Investment volume in Russian real estate market remains low in Q1 2017

Investment volume in real estate in Russia amounted to $700 mn in Q1 2017 that is 66% lower than in respective period of 2016, according to the CBRE report.

This decline is explained by record high amount of deals in 1Q 2017 (due to closure of one large deal of office purchase by Transneft) which equalled 46% in total yearly investment transactions volume. If this deal is to be excluded, the volume will be down by 34% YoY in Q1 2017.

– Foreign investment share increase to 22% in Q1 2017 from 5.4% in Q1 2016. Almost half (47%) of volume has been invested into retail real estate, demonstrating the start of investor interest into retail real estate. About 19% has been invested in residential development projects, 16% – in offices, 17% – in hotels.

– The average deal size was 54% lower in Q1 2017 and amounted to $41 mn vs $90 mn in Q1 2016. However, if Transneft deal is excluded, average deal size amounted to $50 mn in Q1 2017, similar to Q1 2017 average deal size.

– Due to Leto shopping centre deal closure, the share of St. Petersburg’s investment volume increased to 35% in Q1 2017 from 11% in 2016. The share of Moscow accounted for 48% in Q1 2017.

– Investors still prefer standing assets, the share of which remained relatively stable, at the level of 81% in Q1 2017 vs 85% in 2016.

– After key rate cut at the end of March and taking into account Bank of Russia rhetoric about further cuts in Q2-Q3 2017, cost of debt finance will continue to go down. On the back of this, real estate capitalization rate compression by year-end is also expected.

– Investment activity on the real estate market is increasing on the back of rouble and oil price stability, as well as Russian economy exiting recession. Investment volume in 2017 may overcome previous year result and amount to $5 bn.

Source: CBRE

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