,600     12,400            August 2009

* Act of State Commissioning is being received                                  Mokhovaya BC, Phase II               А      MCD Group            10,400      7,100              July 2009

                                                                                                                                                                      Source: Colliers International


30     Annual Real Estate Review 2010 Colliers International I Russia. Moscow
                Office premises were still in demand by companies
OFFICE SECTOR   operating in the following sectors: consumer goods,
                finance and mining industry


                DEMAND                                                          The above data show that, despite the crisis, new
                Notable the overwhelming share of demand in                     premises were still in demand by companies
                2009 was formed by Russian companies (80%),                     operating in the following major sectors: consu-                  In 2009, the total new
                and the share of the Russian companies in office                mer goods, finance, and mining industry. It is                    construction and
                premises sales deals was higher than in lease deals.            interesting to note that a large share of demand                  reconstruction of
                                                                                was formed by the companies that have the
                In 2009, the gross take-up of office space reached
                                                                                government among their major shareholders.
                                                                                                                                                  Class A and B office
                744,000 sqm (about 28% of these deals were for
                                                                                The following main reasons that made companies                    space amounted to
                Class A office space). In 2009, the take-up in the                                                                                1.689 mln sqm
                                                                                lease new offices can be identified. These are
                lease market declined 57% year-on-year.
                                                                                a desire to create a “fixed” real estate foundation
                                                                                for a planned business expansion and optimization
                                                                                of lease costs.


                                    Table 2. MAJOR LEASE DEALS CONDUCTED IN 2009
                                               (“NEW” LEASE AGREEMENTS)
                                                                                                  Building
                           Tenant                                 Building                                       Office Area, sqm
                                                                                                   Class

                 Sportmaster                  Aviator, 4 Kochnovsky Pr-d                              В                 16,700

                 Olympstroy                   Solutions, 2 Teatralnaya Alleya                         В                 11,481

                 Unilever Rus                 Marr Plaza, 13 Sergeya Makeeva Ul.                      В                   9,355

                 Gazprom Tsentrremont         Gas Field, 27 Obrucheva Ul.                             В                   8,550

                 Holding MRSK                 Business center in 26 Ulansky Per., Bldg 1              В                   8,087

                 Deutsche Bank                Nordstar Tower, 2–20 Khoroshevskoye Sh.                 А                   7,877

                 ABBYY                        Otradny, 2 Otradnaya Ul.                                В                   7,380

                 Aeroflot                      Midland Plaza, 10 Arbat Ul.                             В                   6,900

                                              Riga Land, Phase I, Novorizhskoye Sh., 7 km
                 KES Holding                                                                          В                   5,296
                                              from the MKAD

                 RTS                          Mokhovaya, 4–7 Vozdvizhenka Ul., Bldg 2                 А                   5,096

                                              Central City Tower I, 20 Ovchinnikovkaya Nab.,
                 Investment company ATON                                                              В                   4,905
                                              Bldg 1

                 Alcatel-Lucent               LeFORT, 27 Elektrozavodskaya Ul.                        В                   4,560

                                                                                                               Source: Colliers International




                                                                                                Russia. Moscow I Annual Real Estate Review 2010 Colliers International   31
                                                                              The majority of deals closed in 2009
OFFICE SECTOR                                                                 involved fitted-out premises



                                                                                                            Table 3. MAJOR SALE DEALS IN 2009
                                                                                                                                                                                                            In 2009, the gross
                                                                                         Buyer                            Building / Seller
                                                                                                                                                               Building
                                                                                                                                                                                  Area, sqm
                                                                                                                                                                                                            take-up of office
                                                                                                                                                                Class                                       space reached
                                                                               Confidential                 Espace (9 Kosinskaya Ul.) / AFI Development             В               112,000                  744,000 sqm
                                                                               Inter RAO UES               Lootch (7 Pirogovskaya B. Ul.) / Horus Capital          А                30,000

                                                                                                           Legion II, Phase I (13 Tatarskaya B. Ul.) /
                                                                               Siemens                                                                             В                29,100
                                                                                                           Legion Development

                                                                                                           Principal Plaza (12 60-Letiya Oktyabrya Pr-t) /
                                                                               RUSNANO                                                                             А                15,000
                                                                                                           Principal Plus

                                                                                                           West Side (21 Molodezhnaya Ul., Odintsovo) /
                                                                               Confidential                                                                         В                14,000
                                                                                                           Rielt Stroy

                                                                                                                                                                           Source: Colliers International
                                             Source: Colliers International
                                                                              In 2009, the gross take-up in the office property              was not common), as well as premises in functio-
                                                                              sales market amounted to 277,000 sqm. Office                   ning buildings vacated by tenants who moved to
                                                                              space take-up in this market declined 63% in 2009              other buildings. Such a sharp discrepancy between
                                                                              as compared to 2008. Almost 40% of the stated                  the new construction and take-up can be explained
                                                                              take-up was attributed to the sale of Espace BC                by the fact that all properties commissioned in
                                                                              (see Table 3); and sales of entire buildings with              2009 focused on pre-crisis level of demand, where-
                                                                              areas of 5,000–30,000 sqm accounted for                        as in 2009 the demand was low. We expect the cur-
                                                                              approximately 42%.                                             rent vacancy rate, which is high for Moscow, to de-
                                                                                                                                             crease rapidly when the “crisis” period is over.
                                                                              This review contains information referring to office
                                                                              property sales deals conducted by end-users,
                                                                              investment sales deals are covered in the                      RENTAL RATES AND SALE PRICES
                                                                              Investment section.                                            Weighted average asking rental rates demonstrated
                                                                                                                                             a steady decline during 2009 (see Chart 3). Having
                                                                                                                                             analyzed the changes in rental rates on a quarterly
                                                                              VACANCY RATES
                                                                                                                                             basis, it can be noted that the greatest decline oc-
                                                                              Quantitatively, the consequences of the crisis can             curred during the first half of the year (the market
                                                                              be estimated by the growth in vacancy rates and                participants were trying to find equilibrium). In
                                                                              rental rates decline (see Chart 2).                            H2 2009, the decrease slowed down and, by the
                                                                              In 2009, the vacancy rate rose almost four times.              end of 2009, rental rates began to stabilize (the de-
                                                                              The major sources of vacant space included com-                mand that formed made it possible to fix the rates
                                                                              missioned buildings that were not leased out or                at the level acceptable for market players).
                                                                              sold based on preliminary agreements (for 2009                 For the period of January to December of 2009,
                                                                              transactions, entering into contracts for buildings            weighted average rental rates dropped by 50% for
                                                                              under construction before they were commissioned               Class A and almost by 40% for Class B properties.


32   Annual Real Estate Review 2010 Colliers International I Russia. Moscow
                                                                                     For the period of January to December of 2009,
OFFICE SECTOR                                                                        weighted average rental rates dropped by 50% for Class A
                                                                                     and almost by 40% for Class B properties



                                                                                                          Table 4. ASKING RENTAL RATES AND SALE PRICES
                                                                                                                                                                                                                  The appearance of
                                                                                        Building Class
                                                                                                                       Asking Rental Rates,                          Asking Sale Price,                           new market players
                                                                                                                           $/sqm/year                               $/sqm (net of VAT)                            may change the
                                                                                               A                               550–800                                    4,000–8,000                             market standards
                                                                                              В+                               350–650                                    3,000–6,000

                                                                                              В–                               150–500                                    2,000–3,000

                                                                                                                                                                               Source: Colliers International


                                                                                     It is interesting to note that rental rates for Class B   ■ In response to changes in the economic situa-
                                                    Source: Colliers International
                                                                                     properties increased in Q4 2009. We explain this            tion, tenants and landlords tried to find
                                                                                     fact by the demand for Class B properties, which            mutually acceptable solutions within the
* Rental rates as of the end of the respective period indicated on the Chart         allowed their owners to set higher asking rates             framework of current lease agreements in order
                                                                                     than those they expected earlier. We cannot judge           to keep the lease in effect. The announced deals
                                                                                     how indicative or stable this trend is; it may well         serve as proof of this trend. The total amount of
                                                                                     be that 1H 2010 will have the opposite trend.               terms renegotiation deals for current lease
                                                                                                                                                 agreements was for 196,000 sqm. Such deals are
                                                                                     TRENDS                                                      typical only of markets undergoing qualitative
                                                                                                                                                 changes.
                                                                                     ■ Term of lease agreements began to decrease:
                                                                                       average lease term amounted to 3–5 years.               ■ The majority of deals involved office buildings
                                                                                     ■ Ruble was increasingly used as the currency               located within the Third Ring Road. Thus,
                                                                                       of contracts. This trend was typical of contracts         the greatest consumer demand was observed
                                                                                       for Class B properties.                                   for the buildings situated close to the city
                                                                                                                                                 center.
                                                                                     ■ The majority of deals involved fitted-out
                                                                                       premises.                                               ■ Some developers made extraordinary efforts to
                                                                                                                                                 attract tenants. In most cases, these efforts were
                                                                                     ■ Terms of preliminary lease agreements (that is, lease
                                                                                                                                                 aimed at leasing out properties with a leasing
                                                                                       agreements for properties without an Ownership
                                                                                                                                                 area exceeding 30,000 sqm commissioned in
                                                                                       Certificate as of the date of signing the agreement)
                                                                                       were renegotiated to the greatest extent.                 2009.

                                                                                     ■ The ownership structure of office buildings             ■ In Q4, 2009, a number of developers announced
                                                                                       is changing: creditors exercise their rights for          that they were going to resume work on pre-
                                                                                       space in properties they provide loans for. Thus,         viously frozen projects, which reflects their
                                                                                       a property may have more than one owner, with             confidence in market stabilization and expecta-
                                                                                       each owner having their own strategy of project           tions of demand revival.
                                                                                       implementation, which directly affects lease
                                                                                       terms for such a property.



                                                                                                                                                                Russia. Moscow I Annual Real Estate Review 2010 Colliers International   33
                                                                         In Q4 2009, a number of developers announced that they
                                                                         were going to resume work on previously frozen projects,
OFFICE SECTOR                                                            which reflects their confidence in market stabilization and
                                                                         expectations of demand revival


                                                                         FORECAST                                                 Activity of banks providing loans for office
                                                                         The current situation is unstable, and it is difficult   properties                                           In 2009, the take-up
                                                                         to project how it is going to develop. The market        In 2010, banks, having become owners of collateral   in the lease market
                                                                         participants should take the unstable nature of the      real estate properties, may become noticeable real   declined 57% year-on-
                                                                         achieved equilibrium into account when making            estate market players.
                                                                                                                                                                                       year
                                                                         decisions.                                               To manage real estate, they will continue creating
                                                                         Rental Rates                                             development units within their structures, hiring
                                                                         In 2010 we expect no significant changes in rental       existing development companies to manage them,
                                                                         rates that are given in Table 4 and reflect the          or manage the collateral properties otherwise.
                                                                         situation as of the end of 2009.                         The appearance of new market players may change
                                                                                                                                  the market standards.
                                                                         Demand
                                                                         In 2010, we expect the greatest demand for
                                                                         properties that are located within the Third Ring
                                                                         Road, belong to developers with strong reputation,
                                                                         receive Ownership Register Certificate and are
                                                                         fitted-out.




34   Annual Real Estate Review 2010 Colliers International I Russia. Moscow
                                              Supply forecast for 2010 exceeds the data forecasted for 2008.
WAREHOUSE SECTOR                              This is due to a number of new projects launched in 2009,
                                              which is undoubtedly a positive factor


                                              SUPPLY                                                        beginning of the year. In early 2009, against the
                                              Despite the evident difficulties in fund raising for          background of the crisis, expectations underwent                  About 400,000 sqm
                                              project implementation, the supply in the ware-               considerable changes, which made it possible to                   of warehouse space
                                                                                                            forecast commissioning of new properties with
                                              house property market increased in 2009 by
                                                                                                            minimum error. It is also noteworthy that the
                                                                                                                                                                              is expected to be
                                              640,000 sqm of quality warehouse space. The most                                                                                developed in 2010
                                                                                                            forecast for 2010 exceeds the data forecasted for
                                              active market players included Raven Russia,
                                                                                                            2008. This is due to a number of new projects
                                              Espro Development, PNK Group, and Giffels.
                                                                                                            launched in 2009, which is undoubtedly a positive
                                              Thus, as of the end of 2009, the total stock
                                                                                                            factor. However, it is evident that the share of
                                              of Class A speculative warehouse space amounted               these projects in the market is small. About
                                              to 3,235,000 sqm.                                                                                                               As of the end of 2009,
                                                                                                            400,000 sqm of warehouse space is expected to be                  the total stock
                                              Previously, the amount of actually commissioned               developed in 2010, including approximately
                                              properties used to be less than expected at the               100,000 sqm carried over from 2009.
                                                                                                                                                                              of Class A speculative
                                                                                                                                                                              warehouse space
             Source: Colliers International                                                                                                                                   amounted to
                                                                       Table 1. MAJOR CLASS A WAREHOUSE PROJECTS                                                              3,235,000 sqm
                                                                                 PUT INTO OPERATION IN 2009
                                                                                                                             Phase, area,          Date of
                                                   Property                      Developer                Location
                                                                                                                                sqm             commissioning

                                               Lobnya Logistics                                    Leningradskoye Sh.,
                                                                       Brack Capital Real Estate                                 30,000                Q1
                                               Park                                                13 km from the MKAD

                                               SLT (Southern           Raven Russia / Felix con-   Varshavskoye Sh.,
                                                                                                                             Phase I, 18,000           Q1
                                               Logistics Terminal)     struction company           21 km from the MKAD

                                                                                                   Simferopolskoye Sh.,
                                               PNK-Chekhov             PNK Group                                            Phase I, 135,000           Q2
                                                                                                   50 km from the MKAD

                                               Eastern Industrial      Espro Development /         Gorkovskoye Sh.,
                                                                                                                            Phase I, 121,400           Q2
                                               Park                    Raven Russia                44 km from the MKAD

                                                                                                   Novorizhskoye Sh.,
                                               Industrial Park Istra   Espro Development                                    Phase IV, 26,000           Q2
                                                                                                   40 km from the MKAD

                                                                                                   Kashirskoye Sh.,
                                               South Gate              Giffels                                               Phase I, 75,000           Q3
                                                                                                   30 km from the MKAD

                                                                                                   Kashirskoye Sh.,
                                               Agroterminal            Accent Real Estate                                        55,000                Q3
                                                                                                   25 km from the MKAD

                                               Lobnya Logistics                                    Rogachevskoye Sh.,
                                                                       Raven Russia                                          Phase I, 42,000           Q3
                                               Park                                                18 km from the MKAD

                                                                                                   Novoryazanskoye Sh.,
                                               Trilogy                 Investment Trust                                          92,000               Q3–4
                                                                                                   9 km from the MKAD



                                                                                                                            Russia. Moscow I Annual Real Estate Review 2010 Colliers International   39
                                                                             The total amount of deals concluded in 2009
WAREHOUSE SECTOR                                                             is approximately 600,000 sqm of warehouse premises



                                                                                                     Table 1. MAJOR CLASS A WAREHOUSE PROJECTS
                                                                                                            PUT INTO OPERATION IN 2009 (cont.)
                                                                                                                                                        Phase, area,           Date of
                                                                                   Property                Developer                  Location
                                                                                                                                                           sqm              commissioning

                                                                               SLT (Southern         Raven Russia / Felix      Varshavskoye Sh.,
                                                                                                                                                        Phase II, 17,200             Q3
                                                                               Logistics Terminal)   construction company      21 km from the MKAD

                                                                               SLT (Southern         Raven Russia / Felix      Varshavskoye Sh.,
                                                                                                                                                        Phase III, 18,000            Q4
                                                                               Logistics Terminal)   construction company      21 km from the MKAD

                                                                               Lobnya Logistics                                Rogachevskoye Sh.,
                                                                                                     Raven Russia                                           10,000                   Q4
                                                                               Park                                            18 km from the MKAD

                                                                                                                                                                       Source: Colliers International

                                           Source: Colliers International    DEMAND                                                    space (47.2%) was occupied by logistics operators,
                                                                             The demand structure in the warehouse property            in 2009 their share fell to 9.6%, and the largest
                                                                             market has changed. H1 2009 could be characteri-          tenant groups were FMCG operators (about 12.2%
                                                                             zed as the waiting period, when companies tended          in 2009, 1.6% in 2008), retail operators (48.1% in
                                                                             to study the market and analyze various offers wai-       2009, 26.3% in 2008), and industrial companies
                                                                             ting for rental rates to reach the minimum, while the     (15.6% in 2009, 6.5% in 2008) (see Diagram 2).
                                                                             second half of the year saw a definite increase in ac-
                                                                             tivity. A good example of it can be provided by the       RENTAL RATES
                                                                             analysis of the Q4’s transactions share in the total      The changes in the supply and demand ratio re-
                                                                             amount of deals in 2009: Q1 – 9%, Q2 – 20%, Q3 –          sulted in changes in lease terms: the agreement du-
                                                                             35%, and Q4 – 36%. The total amount of deals con-         ration decreased from 7–10 to 3–5 years, the secu-
                                                                             cluded in 2009 is approximately 600,000 sqm of            rity deposit changed from equivalent of lease
                                                                             warehouse premises. The largest of them include           payment for 3–6 to 1–3 months, the approach to
                                                                             lease agreements signed by Eldorado for 67,000 sqm        the agreement currency has become more flexible.
                                                                             in warehouse complex PNK-Chekhov, John Deere              Rents fell down to $100 sqm/year for Class A (in
                                                                             company lease agreement for 45,000 sqm in ware-           early 2009 Class A rents reached $125 sqm/year)
                                                                             house complex South Gate, lease agreement for             and $90 sqm/year for Class B (in early 2009 Class
                                                                             23,500 sqm in Severnoye Domodedovo complex                B rents reached $115 sqm/year) (see Chart 2).
                                                                             signed by Novy Impuls company (Utkonos opera-
                                                                             tor), as well as lease agreement for 23,000 sqm of        VACANCY RATES
                                                                             warehouse space in PNK-Chekhov signed by Х5               Changes in the situation on the warehouse pro-
                                                                             Retail Group (see Table 2). The major deals with          perty market led to a rapid vacancy rate growth.
                                            Source: Colliers International   regional properties are shown in Table 3.                 Before 2009, this indicator did not exceed 2%,
                                                                             2009 saw a change in the breakdown of the                 whereas by the end of Q2 2009 it reached ap-
                                                                             demand for warehouse premises by the tenant               proximately 19%. By the end of 2009, the vacan-
* By the total leased area                                                   profile. While in 2008 about half of the leased           cy rate in the Moscow Region was 10%.


40    Annual Real Estate Review 2010 Colliers International I Russia. Moscow
                                              Before 2009, vacancy rate did not exceed 2%,
                                              whereas by the end of Q2 2009 it reached approximately 19%.
WAREHOUSE SECTOR                              By the end of 2009, the vacancy rate in the
                                              Moscow Region was 10%


                                                               Table 2. MAJOR DEALS CONCLUDED IN 2009 IN MOSCOW
                                                      Tenant                          Property                     Leased area, sqm               Deal date

                                               Eldorado                PNK-Chekhov                                       67,000                        Q4

                                               John Deere              South Gate                                        45,000                        Q3

                                               Novy Impuls (Utkonos)   Severnoye Domodedovo                              23,500                        Q4

                                               Х5 Retail Group         PNK-Chekhov                                       23,036                        Q2

                                               Gradient                SLT (Southern Logistics Terminal)                 18,130                        Q1

                                               Partner Logistics       Agroterminal                                      13,000                        Q4
             Source: Colliers International
                                               OST                     Severnoye Domodedovo                              12,500                        Q3

                                               Liggett-Ducat           Severnoye Domodedovo                              12,500                        Q3

                                                                                                                                          Source: Colliers International



                                                             Table 3. MAJOR DEALS CONCLUDED IN 2009 IN THE REGIONS
                                                      Tenant                        City/Property                  Leased area, sqm               Deal date

                                               Tyumen Logistics
                                                                       Yekaterinburg/Pyshma                              22,000                        Q1
                                               Center

                                               X5 Retail Group         Kazan/PLK                                         13,109                        Q1

                                               FM Logistic             Novosibirsk Logopark                              10,625                        Q3

                                               X5 Retail Group         Rostov-on-Don Logopark                            10,511                        Q1

                                                                                                                                          Source: Colliers International


                                              Vacant premises include both the new projects                FORECAST
                                              that have not yet been occupied by tenants, and              We expect the situation on the warehouse proper-
                                              the vacated space. The larger share of the latter            ty market to stabilize in 2010 thanks to such fac-
                                              is formed by premises that used to be occupied               tors as further active renewal of demand (mainly
                                              by logistics operators (in 2009, logistics opera-            in the Moscow Region) and lower vacancy rates
                                              tors vacated approximately 220,000 sqm – for                 (due to active demand and a decline in new
                                              comparison, other operators vacated about                    supply).
                                              47,500 sqm. And we expect them to vacate                     The supply will include newly constructed
                                              another 125,000 sqm in H1 2010).                             properties (we expect the supply to increase by


                                                                                                                           Russia. Moscow I Annual Real Estate Review 2010 Colliers International   41
WAREHOUSE SECTOR


                                                                           approximately 400,000 sqm in 2010, mainly due            that used to rent it as a reserve. According to our
                                                                           to the construction of further phases of well-           forecasts, if macroeconomic indicators are stable,
                                                                           known projects such as PNK-Chekhov, Industrial           rental rates will slightly decline in H1 2010, and
                                                                           Park Istra, and Krekshino Logistics Park (see Ta-        in Q3 they will start to grow due to an additional
                                                                           ble 4)), as well as the space vacated by the operators   increase in demand and decreasing vacancy rates.


                                                                                                      Table 4. MAJOR CLASS A WAREHOUSE PROJECTS
                                                                                                             PLANNED FOR COMPLETION IN 2010
                                                                                    Property                        Developer                    Location           Phase, area, sqm

                                                                                                                                          Simferopolskoye Sh.,
                                                                              PNK-Chekhov               PNK Group                                                      Phase II, 100,000
                                                                                                                                          50 km from the MKAD

                                                                                                                                          Novorizhskoye Sh.,
                                                                              Industrial Park Istra     Espro Development                                               Phase V, 20,000
                                                                                                                                          40 km from the MKAD
                                          Source: Colliers International
                                                                              Krekshino Logistics                                         Kievskoye Sh.,
                                                                                                        RosEvroDevelopment                                             Phase IV, 60,000
                                                                              Park                                                        24 km from the MKAD

                                                                                                                                                                  Source: Colliers International




42   Annual Real Estate Review 2010 Colliers International I Russia. Moscow
                The most attractive and high quality properties managed
RETAIL SECTOR   to avoid both an increase in vacancy rate
                and a decrease in rental rates


                Aggravation of the financial crisis in 2009 (freezing       family entertainment center, opened its doors
                of projects, defaults of retail operators) revealed         to visitors in this shopping center. Shopping centers
                weaknesses of the market and its players, as well as        Golden Babylon in Prospekt Mira and Gorod, being                   In 2009, the total
                mistakes made in project development during the             among the largest in Moscow, opened in Q4 2009,                    supply increased by
                years of extensive development. The most attrac-            as well. Golden Babylon is the largest shopping                    almost 900,000 sqm
                tive and high quality properties managed to avoid           center in Europe located within the city boundaries.
                both an increase in vacancy rate and a decrease in          It includes the largest and the first in Moscow
                rental rates.                                               hypermarket of St. Petersburg’s chain O’KEY,
                                                                            Fun City entertainment center, also developed by
                                                                            a St. Petersburg operator, and Castorama DIY
                SUPPLY                                                      hypermarket.                                                       General market trend
                In 2009, the total supply in the retail property market     It is noteworthy that despite their quite conside-                 has been opening of
                increased by almost 900,000 sqm. Commissioning of           rable floor space, these properties are practically                properties with
                most of the properties became landmark events for           completely leased out to tenants. Meanwhile, a                     40–60% occupancy
                the market. Metropolis shopping center opened later         general market trend has been opening of proper-                   of the arcade
                than expected (initially, its opening was planned for       ties with 40–60% occupancy of the arcade with
                Q4 2008) and introduced to the market many new              subsequent opening of shops in course of the
                international brands (H&M, River Island, Bebe, Gap,         property’s operation. The reason is that the tenants
                Ipekyol, and others); in Filion SC, the first Carrefour     begin fit-out works late, or lack sufficient financing
                hypermarket in Moscow was opened, which later,              to perform it.
                affected by the crisis situation, made a decision to        As of the end of the year, the total supply amoun-
                stop the chain’s development in the country and close       ted to 4,857,000 sqm (total area), 2,538,000 sqm
                its operating stores. In December, Babylon, the first       (GLA).


                                        Table 1. SHOPPING CENTERS OPENED IN 2009
                                                           Total          GLA,                                          Opening
                       Name              Address                                           Major tenants
                                                         area, sqm        sqm                                            date

                                                                                    Karusel hypermarket, M.video
                                                                                    household appliances and
                                      16 Leningrad-
                 Metropolis                                205,000        80,000    electronics, Kinostar de Lux          January
                                      skoye Sh.
                                                                                    multiplex, Stockmann department
                                                                                    store

                                                                                    Karusel hypermarket, Tekh-
                                      8a Andropova
                 Megapolis                                 72,000         44,000    nosila household appliances and      February
                                      Pr-t
                                                                                    electronics

                                                                                    Karusel hypermarket, M.video
                                      1 Novoyase-
                 Spektr                                    54,000         38,000    household appliances and elec-        March
                                      nevsky Pr-t
                                                                                    tronics, Karo Film multiplex




                                                                                             Russia. Moscow I Annual Real Estate Review 2010 Colliers International   47
                                                                         Despite the difficult situation, 2009 brought new brands
                                                                         to the retail property market. These include Kika, H&M,
RETAIL SECTOR                                                            as well as such brands as River Island, Ipekyol, New Look,
                                                                         Bebe, Gap, Nucleo and Centro


                                                                                               Table 1. SHOPPING CENTERS OPENED IN 2009 (cont.)
                                                                                                                   Total     GLA,                                             Opening
                                                                                                                                                                                                 As of the end of the
                                                                                       Name        Address                                     Major tenants                                     year, the total supply
                                                                                                                 area, sqm   sqm                                               date
                                                                                                                                                                                                 amounted
                                                                                                                                       Carrefour hypermarket, Decath-
                                                                                                5 Bagration-                           lon sports goods hypermarket,                             to 4,857,000 sqm
                                                                              Filion                               87,600    55,000                                               June
                                                                                                ovsky Pr-d                             10-screen Cinema Park Starlight                           (total area),
                                                                                                                                       multiplex, Babylon
                                                                                                                                                                                                 2,538,000 sqm (GLA)
                                                                                                                                       O’KEY hypermarket, Media-
                                                                                                                                       Markt household appliances and
                                                                                                                                       electronics, 14-screen Luxor mul-
                                                                              Golden Babylon    211 Mira Pr-t     241,000    170,000                                          November
                                                                                                                                       tiplex, DIY Castorama, Fun City
                                                                                                                                       entertainment center, Stockmann
                                                                                                                                       department store
                                                                                                                                       Auchan hypermarket, Decathlon
                                                                                                                                       sports goods hypermarket, DIY
                                                                                                12/2 Entuzias-
                                                                              Gorod                               240,000    110,000   Leroy Merlin, 8-screen Kronverk        December
                                                                                                tov Sh.
                                                                                                                                       Cinema multiplex, M.video house-
                                                                                                                                       hold appliances and electronics

                                                                                                                                                                Source: Colliers International



                                                                         DEMAND                                                introduce its new Raduga brand represented by
                                                                         It is worth noting that, despite the difficult        goods of the economy price segment in super-
                                                                         situation, 2009 brought new brands to the retail      market format. Nike plans to open its first own
                                                                         property market. These include furniture and          shops in Russia along with franchise stores.
                                                                         household goods hypermarket Kika, department          One can notice an active expansion of regional
                                                                         store H&M, as well as such brands as River            chains into space being vacated in Moscow
                                                                         Island, Ipekyol, New Look, Bebe, Gap, Nucleo          shopping centers. These include St. Petersburg
                                                                         and Centro. Besides, a number of operators plan       children’s goods chains Zdorovy Malysh and Deti,
                                                                         to enter the retail property market, including        DIY operator Start, Fun City, as well as Lipetsk
                                                                         department stores Debenhams and Harvey                Uyuterra chain.
                                                                         Nichols, British supermarket Sainsbury’s, fast        The situation on the regional cities’ retail
                                                                         food chain Burger King, clothing brands Tally         property markets remains very complicated:
                                                                         Weijl and Li Ning, as well as economy footwear        the demand on the part of retail operators
                                                                         chain Payless Shoes. Decathlon is going to            is low (even for the operating properties). This is
                                                                         introduce its new brand Koodza (a hard                related to general scaling down of development
                                                                         discounter with smaller area selling mainly           plans caused by a decrease in purchasing
                                                                         Decathlon stores’ best selling goods); Castorama      power in the regions, as well as by the lack of
                                                                         is launching its City Format operator which           low-cost loans required for active expansion.
                                                                         occupies smaller premises; and Auchan plans to


48   Annual Real Estate Review 2010 Colliers International I Russia. Moscow
                One can notice an active expansion of regional chains
                into space being vacated in Moscow shopping centers.
RETAIL SECTOR   These include St. Petersburg chains Zdorovy Malysh and Deti,
                DIY operator Start, Fun City, as well as Lipetsk Uyuterra chain


                Besides, bankruptcy of a number of retail chains        by the middle of the year (15%). In autumn,
                in Moscow, vacation of some space in operating          with the general increase in market activity and                   The vacancy rate in
                shopping centers, and a certain decrease in rental      growing demand for retail space on the part of                     Moscow amounted to
                rates have allowed regional chain operators to          retail operators, the vacancy rate in Moscow
                lease premises in the capital’s properties.
                                                                                                                                           approximately 5–7%
                                                                        decreased and amounted to approximately 5–7%
                                                                        as of early December.
                                                                                                                                           as of early December
                RENTAL RATES
                Decline in rental rates in the retail property          FORECAST
                market began as early as late 2008 and reached its      In autumn 2009, the retail property market saw a                   By the end of Q3
                maximum by mid-2009, amounting to 30–50%                certain increase in activity. It was reflected in the              2009, it became
                in US dollars in Moscow and other regions.              growing number of lease deals, as well as in lower                 possible to speak
                The scale of decline differed depending on quality
                                                                        vacancy rate. Another vivid proof is that the                      of stabilization of
                of the property, competitive environment,
                                                                        owners of quality shopping centers stopped                         rental rates
                and project stage (decline was the largest for newly
                                                                        offering discounts. Despite financing difficulties,
                commissioned properties).                                                                                                  in Moscow shopping
                                                                        development of a number of the announced
                By the end of Q3 2009, it became possible to speak      Moscow projects will continue in 2010; however,
                                                                                                                                           centers
                of stabilization of rental rates in Moscow shopping     their commissioning may be postponed
                centers. Situation with rents in properties offered     for 1–2 years (as far as large projects are con-
                for lease is often the following: landlords are ready
                                                                        cerned). However, no new projects will be
                to decrease rental rates for the first and second
                                                                        introduced to the market in the near future.
                year of lease agreement and reach the planned
                                                                        In addition, some regional projects will be
                profit from rental payments in 2–3 years. While
                                                                        unfrozen, especially in cities with high income level
                previously the fixed rate under the “turnover rent
                                                                        and remaining deficit of quality retail properties.
                with minimum fixed rate plus a percentage of sales”
                scheme used to be very low, whereas today it is         Currently, it is extremely difficult to make any
                increasing. Its annual indexation rate is 3–5%.         reliable forecasts regarding retail properties that
                Moreover, by the end of 2009, the owners of             will enter the market in 2010.
                quality shopping centers stopped offering dis-          We expect approximately 1,000,000 sqm of retail
                counts, and it became possible to state that rental     space (total area) to be commissioned, the larger
                rates are likely to increase. However, it is notewor-   part of which (about 80%) will be represented
                thy that there are still many properties in the         by 4 large projects: Vegas (initially planned to open
                market that have difficulties with finding tenants      in 2009), Gagarinsky (it was announced to open in
                for their vacant premises and continue to offer
                                                                        May 2010 and its premises are currently being
                considerable discounts to tenants.
                                                                        actively leased out), Mall of Russia (the an-
                                                                        nounced opening date was late 2009, now it is
                VACANCY RATE                                            planned to open in Q4 2010), and GoodZone
                During 2009, the vacancy rate of retail premises in     (initially planned to open in 2009, currently the
                Moscow fluctuated, reaching its historic maximum        announced opening date is Q4 2010).




                                                                                         Russia. Moscow I Annual Real Estate Review 2010 Colliers International   49
                                                                         Some regional projects will be unfrozen,
RETAIL SECTOR                                                            especially in cities with high income level
                                                                         and remaining deficit of quality retail properties



                                                                                     Table 2. MAJOR SHOPPING CENTERS PLANNED FOR OPENING IN 2010                                                 We expect
                                                                                           Name                       Address                 Total area, sqm          GLA, sqm                  approximately
                                                                                                                                                                                                 1,000,000 sqm
                                                                              Vegas                      24 km MKAD                              390,000                124,000
                                                                                                                                                                                                 of retail space
                                                                              Gagarinsky                 3 Ordzhonikidze Ul. / Vavilova Ul.      200,000                 70,000                  (total area) to be
                                                                                                         Mezhdunarodnaya and Delovoy                                                             commissioned
                                                                              Mall of Russia                                                     179,000                101,000
                                                                                                         Center metro stations                                                                   in 2010
                                                                              GoodZone                   12 Kashirskoye Sh.                      120,000                 70,000

                                                                              Markos                     70 Altufyevskoye Sh.                     41,800                 36,200

                                                                              Viva                       Severnoye Butovo, 8 Polyany Ul.          32,000                 21,900

                                                                              Rechnoy Vokzal (Stage I)   Rechnoy Vokzal metro station             26,000                 18,140

                                                                                                                                                                Source: Colliers International




50   Annual Real Estate Review 2010 Colliers International I Russia. Moscow
                                                                            The year 2009 saw the decline in the number of travellers and demand
HOTEL SECTOR                                                                for accommodation services



                                                                            The year 2009 saw the continuing economic slow-         amount announced in 20081. This can be explained
                                                                            down on the Moscow hotel market that had begun          by the fact that the commissioning of a number of                 In 2009, the total
                                                                            in autumn 2008 under the influence of the global        hotels was postponed. In particular, the opening                  room stock in
                                                                            financial crisis, which led to the decline in the       of such hotels as Renaissance Moscow Monarch
                                                                            number of travellers and demand for accommoda-
                                                                                                                                                                                                      Moscow
                                                                                                                                    Center, Marriott Courtyard (included in mixed-use
                                                                            tion services.                                          complex Vivaldi Plaza), Crowne Plaza, as well as
                                                                                                                                                                                                      grew by 3.6%
                                                                            In 2009, the total room stock in Moscow grew by         office and hotel complex SK-Royal was postponed
                                                                            3.6%. About 1,000 rooms entered the market              until 2010. International hotel operators manage 48%
                                                                            (see Table 1), which is almost half as much as the      of the rooms introduced to the market in 2009.

                                                                                                                                                                                                      International hotel
                                                                                     Table 1. HOTELS THAT ENTERED THE MOSCOW MARKET IN 2009                                                           operators manage
                                                                                                                                                                                                      48% of the rooms
                                                                                                                                    Number
                                                                                   Hotel                      Address
                                                                                                                                    of rooms
                                                                                                                                                 Class               Management                       introduced
                                                                                                                                                                                                      to the market in 2009
                                                                             Aquarium Hotel        65–66 km MKAD,
                                                                                                                                      225          3*       Independent
                                                                             (IEC Crocus Expo)     Krasnogorsk, the Moscow Region

                                                                             Holiday Inn Moscow-
                                                                                                   2 Simonovsky Val Ul.               217          3*       InterContinental Hotels Group
                                                                             Simonovsky

                                                                             Ibis Moscow-
                                                                                                   22 Shchipok Ul.                    147          3*       Accor Hotels
                                                                             Paveletskaya

                                                                             Maxima Panorama       4 Masterkova Ul.                   123          3*       Maxima Hotels

                                                                             Aquamarine            26 Ozerkovskaya Nab.                80          4*       Africa Israel Hotels & Resorts

                                                                             The Mandarin
                                                                                                   23 Olkhovskaya Ul.                  45          4*       Independent
                                                                             Residences

                                                                             Reception House
                                                                             of the Moscow
                                                                                                   40 Leningradsky Pr-t                42          4*       The Moscow Government
                                                                             Government
                                                                             Petrovsky Palace

                                                                                                                                                            Administrative Directorate of
                                                                             Volynskoe
                                                                                                   9 Starovolynskaya Ul.               38          5*       the President of the Russian
                                                                             Congress-park
                                                                                                                                                            Federation

                                                                             Kadashevskaya         26 Kadashevskaya Nab.               35          4*       Best Hotels Properties

                                                                             A1 boutique hotel     1 Arkhangelsky Per.                 29          4*       Independent

                                                                             Grand Hyatt Moscow                                                             Hyatt International Hotels &
                                                                                                   MIBC Moscow-City, site 13           8           5*
                                                                             Residences & Spa                                                               Resorts
1
    In early 2009, the room stock was expected to increase by 1,900 rooms
                                                                                                                                                   Sources: Companies’ data, Colliers International


                                                                                                                                                    Russia. Moscow I Annual Real Estate Review 2010 Colliers International   55
                                                                         In 2010, we expect a supply increase by 10–12%,
HOTEL SECTOR                                                             mainly in the 4 and 5 star hotel segments



                                                                                            Table 2. MOST SIGNIFICANT HOTEL PROPERTIES PLANNED
                                                                                                              FOR OPENING IN 2010
                                                                                                                                                    Expected
                                                                                                                               Number
                                                                                       Hotel                 Address                      Class      opening              Management
                                                                                                                               of rooms
                                                                                                                                                      date

                                                                              Grand Hyatt Moscow       MIBC Moscow-City,                                                Hyatt International
                                                                                                                                  10       5*           2010
                                                                              Residences & Spa         site 13                                                          Hotels & Resorts

                                                                                                                                                                        Accord Management
                                                                              Garden Ring              14 Mira Pr-t, Bldg 3       86       4*         Q1 2010
                                                                                                                                                                        Group

                                                                              Radisson Royal (former   2/1 Kutuzovsky Pr-t,                                             The Rezidor Hotel
                                                                                                                                 545       4*         Q1 2010
                                                                              Ukraina Hotel)           Bldg 1                                                           Group

                                                                              Office and hotel
                                                                                                       163а Dmitrovskoye Sh.     170       4*         Q1 2010           Independent
                                                                              complex SK-Royal

                                                                              Renaissance Moscow
                                                                              Monarch Center           31 Leningradsky Pr-t,                                            Interstate Hotel
                                                                                                                                 366       4*         Q1 2010
                                                                              (part of Monarch         Bldg 2, 3                                                        Group
                                                                              mixed-use complex)

                                                                              Crowne Plaza
                                                                                                       12 Krasnopresnen-
                                                                              (included in Phase                                 149       4*+        Q2 2010           World Trade Center
                                                                                                       skaya Nab.
                                                                              II of the WTC)

                                                                                                                                                                        Lotte Hotel &
                                                                              Lotte                    21 Novy Arbat Ul.         304       5*         Q2 2010
                                                                                                                                                                        Resorts

                                                                                                                                                                        Azimut Hotels
                                                                              Azimut                   9 Varshavskoye Sh.        144       3*         Q2 2010
                                                                                                                                                                        Company

                                                                                                       16 3rd Yamskogo                                                  The Rezidor Hotel
                                                                              Radisson Belorusskaya                              264       4*         Q3 2010
                                                                                                       Polya Ul.                                                        Group

                                                                              InterContinental
                                                                              Moscow-Tverskaya                                                                          InterContinental
                                                                                                       22 Tverskaya Ul.          203       5*         Q3 2010
                                                                              (on the place of the                                                                      Hotels Group
                                                                              former Minsk hotel)

                                                                                                                                                                        The Rezidor Hotel
                                                                              Radisson Riverside       81 Volokolamskoye Sh.     150       4*         Q4 2010
                                                                                                                                                                        Group

                                                                                                                                                  Sources: Companies’ data, Colliers International




56   Annual Real Estate Review 2010 Colliers International I Russia. Moscow
               Average revenue per available room (RevPar)
HOTEL SECTOR   decreased by 35% (in ruble terms)



               These include the Grand Hyatt Moscow Residen-          terminal (International Sheremetyevo Airport).
               ces & Spa, Ibis Moscow-Paveletskaya, Holiday Inn       The hotel’s format based on the model of                         The National Hotel
               Moscow-Simonovsky, Kadashevskaya, and Aqua-            European capsule hotels is new for the Russian                   became the first
               marine hotels. Though more than 10 hotel projects      hotel market.                                                    and only Russian
               with a capacity of 1,200 rooms initially planned to   ■ The National Hotel became the first and only                    hotel of The Luxury
               open in 2010 were frozen, we expect the supply to       Russian hotel of The Luxury Collection chain,                   Collection chain
               grow at a higher pace in 2010 and reach up to           having left Le Meridien brand also owned by
               3,100 rooms (see Table 2).                              Starwood Hotels & Resorts.
               In 2010, we expect a supply increase by 10–12%,       ■ In 2010, Russian Real Estate Fund LP will
               mainly in the 4 and 5 star hotel segments.
                                                                       become a partner of the Moscow authorities in                   In 2009 one new
               Commissioning of the hotels planned to be opened
                                                                       Gostinichnaya Kompaniya and will manage                         brand entered the
               in H2 2010 may be postponed until 2011.
                                                                       municipal hotels. 51% of the shares will be
               In 2009 the average occupancy rate in the 4–5 star                                                                      Moscow hotel market,
                                                                       transferred to Russian Real Estate Fund LP;
               hotels decreased by 5.5 percentage points               the city will keep the remaining 49%. Moscow
                                                                                                                                       Ibis, operated
               (as compared to 2008) coming to 59%. The average        is going to give the shares of 15 hotels to                     by Accor Group
               daily rate (ADR) decrease in the mentioned              Gostinichnaya Kompaniya (including the
               segment amounted to 20% as compared to 2008.            Rossiya, Moskva, Voskhod, Sayany, Kuzminki,
               Hotels in other segments in Moscow were also            Tourist, Uchebno-Treningovaya hotels, and
               characterized by the decrease in ADR and                others).
               occupancy rate that influenced the average
                                                                     ■ According to the resolution of the Moscow
               revenue per available room (RevPar) decrease
               by 35% (in ruble terms).                                Government (Resolution No. 305-PP on
                                                                       General Plan of Placement of Hotels in
                                                                       Moscow dated April 14, 2009) the plans to
               MAJOR EVENTS IN 2009                                    increase Moscow’s room stock up to 170,000–
               HOTEL MANAGEMENT, OPERATORS’                            200,000 beds were postponed from 2010 to
               ENTRANCE INTO THE RUSSIAN MARKET                        2020.
               ■ In 2009 one new brand entered the Moscow            ■ The management of the Mirax Group decided to
                 hotel market, Ibis, operated by Accor Group.          reduce the number of floors in the East Tower of
                 In September 2009, the Ibis Moscow-                   the Federation business complex located on the
                 Paveletskaya hotel was put into operation,            MIBC Moscow-City’s territory from 94 to 64.
                 providing 147 rooms.                                  Currently, negotiations are underway with the
               ■ In Q2 2009, Russian hotel operator Maxima             companies that have concluded preliminary
                 Hotels increased its room stock by 123 rooms          purchase or lease agreements for premises located
                 of the Maxima Panorama hotel. The total room          above the 64th level of the East Tower. The upper
                 stock of the management company is now                levels were planned to accommodate the Grand
                 511 rooms.                                            Hyatt Moscow hotel. The future of the hotel
               ■ At the end of the year the Vozdushniy Express         is unclear.
                 hotel (66 rooms) opened at the Air Express




                                                                                     Russia. Moscow I Annual Real Estate Review 2010 Colliers International   57
HOTEL SECTOR


                                                                         MAJOR DEALS IN THE HOTEL MARKET                       implementation. The Petrovsky Park project
                                                                         ■ In February, MosCityGroup purchased 55%             envisages the development of a hotel as part
                                                                           shares in Budapesht Hotel. (15% shares were         of a mixed-use complex.
                                                                           purchased from VTB, 40% – from a Cypriot           ■ The Tashir Group of Companies purchased
                                                                           offshore company MC Ko Hotels Management             a 50% share in a hotel and office center in MIBC
                                                                           Ltd.). Later, in spring 2009, MosCityGroup           Moscow-City (the Central Core, site 8a).
                                                                           purchased another 15% of the hotel’s shares from     The property is now under construction.
                                                                           VEB bank. The company is planning to purchase      ■ Gostinichny Komplex Sheremetyevo-2, the 99%
                                                                           the remaining 30% shares that now belong to the      share of which belongs to the MB-Finans
                                                                           Moscow Government.                                   company, was offered for sale. A letter of intent
                                                                         ■ VTB became the owner of 75% minus 1 share            was signed by Norwegian company Wenaas-
                                                                           of the Dinamo Management Company,                    gruppen. The Sheremetyevo hotel is to become
                                                                           the developer of the Petrovsky Park project.         the first hotel of Wenaasgruppen in Moscow.
                                                                           The parties agreed on the terms of the project       The deal is to be closed in February 2010.




58   Annual Real Estate Review 2010 Colliers International I Russia. Moscow
САНКТ-ПЕТЕРБУРГ ST. PETERSBURG
             Only one investment deal was public. All the rest
INVESTMENT   of deals were closed by Russian buyers on a confidential basis



             DEALS 2009                                                    Gazprom for its affiliate companies, and also a
             In 2009 11 investment deals with a total volume of            number of deals with a smaller format took place.
             approximately $300 mln were concluded                   A number of forecasts that were done by the
                                                                                                                                               There were no
             in the commercial real estate market                    market players for 2009 remain unrealized.                                assets sales from
             of St. Petersburg.                                      Some examples:                                                            the banks side
             Distinguishing feature was the fact that only one       ■ Market was expecting a great number of asset
             of these deals was public (Sweden company Ruric           sales by the banks, i.e. distressed assets sales;
             sold Grifon House business center to Norway in-         ■ Classical investment deals were not expected to
             vestment fund Strom Real Estate, deal amount –
                                                                       happen;
             $17 mln, yield – 14%).
                                                                     ■ Forecasted yields were starting from 15% for the                        In 2009 11 investment
             All the rest of deals were closed by Russian buyers       cash flow properties, and from 20% – for the
             on a confidential basis.                                                                                                          deals were concluded
                                                                       development projects.
             Retail Sector Deals                                                                                                               in the commercial
                                                                     As a result, there were no assets sales from the banks
             ■ Adamant Company has sold 50% of shares in 2                                                                                     real estate market
                                                                     side (they preferred either to restructure debts,
                operating shopping centers Kontinent and 100%        or to organize their own development and real
                                                                                                                                               of St. Petersburg
                of shares in Great furniture shopping center;        estate management divisions (sometimes – affiliate
             ■ Development project of shopping center with
                                                                     companies) in order not to pull down the market
                gross area of 80,000 sqm in the city east side was
                                                                     even further). Capitalization rates for the cash flow
                sold by an Austrian developer to the local
                partner.                                             assets were in the range from 10% to 14%.
             Office Sector Deals
             ■ Two business centers Arena Hall (gross area           2010 FORECAST
                of 28,000 sqm) and Erikson (gross area of            The forecast is based on a number of macroeco-
                22,000 sqm) were bought by companies close to        nomics postulates. See our forecasts in Table 1:


                                                                Table 1.
              Average annual oil price                               $80 per barrel

              RUR/USD exchange rate                                  RUR 27–28 per $1

              RUR/EUR exchange rate                                  RUR 39–41 per €1

              Inflation                                               7% (record low level for the past 18 years )

              Refinancing rate                                        8–9%

              GDP growth                                             3–4%

              Credit rates                                           8–12% in $, 14–18% in RUR




                                                                                      Russia. St. Petersburg I Annual Real Estate Review 2010 Colliers International   61
                                                                            Some deals are forecasted in development segment,
INVESTMENT                                                                  main courses – residential and shopping centers construction.
                                                                            Buyers – huge international development companies


                                                                            In regards to yields expectations in the commercial real estate market, they are as follows:

                                                                              Sector                Yield (prime A and B Class)
                                                                              Office                 12–13%

                                                                              Retail                12–14%

                                                                              Warehouse             No data (we do not see a perspective of a cash flow deals in that particular segment in 2010)

                                                                                                                                                                           Source: Colliers International

                                                                            TRENDS                                                      ■ Some deals are forecasted in development
                                                                            ■ We are expecting a number of deals in industrial            segment, main courses – residential and
                                                                              and warehouse segment to be completed                       shopping centers construction. Buyers –
                                                                              between production and distribution companies               huge international development companies;
                                                                              (end-users) and the owners of high quality                ■ Сash flow properties deals in office and retail
                                                                              warehouse and industrial premises. Average                  sectors are expected to take place, yields are
                                                                              price of such assets would be around                        forecasted in a range of 12–14%.
                                                                              $1,000/sqm;




62   Annual Real Estate Review 2010 Colliers International I Russia. St. Petersburg
                                                 Significant supply growth in Class A and B office premises
                                                 segment (especially in Class A segment) in the end
OFFICE SECTOR                                    of 2008 – the beginning of 2009 concurred with
                                                 demand decline amid general economic slowdown


                                                 CURRENT SUPPLY                                               The total amount of Class B office space reached
                                                 As of the beginning of 2010, the total Class A and           955,000 sqm, including 125,000 sqm put into oper-                    About 230,000 sqm
                                                                                                              ation during 2009. The supply increased by 15% in
                                                 B office space (leasable area) amounted to
                                                                                                              2009.
                                                                                                                                                                                   of office space were
                                                 approximately 1,300,000 sqm. About 230,000 sqm                                                                                    put into operation
                                                 of office space were put into operation during 2009          70% of total high-quality office space put into oper-
                                                                                                              ation during 2009 is located outside the city center.                during 2009
                                                 (see Chart 1).
                                                                                                              It is a consequence of 2007–2008 business-centers
                                                 The Class A office segment supply amounted to                construction boom conditions, when business-cen-
                                                 350,000 sqm. The total Class A office space that             ters development had expanded significantly.
                                                 was put into operation during 2009 amounted to               In comparison to the beginning of 2009, the share                    The share of Class A
                                                 105,000 sqm (the supply increased by about 43% in            of Class A office centers has increased from 22% to                  office centers has
                                                 2009).                                                       27%, but the A/B ratio will not change significant-                  increased from 22%
                                                                                                              ly in prospect.                                                      to 27%, but the A/B
                                                                                                                                                                                   ratio will not
                                                                Table 1. CLASS A AND B BUSINESS CENTERS OPENED IN 2009                                                             change significantly
                                                                                                                                                                                   in prospect
                                                                                                                                   Leasable area,          Opening
                                                             Building                         Address                    Class
                                                                                                                                       sqm                  date

                                                  Atlantic-City                 126 Savushkina Ul.                        А           20,000               Q1 2009

                                                  Linkor                        34 Petrogradskaya Nab.                    А           17,600               Q1 2009
                Source: Colliers International
                                                  Benoit (Phase II)             44А Sverdlovskaya Nab.                    А           12,000               Q1 2009

                                                  Senator (Bldg 3)              37 Professora Popova Ul.                  А           10,700               Q1 2009

                                                  B&D Makarova                  32 Makarova Nab.                          А            8,000                Q12009

                                                  No name                       97А Moskovskiy Pr-t                       А            8,000               Q3 2009

                                                  Atrio                         22 Petrogradskaya Nab.                    А            7,500               Q3 2009

                                                  Nevskiy Plaza                 55 Nevskiy Pr-t                           А            7,100               Q3 2009

                                                  Plenar                        127-131 Lahtinskiy Pr-t                   А            5,000               Q1 2009

                                                  Varshavskiy                   5 Varshavskaya Ul.                        А            4,800               Q1 2009

                                                  Morskoy Klub                  10 Smolenskaya Ul.                        А            4,200               Q2 2009

                                                  Sodruzhestvo (Phase III)      27 Kolomyazhskiy Pr.                      В+          18,800               Q3 2009

                                                  Narvskie Vorota               34 Staro-Petergofskiy Pr-t                В+          14,400               Q3 2009

                                                  Pulkovo Sky (Bldg B)          Site 5, Startovaya Ul., Pulkovo-3 zone    B+          13,200               Q2 2009




                                                                                                                          Russia. St. Petersburg I Annual Real Estate Review 2010 Colliers International   69
                                                                            Significant supply growth in Class A and B office
                                                                            premises segment (especially in Class A segment)
OFFICE SECTOR                                                               in the end of 2008 – the beginning of 2009 concurred
                                                                            with demand decline amid general economic slowdown


                                                                                       Table 1. CLASS A AND B BUSINESS CENTERS OPENED IN 2009 (cont.)
                                                                                                                                                              Leasable area,           Opening
                                                                                          Building                        Address                   Class
                                                                                                                                                                  sqm                   date

                                                                              Antares                       104 Savushkina Ul.                        B+         11,800                 Q2 2009

                                                                              Avantage                      17 Beloostrovskaya Ul.                    В+          7,500                 Q3 2009

                                                                              Staraya Derevnya              12 Mebelnaya Ul.                          В+          6,400                 Q3 2009

                                                                              Kellerman-Center (Phase II)   22 10th Krasnoarmeiskaya Ul.              B+          6,000                 Q2 2009

                                                                              Baltiyskiy marshal            52-54 Baltiyskaya Ul.                     B+          5,300                 Q2 2009

                                                                              Sky Trade                     20 Repisheva Ul.                          B+          4,800                 Q1 2009
                                          Sources: Colliers International
                                                                              Imperial (Phase II)           48 Stachek Pr-t                           В          11,000                 Q1 2009

                                                                              Vant (Phase I)                120 Obukhovskoy Oborony Pr-t              B           8,600                 Q1 2009

                                                                              Na reke Smolenke              Dekabristov Per. / Kima Ul.               В           8,000                 Q1 2009

                                                                              Marbel                        Sedova Ul. / Bekhtereva Ul.               В           7,700                 Q3 2009

                                                                                                                                                                          Source: Colliers International


                                                                            NEW CONSTRUCTION                                              Significant supply growth in Class A and B office
                                                                            AND PERSPECTIVE SUPPLY                                        premises segment (especially in Class A segment) in
                                                                                                                                          the end of 2008 – the beginning of 2009 concurred
                                                                            According to the developers and constructors’
                                                                                                                                          with demand decline amid general economic slow-
                                                                            data, as of the beginning of 2010 there are 17
                                                                                                                                          down. As a result vacancy rate for Class A reached
                                                                            Class A and B business centers under construction
                                                                                                                                          39% and for Class B – 27% in Q1 2009 (see Chart 2).
                                                                            (see Table 2).
                                                                                                                                          Vacancy rate for Class A business centers had
                                                                            Total leasable area of projects under construction is
                                                                                                                                          decreased to 27% in Q2 2009 because of new
                                                                            210,000 sqm, 110,000 sqm of them are to be put                leases growth and rental rates for newly built
                                                                            into operation in 2010.                                       (in 2008–2009) business centers decline.
                                                                                                                                          Rental rates and vacancies had flattened out by the
                                                                            DEMAND                                                        mid of 2009 and have not changed since the mid of
                                                                            A demand for office premises was gradually                    2009.
                                                                            declining during H2 2008 and was derived mainly               As of the beginning of 2010 there are 250,000 sqm
                                                                            from tenants’ moving from “old” business centers              of vacant premises in Class A and B business
                                                                            to newly built in the H1 2009.                                centers.




70   Annual Real Estate Review 2010 Colliers International I Russia. St. Petersburg
OFFICE SECTOR



                       Table 2. CLASS A AND B BUSINESS CENTERS UNDER CONSTRUCTION
                                          AS OF THE BEGINNING OF 2010
                                                                                                 Leasable           Opening date
                              Building                          Address                Class
                                                                                                 area, sqm           (forecast)

                Technopolis Pulkovo           36-38 Pulkovskoe Sh.                      А           19,400                 2010

                Quattro Corti                 3-5 Pochtamtskaya Ul.                     А            8,000                 2010

                Paradny Kvartal               Vilenskiy Per. / Radisheva Ul.            А            8,000                 2010

                Gulliver (Phase II)           7 Torfyanaya doroga                       В+          20,000                 2010

                Pulkovo Sky (Bldgs А and С)   Site 5, Startovaya Ul., Pulkovo-3 zone    В           27,700                 2010

                BC in the Parnas zone         3rd Verhniy Per.                          В           11,600                 2010

                Gelsingforskiy                Vyborgskaya Nab. / Gelsingforskaya Ul.    В            9,900                 2010

                Business Liner                Site 1,Verbnaya Ul.                       В            5,600                 2010

                Airport City (Phase I)        Pulkovo-3 zone                            А           24,500                 2011

                Bank Saint-Petersburg         Site 1, Malookhtinskiy Pr-t               А           23,900                 2011

                Stockmann                     114 Nevskiy Pr-t                          А            5,800                 2011

                Davydov                       97 Moskovskiy Pr-t                        B+           4,900                 2011

                Moskva (Phase IV)             3 Alexandra Nevskogo Pl.                  В            3,200                 2011

                Zoologicheskiy                2-4 Zoologicheskiy Per.                   А            8,500                 2012

                Renaissance Court Yard        61-63 Ligovskiy Pr-t                      А            7,600                 2012

                Dal’                          Krylenko Ul. / Dalnevostochny Pr-t        В           11,340                 2012

                Liteiny, 26                   26 Liteiny Pr-t                           В           10,000                 2012

                                                                                                             Source : Colliers International




                                                                                         Russia. St. Petersburg I Annual Real Estate Review 2010 Colliers International   71
                                                                            Since Q3 2008 till Q4 2009 rental rates for Class A and B
                                                                            premises decreased by 25–35% for the rental rates,
OFFICE SECTOR                                                               nominated in rubles, and by 40–50% for the rental rates,
                                                                            nominated in US dollars


                                                                            TAKE-UP                                                Class B premises decreased smoother than for
                                                                            Total take-up of high-quality office space was         Class A premises and had stabilized in Q3 of 2009.
                                                                                                                                   Since Q3 2008 till Q4 2009 rental rates for Class A                      Total take-up of
                                                                            110,000 sqm in 2009. The figure does not include
                                                                            renegotiation deals (when a tenant does not move       and B premises decreased by 25-35% for the rental                        high-quality office space
                                                                            to another business center). Take-up in 2009 is more   rates, nominated in rubles, and by 40-50% for the                        was 110,000 sqm
                                                                            than 2 times smaller than in 2008 (240,000 sqm).       rental rates, nominated in US dollars.                                   in 2009
                                                                            It is worth mentioning that take-up in 2009 was
                                                                            derived mainly from moving of tenants to business      SIGNIFICANT EVENTS
                                                                            centers of higher quality.                             Despite the economic crisis two large sale deals
                                                                            IT companies have signed the biggest volume of         have been signed in 2009:
                                                                                                                                                                                                            As of the beginning
                                                                            deals.                                                 ■ Class B business center Grifon sale (19, Dosto-
                                                                                                                                                                                                            of 2010 there are
                                                                                                                                     evskogo Ul., GLA – 6,900 sqm). The seller is Ruric
                                                                                                                                     AB, the buyer is Storm Real Estate Fund AS.                            250,000 sqm of
                                                                            RENTAL RATES
                                                                                                                                   ■ Class B+ business center Arena Hall sale (16,
                                                                                                                                                                                                            vacant premises
                                                                            Rental rates for high-class premises had been                                                                                   in Class A and B
                                                                            increasing till the mid of 2008 and started to           Dobrolubova Ul., GLA – 19,500 sqm). The seller
                                          Sources: Colliers International   decrease since Q3 2008 (see Chart 3).                    is Promsvyaznedvizhimost and the buyer is                              business centers
                                                                                                                                     Gazprom development.
                                                                            New supply growth (especially in Class A) amid
                                                                            demand decline caused to significant rental rates      ■ Though large companies announced about devel-
                                                                            decline in Q1 2009. In Q2 2009 rental rates for          opment plans revision, several large lease deals
                                                                            Class A premises had stabilized. Rental rates for        were signed in 2009 (see Table 3).


                                                                                                     Table 3. MAJOR LEASE DEALS CONDUCTED IN 2009
                                                                                                              (WITH GLA MORE THAN 1,500 sqm)
                                                                                      Building                     Address         Class                 Tenant                     Area, sqm

                                                                              Atlantic-City           126 Savushkina Ul.            A          Yota                                      7,800

                                                                                                                                               Saint-Petersburg
                                                                              Lider                   7 Konstitucii Pl.             В+                                                   3,240
                                                                                                                                               electric networks

                                                                              Linkor                  34 Petrogradskaya Nab.        А          Open Way Service                          2,600

                                                                              Nevskiy 38              38 Nevskiy Pr-t               А          Svyaz-bank                                2,480

                                                                              Arena Hall              16 Dobrolubova Pr-t           В+         Spasskie Vorota                           1,700

                                                                              Senator (Pr. Popova)    37 Professora Popova Ul.      А          SK Rosno                                  1,587

                                                                              Vyborgskaya Zastava     68 B. Sampsonievskiy Pr-t     В+         Telros                                    1,500

                                                                              Arena Hall              16 Dobrolubova Pr-t           В+         Swedbank                                  1,500

                                                                                                                                         Sources: Saint-Petersburg Research Forum, Colliers International


72   Annual Real Estate Review 2010 Colliers International I Russia. St. Petersburg
                Despite general vacancy rate increase the supply of quality
OFFICE SECTOR   office space in the areas of high demand is still limited



                TRENDS                                                 FORECAST
                During 2009 basic lease terms for high-class           ■ The main demand for office premises is concen-
                business centers have changed significantly:             trated in Centralny, Petrogradsky and Mosk-                        In 2010 gradual
                ■ Shift to short-term contracts with rental rate,        ovsky administrative districts.                                    demand growth
                  nominated in rubles. Contracts presume rental rate   ■ Despite general vacancy rate increase the supply                   is expected
                  escalation with period from 1 month to 1 year.         of quality office space in the areas of high
                ■ Landlords provide 1–2 payment-free months as           demand is still limited.
                  a discount when signing a lease agreement.           ■ In 2009 take-up volume of high-class office
                                                                         premises was 110,000 sqm, which is comparable                      The main demand for
                ■ Premises are provided with fit-out, including
                  dividing fences, suspended ceilings, doors and         with 2006–2007 indicators.                                         office premises
                  lighting at the landlord’s account. Landlords can    ■ In 2010 gradual demand growth is expected (the                     is concentrated
                  compensate for fit-out costs for the premises in       trend appeared in 2009); take-up volume is                         in Centralny,
                  newly constructed business centers (up to 6            forecasted to remain at the level of 100,000–                      Petrogradsky
                  payment-free months) in case fit-out is done by        150,000 sqm.                                                       and Moskovsky
                  tenant. In some cases initial deposits by the
                  signing of lease agreement are absent.
                                                                       ■ In 2010–2011 new supply is expected to                             administrative
                                                                         decrease.                                                          districts
                                                                       ■ A demand and supply rates adjustment and
                                                                         smooth rental rates growth is expected by 2012.




                                                                                   Russia. St. Petersburg I Annual Real Estate Review 2010 Colliers International   73
                                                                          Having revised plans for the construction of new
                                                                          warehouse premises, most developers concentrated
WAREHOUSE SECTOR                                                          their attention on projects that were in the final stage
                                                                          of construction


                                                                          SUPPLY                                                            for the construction of new warehouse premises,
                                                                                                                                            most developers concentrated their attention on                      In comparison with
                                                                          In 2009 about 170,000 sqm of high-quality
                                                                          warehouse premises were put into operation. Thus,                 projects that were in the final stage of construc-                   2008 the rate
                                                                          the supply increased by 18% and totaled 1.1 mln                   tion. They simply postponed the implementation                       of warehouse
                                                                          sqm (including speculative warehouses and logistic                of new projects.                                                     development
                                                                          complexes and excluding specialized warehouses                    About 60,000 sqm of new high-quality facilities                      was 2.5 lower
                                                                          and warehouses used for own needs).                               are to be opened in St. Petersburg in 2010. Phase
                                                                          In comparison with 2008 the rate of warehouse                     III of logopark Neva will be the largest warehouse
                                                                          development was 2.5 lower. Having revised plans                   complex that would be opened in 2010.
                                                                                                                                                                                                                 In 2009 about
                                                                                                                                                                                                                 170,000 sqm
                                                                                                   Table 1. CLASS A AND B WAREHOUSE PROJECTS                                                                     of high-quality
                                                                                                             PUT INTO OPERATION IN 2009                                                                          warehouse premises
                                                                                                                                                                                             Date of             were put into
                                                                                                                                                                    Investor /
                                                                                 Property                     Location                 Class     Area, sqm
                                                                                                                                                                    Developer
                                                                                                                                                                                            commis-              operation
                                                                                                                                                                                             sioning

                                                                           Logopark Neva
                                         Source: Colliers International                             70/4 A Moskovskoe Sh.               A          45,000       Raven Russia                    Q1
                                                                           (Phase II)

                                                                           ‘Energo-Yug’ logistic    235 A Moskovskoe Sh.,                                       Energo Logistic
                                                                                                                                        A          21,000                                       Q1
                                                                           center                   Shushary                                                    (Energo)

                                                                                                    2 A Volkhonskoe Sh.,
                                                                           Ahlers (Phase II)                                            A          17,000       Ahlers Logistic                 Q2
                                                                                                    Gorelovo

                                                                                                    Kultury Pr-t / 5th Verhniy Per.,
                                                                           Avtolik 1                                                    A            7,800      Holding 787                     Q2
                                                                                                    Parnas

                                                                                                                                                                Raven Russia /
                                                                           Kulon-Pulkovo            56/4 Pulkovskoe Sh.                 A          28,300                                       Q3
                                                                                                                                                                Espro Development

                                                                           Teorema-Terminal         295 Obuhovskoi oborony
                                                                                                                                        A          11,300       Teorema                         Q4
                                                                           (Phase III)              Pr-t

                                                                           Logistika-Terminal       54 Moskovskoe Sh.                   A          10,600       NCC                             Q3

                                                                           Interterminal –          75 Kubinskaya Ul.,
                                                                                                                                        B          31,500       Interterminal                   Q3
                                                                           Market*                  Predportovaya-1
* Multi-temperature storage conditions
                                                                                                                                                                              Source: Colliers International




                                                                                                                                                        Russia. St. Petersburg I Annual Real Estate Review 2010 Colliers International   79
                                                                            Today warehouse property market actually
WAREHOUSE SECTOR                                                            turned into a market of tenants



                                                                                                  Table 2. CLASS A AND B WAREHOUSE PROJECTS                                                             Phase III of logopark
                                                                                                        PLANNED FOR COMPLETION IN 2010                                                                  Neva will be the
                                                                                                                                                                                                        largest warehouse
                                                                                                                                                       Area,
                                                                                      Property                    Location                   Class
                                                                                                                                                       sqm
                                                                                                                                                                    Investor / Developer                complex that would
                                                                                                                                                                                                        be opened in 2010
                                                                              Logopark Neva          70/4 A Moskovskoe Sh.                     A        31,000    Raven Russia

                                                                              KDS Logistic           82 Kubinskaya Ul.                         A        17,900    KDS Logistic

                                                                                                                                                                  Evroconsulting (Nord
                                                                              Warehouse complex      Plot 5, Domostroitel’naya Ul., Parnas     A        10,000
                                                                                                                                                                  Intrans)                              About 60,000 sqm
                                                                                                                                                                       Source: Colliers International   of new high-quality
                                                                                                                                                                                                        facilities are to be
                                                                            DEMAND                                                       Despite some pessimistic forecasts for the                     opened in
                                                                            A reduction in demand for warehouse stock was                warehouse property market, a number                            St. Petersburg in 2010
                                                                            witnessed in 2009, caused by a decrease of goods             of major lease deals were concluded in 2009.
                                                                            turnover and cargo transportation, forcing some              Lease contract concluded between the Scania
                                                                            tenants to optimize their costs and reduce the leased        Group and AKM Logistics became one
                                                                            area requirements. At a time when business activity          of the largest deals in 2009. The Scania Group
                                                                            of tenants was falling, the supply of new warehouses         rented about 10,000 sqm of industrial and
                                                                            has increased considerably for the last two years.           warehouse space in Class A logistics complex
                                                                                                                                         AKM Logistics. The Group plans to launch
                                                                            The simultaneous impact of these factors had a
                                                                                                                                         truck assembly in the new building. Colliers
                                                                            strong influence on the occupancy rate of existing
                                                                                                                                         International acted as consultant of the deal.
                                                                            high-quality speculative warehouse complexes. As
                                                                                                                                         Besides the Scania Group Krupskaya
                                                                            of the beginning of 2010 the occupancy rate made
                                                                                                                                         confectionary factory became another major
                                                                            up 63% (for warehouses put into operation in 2008
                                                                                                                                         tenant of AKM Logistics.
                                                                            and 2009 – 54%).
                                                                                                                                         According to Colliers International in H2 2009 a
                                                                            Today warehouse property market actually turned
                                                                                                                                         range of basic requests of potential tenants has not
                                                                            into a market of tenants. An individual approach to
                                                                                                                                         changed and made 500–2,000 sqm with the lease
                                                                            each client became the basic principle for warehouse
                                                                                                                                         term for 1–3 years. Companies planning to develop
                                                                            developers. In most cases developers are ready to
                                                                                                                                         in the medium- and long-term perspectives, also
                                                                            offer their tenants more flexible lease terms: reduce
                                                                                                                                         consider premises of large format with a longer
                                                                            the minimal rental block, consider different variants
                                                                                                                                         lease term.
                                                                            for commercial terms of lease (period of lease,
                                                                            payment terms, indexation, etc.), offer additional
                                                                            services (additional equipment and alterations to            RENTAL RATES
                                                                            the requirements specification of the customers).            Asking triple net rental rates for Class A ware-
                                                                            Today there are some examples of conversion of               house premises amount to $90–110 sqm/year,
                                                                            warehouse premises to the industrial premises at the         Class B rates – $80–100 sqm/year. Rental rates
                                                                            request of light industry enterprises.                       decreased by 15% YOY over 2009.


80   Annual Real Estate Review 2010 Colliers International I Russia. St. Petersburg
                   Companies planning to develop in the medium- and
WAREHOUSE SECTOR   long-term perspectives, also consider premises
                   of large format with a longer lease term



                                           Table 3. MAJOR DEALS CONCLUDED IN 2009                                                                    Rental rates for
                                                                                                    Total area,                                      Class A warehouse
                          Property               Location           Class        Tenant                                  Deal date
                                                                                                       sqm                                           premises amount to
                                           177 A Moskovskoe                                                                                          $90–110 sqm/year,
                    AKM Logistics                                    A      Scania                     10,000                  Q4
                                           Sh., Shushary                                                                                             Class B rates –
                                           Kultury Pr-t. / 5th
                                                                                                                                                     $80–100 sqm/year
                    Avtolik                                          A      Major                       9,600                  Q2
                                           Verhniy Per., Parnas

                                           177 A Moskovskoe                 Krupskaya confec-           6,000                  Q1
                    AKM Logistics
                                           Sh., Shushary
                                                                     A
                                                                            tionary factory                                                          Lease contract
                                                                                                        6,400                  Q2
                                                                                                                                                     concluded between
                                           Vsevolozhsky district,                                                                                    the Scania Group and
                    MLP Utkina Zavod’      Leningrad region, near    A      Katren                      6,000                  Q1
                                           the Ring Road
                                                                                                                                                     AKM Logistics
                                                                                                                                                     became one of the
                                                                            Trading house                                                            largest deals in 2009.
                    Gorigo                 Gorelovo                  A                                  4,300                  Q4
                                                                            Severo-Zapadnyi
                                                                                                                                                     Colliers International
                    Gorigo                 Gorelovo                  A      Marine Express              4,200                  Q4                    acted as consultant
                    Kulon-Pulkovo          56/4 Pulkovskoe Sh.       A      Moron                       3,000                  Q4                    of the deal
                    Kulon-Pulkovo          56/4 Pulkovskoe Sh.       A      WeMaTec                     2,900                  Q1

                                           Kultury Pr-t / 5th
                    Avtolik 2                                        A      Telos Archive               2,800                  Q2
                                           Verhniy Per., Parnas

                                                                                                                Source: Colliers International
                   CONCLUSION AND FORECAST                                    New supply has considerably exceeded the
                   ■ The trend of delay of the implementation of new          demand and had a strong influence on the
                     warehouse projects will continue to persist in           occupancy rate of existing warehouse complexes.
                     2010. Nevertheless, warehouses built for own use       ■ Growth in developers’ loyalty towards their
                     or under build-to-suit scheme (construction for a        tenants should be considered as the positive
                     certain customer) might be the exception to this         trend in the warehouse property market. In most
                     trend. In addition, projects involving construc-         cases developers are ready to offer their clients
                     tion in the Northern part of the city where              more flexible lease terms.
                     demand for high-quality warehouse facilities is        ■ Growing demand for industrial and warehouse
                     still not satisfied might become another expecta-        facilities providing good vehicular access and
                     tion.                                                    high installed electricity power capacity persists.
                   ■ Large amount of new speculative warehouse                We register the demand from the light industrial
                     space entered the market in 2008–2009.                   business sector.



                                                                                            Russia. St. Petersburg I Annual Real Estate Review 2010 Colliers International   81
                                                                            Growth in developers’ loyalty towards their tenants
WAREHOUSE SECTOR                                                            should be considered as the positive
                                                                            trend in the warehouse property market


                                                                            ■ When selecting a warehouse for rent, influence   ■ Formation of automotive cluster in St. Peters-
                                                                              of such factors as location and transport          burg continues. This process will entail the     Developers are ready
                                                                              accessibility of warehouse complex, which          construction of new industrial and warehouse     to offer their clients
                                                                              greatly affect the optimization of logistics       facilities in due course.
                                                                              processes, will increase.
                                                                                                                                                                                  more flexible lease
                                                                                                                                                                                  terms




82   Annual Real Estate Review 2010 Colliers International I Russia. St. Petersburg
                                                                                     Only two retail objects were put into operation during 2009.
                                                                                     This is the lowest index of the annual retail area
RETAIL SECTOR                                                                        increase during the last 10 years of St. Petersburg retail
                                                                                     market development


                                                                                     According to CEDIPT1 preliminary estimations                retail area increase during the last 10 years of
                                                                                     the total retail sales turnover in St. Petersburg in        St. Petersburg retail market development.                             By the end of 2009,
                                                                                     2009 amounted to 578 bln rubles as compared to              The average city provision by retail premises in                      there were 148 retail
                                                                                     the period of 2008, public catering sales turnover          St. Petersburg amounts to 537 sqm per 1,000 people.                   facilities in
                                                                                     amounted to 38 bln rubles.                                  The leading are Moskovsky and Primorsky                               St. Petersburg
                                                                                                                                                 districts where provision exceeds 1,200 sqm per
                                                                                     CURRENT SUPPLY                                              1,000 people, as well as Vyborgsky (more than
                                                                                     By the end of 2009, there were 148 retail facilities2       1,000 sqm) and Nevsky (750 sqm) districts.
                                                                                     in St. Petersburg with a total area amounting to
                                                                                     3.8 mln sqm (GLA – 2.5 mln sqm). It should be               PERSPECTIVE SUPPLY                                                    Increase of retail
                                                                                     noted that only two retail objects were put into            According to our estimates, increase of retail                        facilities by total area
                                                                                     operation during 2009: Mebel Hall Phase II with             facilities by total area in 2010 will amount to
                                                                                                                                                                                                                       in 2010 will amount
                                                                                     GLA of 16,000 sqm and Auchan hypermarket on                 500,000 sqm GBA, so the total supply will exceed
                                                                                     Borovaya Ul. This is the lowest index of the annual         4 mln sqm.
                                                                                                                                                                                                                       to 500,000 sqm GBA

                                                    Source: Colliers International
                                                                                        Table 1. MAJOR RETAIL FACILITIES PLANNED FOR OPENING IN 2010–2011
                                                                                                                                                                   Total
                                                                                                                                                                                GLA,
                                                                                             Name                  Type                      Address               Area,                    Developer
                                                                                                                                                                                sqm
                                                                                                                                                                   sqm*

                                                                                                                                    To be opened in 2010

                                                                                                          Shopping &
                                                                                      Galeria                                        26-28 Ligovsky Pr-t          193,000       93,400     SK Briz
                                                                                                          Entertainment Center

                                                                                                          Shopping &                 Pulkovsko Sh., Krasno-                                Sistema Hals
                                                                                      Leto                                                                        125,000       76,000
                                                                                                          Entertainment Center       borskaya side, plot 7                                 North-West

                                                                                      Stockmann Nevsky
                                                                                                          Shopping & Office Center    114A Nevsky Pr-t              74,500**     44,700     Stockmann
                                                                                      Center

                                                                                      Balkania Nova       Shopping &
                                                                                                                                     5 Balkanskaya Pl.             31,000       18,600     Adamant
                                                                                      Phase II            Entertainment Center
 1
     Committee for Economic Development, Industrial Policy and Trade of               Osinovaya Roscha    Shopping &                 Pargolovo,Vyborgskoye
     St. Petersburg                                                                                                                                                19,840       11,400     Adamant
                                                                                      Phase I             Entertainment Center       Sh. / Ring Road
 2
     This survey only covers shopping centers with gross leasable area
     (GLA) of more than 4,000 sqm
                                                                                      No name (part of
                                                                                                          Furniture Center           154 Engelsa Pr.               35,000       15,000     Solomon
  * Incl. parking area                                                                Grand Canyon)
 ** Net of office space
                                                                                      Cruise***           Shopping Center            3 Komendantsky Pr.            22,000       13,200     Femida
*** Put into operation in 2009, not yet opened




                                                                                                                                                              Russia. St. Petersburg I Annual Real Estate Review 2010 Colliers International   87
                                                                                   Occupancy of shopping centers presently exceeds 90%.
RETAIL SECTOR                                                                      Only unmarketable premises remain vacant.
                                                                                   Some successful shopping centers still have waiting lists



                                                                                     Table 1. MAJOR RETAIL FACILITIES PLANNED FOR OPENING IN 2010–2011 (cont.)
                                                                                                                                                                                                            There are no vacant
                                                                                                                                                              Total
                                                                                                                                                                         GLA,
                                                                                                                                                                                                            large-format premises
                                                                                            Name                Type                      Address             Area,
                                                                                                                                                                         sqm
                                                                                                                                                                                      Developer             in existing shopping
                                                                                                                                                              sqm*
                                                                                                                                                                                                            centers
                                                                                                       Specialized Shopping                                                         Etalon
                                                                                    AURA                                          85 Lahtinsky Pr-t           14,650      9,400
                                                                                                       Center                                                                       LenSpetsSMU

                                                                                    Shkipersky Mall    Shopping &
                                                                                                                                  18 Nalichny Per.            11,600      9,320     Firma SiB
                                                                                    Phase II           Entertainment Center
                                                                                                                                                                                                            The decrease in
                                                                                                                                  Krylenko Ul. /
                                                                                    Smile              Shopping & Office Center
                                                                                                                                  Bolshevikov Pr-t
                                                                                                                                                              11,000      8,000     Donk                    consumer demand
                                                                                                                                                                                                            in H1 2009 had
                                                                                    Nikolaevsky        Shopping &                 21 Stremyannaya Ul. /
                                                                                    Passage            Entertainment Center       5 Marata Ul.
                                                                                                                                                              13,000      6,700     Nevskie bani            an impact on retail
                                                                                                                                                                                                            chains turnover
                                                                                                                                 To be opened in 2011

                                                                                                       Shopping &                                                                   Europolis Baltic
                                                                                    Kantemirovsky                                 80 Polyustrovsky Pr-t       84,000     44,000
                                                                                                       Entertainment Center                                                         Rus

                                                                                    Felichita-
                                                                                                       Shopping &
                                                                                    Pionerskaya                                   5 Ispytateley Pr-t          44,750     26,850     Macromir
                                                                                                       Entertainment Center
                                                                                    Phase III

                                                                                    Iskra              Shopping Center            3 Iskrovsky Pr-t            28,000     21,000     Skeyls

                                                                                                                                  21/23
                                                                                    Mercury            Shopping Center                                        33,240     10,000     Mercury
                                                                                                                                  B.Konyushennaya Ul.

                                                                                                                                                                           Source: Colliers International


                                                                                   DEMAND                                                     orienting to gain their market share extend their
                                                                                   The decrease in consumer demand in H1 2009                 presence in already operating retail facilities.
                                                                                   had an impact on retail chains turnover. Many              But there are no vacant large-format premises in
                                                                                   retail operators reduced the number of their shops         existing shopping centers.
                                                                                   in shopping centers. Some operators could not              Occupancy of shopping centers presently exceeds
                                                  Source: Colliers International   stand the economic situation and reduced their             90%. Only unmarketable premises remain vacant.
                                                                                   presence in the market, but the vacant space was           Some successful shopping centers still have waiting
     Mega-Parnas and Mega-Dybenko belong to Vyborgsky and Nevsky districts         leased by the others. Due to absence of new                lists (Mega-Parnas and Mega-Dybenko, Raduga,
     respectively
                                                                                   supply in the retail property market, operators            Grand-Canyon, Sennaya, French Boulevard).
* Incl. parking area




88     Annual Real Estate Review 2010 Colliers International I Russia. St. Petersburg
                Basic rental terms of retail premises in 2009
RETAIL SECTOR   have become more loyal for tenants



                RENTAL RATES                                                   predominant, calculated as percentage from sales
                In H1 2009 owners of retail premises offered                   turnover (there are some examples even in street-                       Since Q3 2009
                favorable rental periods to their tenants,                     retail segment), which is more preferable for                           rates began their
                providing reduction of rental terms. Since Q3                  tenants.
                                                                                                                                                       floating to the
                2009 rates began their floating to the pre-crisis              Prime rates for premises located in Nevsky Pr-t,
                                                                                                                                                       pre-crisis level
                level. Moreover, as of the end of 2009 the                     Bolshoy Pr-t in Petrogradsky district reduced
                following rental rates charge model became                     by 50% as compared to the period of 2008.


                                        Table 2. RENTAL RATES IN STREET-RETAIL SEGMENT                                                                 Prime rates for
                                              (PRIME RENTS FOR PREMISES OF 100 SQM)                                                                    premises located in
                                                                                                                                                       Nevsky Pr-t,
                               Street                                          Rental Rate, $/sqm/year,
                                                                                                                                                       Bolshoy Pr-t in
                 Nevsky Pr-t                                                             2,400–3,000                                                   Petrogradsky
                 Bolshoy Pr-t P. S.                                                      1,200–1,800                                                   district reduced
                                                                                                                                                       by 50%
                                                                                                                    Source: Colliers International



                                           Table 3. LEASE TERMS IN SHOPPING CENTERS
                                                                                                       Q4 2009
                           Terms               Before the Crisis              Existing Shopping                 Shopping Centers
                                                                                   Centers                     under Construction

                 Rental rate                 Fixed                         Fixed / Percentage from sales turnover

                 Maintenance charges         Gallery operators $80–150/sqm/year, Anchor tenants $45–55/sqm/year

                                             2–6 months. After signing     0–2 months. Under com-           0–3 months. Divided pay-
                                             of pre-leasing agreement.     pleted agreements capability     ments in accordance with
                 Insurance deposit           1/3 is reckoned in the first   of a setoff of deposit or its    construction schedule.
                                             month, 2/3 – in the last      share is discussed.              Capability of switching from
                                             months of lease                                                deposit to bank guarantee.

                 Rental rates indexation     Gallery operators 5–15%,      Cancelled in 2009 and pro-       Gallery operators 5–15%,
                 per year                    Anchor tenants 3–5%           bably in 2010                    Anchor tenants 3–5%

                 Term of lease               Gallery operators 3–7 years, Anchor tenants 7–15 years

                 Fit out                     Shell & Core

                                                                                                                    Source: Colliers International




                                                                                              Russia. St. Petersburg I Annual Real Estate Review 2010 Colliers International   89
                                                                            Administrative districts of St. Petersburg differ by retail
                                                                            space provision. Less provided districts, such as Kalininsky,
RETAIL SECTOR                                                               Kirovsky, Krasnoselsky and Vasilievsky possess huge
                                                                            potential for retail development


                                                                            TRENDS                                                 FORECAST
                                                                            ■ Basic rental terms of retail premises in 2009 have   ■ Administrative districts of St. Petersburg differ     Over 300,000 sqm
                                                                              become more loyal for tenants (rates calculated        by retail space provision. Less provided districts,   of leasable retail area
                                                                              as percentage from sales turnover, temporal            such as Kalininsky, Kirovsky, Krasnoselsky and        will enter the market
                                                                              cancelling of rental rates indexation and              Vasilievsky possess huge potential for retail
                                                                                                                                                                                           in 2010
                                                                              reduction of insurance deposit period).                development.
                                                                            ■ Widening tendency – rental rates for retail          ■ While no new retail objects were put into
                                                                              premises are nominated in rubles.                      operation in 2009 the most strong chains
                                                                            ■ Owners of shopping centers try to attract              developed by replacing less successful operators.     Food component;
                                                                              customers also by including creatively different     ■ Over 300,000 sqm of GLA will enter the market         public catering and
                                                                              leisure and entertainment components (such as          in 2010. Therefore, the vacancy rate will not rise    apparel of mass-
                                                                              ice-rink and mountain ski simulator Gornostay          up, because the new projects offer modern space
                                                                              were opened in Continent on Baikonurskaya Ul.,         of high quality, and operators demonstrate high
                                                                                                                                                                                           market segment
                                                                              curling field – in Varshavsky Express).                demand by signing preliminary lease agreements.       demonstrate
                                                                            ■ Food component (hyper- and supermarkets),
                                                                                                                                                                                           strong market
                                                                              public catering and apparel of mass-market                                                                   demand
                                                                              segment demonstrate strong market demand.




90   Annual Real Estate Review 2010 Colliers International I Russia. St. Petersburg
               As of the end of 2009, the St. Petersburg hotel property market
HOTEL SECTOR   amounted to 114 hotels of 16,600 rooms



               SUPPLY                                                       ■ As most of the future supply will be
               As of the end of 2009, the St. Petersburg hotel                concentrated in the upscale and luxury                                Hotel sector in
               property market amounted to 114 hotels of 16,600               categories, we consider the prospect for quality                      general remains
               rooms (excluding mini-hotels, hostels, hotels in the           hotels in middle and lower categories to be                           attractive for
               suburbs of the city).                                          promising as the demand for cheaper
                                                                                                                                                    development
                                                                              accommodation increases to satisfy the needs of
               DEMAND                                                         an increasing amount of price-sensitive visitors
                                                                              to the city.
               In 2009, visitor flow to St. Petersburg has
               declined significantly. Average occupancy of                 ■ The number of special marketing actions and
               many hotels in 2009 was lower than average                     accommodation offers at discount prices has                           Average occupancy
               level of 2008 by 10–30%. Average occupancy                     increased in 2009. Officially announced prices                        rates in 2009:
               rates in 2009: 5* hotels – 40%, 4* hotels – 51%,               remain, as a rule, at the level of 2008.
                                                                                                                                                    5* hotels – 40%,
               3* hotels – 58%. Nevertheless during the high
               season the majority of high quality hotels have                                                                                      4* hotels – 51%,
                                                                            FORECAST                                                                3* hotels – 58%
               retained the same level of occupancy as in 2008.
               Some hotels even increased the occupancy rate                ■ In 2010 the supply will increase by 12 hotels
               by 5–10% in a high season as compared with the                 with 1,700 rooms in St. Petersburg.
               same period in 2008.                                         ■ We expect the increase in hotels projects offers
                                                                              on the market.
               TRENDS                                                       ■ Due to growing competition hotel operators
               ■ Hotel sector in general remains attractive for               will improve the quality and expand the range of
                 development.                                                 services provided.


                          Table 1. HOTELS ENTERED THE ST. PETERSBURG MARKET IN 2009
                                                                                                       Number
                               Name                          Address               Class                                      Opening
                                                                                                       of rooms

                Corinthia St. Petersburg (Phase II)   57–59 Nevsky Pr-t             5*                      107                   May

                Holiday Inn St. Petersburg –
                                                      97A Moskovsky Pr-t            4*                      557                 March
                Moskovskie Vorota

                Reval Hotel Sonya                     5/19 Liteyny Pr-t             4*                      173                October

                                                      12 Severnaya Road,
                Park Hotel                                                          3*                      300                  June
                                                      Krestovsky Island

                М-Hotel                               22/2 Sadovaya Ul.             3*                      54                   June

                Cronwell Inn                          18 Stremyannaya Ul.           3*                      49                December

                                                                                               Sources: Companies' data, Colliers International



                                                                                           Russia. St. Petersburg I Annual Real Estate Review 2010 Colliers International   93
                                                                            In 2010 the supply will increase by 12 hotels
HOTEL SECTOR                                                                with 1,700 rooms in St. Petersburg



                                                                            ■ Tourist flow reduction in 2009 could be
                                                                              compensated by tourist flow growth in
                                                                              2010–2012 due to the St. Petersburg
                                                                              administration policy focus on tourist
                                                                              infrastructure development, visa regime
                                                                              simplification and gradual improvement of the
                                                                              economic situation.




94   Annual Real Estate Review 2010 Colliers International I Russia. St. Petersburg
  Представительства в Восточной Европе и Центральной Азии
     Western & Eastern Europe Colliers International Offices




Copyright Colliers International, 2010 г.
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некорректности информации, содержащейся в данном отчете.

Copyright Colliers International, 2010.
This report is intended as general market research and is based upon material in our possession or supplied to us, which we believe to be reliable. Whilst every
effort has been made to ensure its accuracy and completeness we cannot offer any warranty that factual errors may not have occurred. We would like to be
told of any such errors so that these can be corrected. Colliers International takes no responsibility for any damage or loss suffered by reason of the inaccuracy
or incorrectness of this report.
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