Investment · Kermen Mastiev Head of Division, Sales & Acquisitions Office Department...
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1 Investment Year-End Review | 2015 | Russia | Colliers International Key trends for 2014 Throughout 2014, the main deterrent for the commercial real estate market was the geopolitical instability that led to a sudden devaluation of the domestic currency, a rise in inflation and a deceleration in economic growth in the second half of the year. Nevertheless, according to the results for the year it is evident that Russian and foreign investors continued to search for new investment opportunities, analyzed assets and closed transactions in the Russian commercial real estate market. Usually, the closing of major transactions is completed during the 4th quarter; however, in connection with the sudden devaluation of the domestic currency lasting through November and December, followed by the Central Bank decision to increase the “key rate” up to 17%, it was difficult to proceed with the completions of such transactions. Thus, in case of the domestic currency stabilization and “key rate” decrease during the 1st quarter of 2015, it is possible to expect that some transactions that were not finalised in 2014 will be closed. Overall volume of real estate investment deals, 2007-2014, billion $ 2008 2007 2009 2010 2011 2012 2013 2014 4.5 4.9 3.0 3.1 7.4 8.0 8.2 3.5 Source : Colliers International Capitalisation rates in various segments in Moscow by the end of the year, % Source : Colliers International * Prime commercial real estate, leased at market terms, located in Moscow; with major Russian and international tenants 2008 Office Retail Industrial 2007 2009 2010 2011 2012 2013 2014 10,0 10,5 11,0 11,0 11,0 12,5 11,5 8,5 9,0 14,5 1, 11,0 10,0 9,0 9,5 9,0 8,5 13,5 10,5 10,0 8,0 Key investment figures in 2014 INDEX VALUE TRANSACTIONS, $ MILLION 3 490 Office, $ mln 1 370 Retail, $ mln 1 015 Industrial, $ mln 59 Hotels, $ mln 559 Other, $ mln 487 PRIME YIELDS, AT THE END OF THE YEAR Office, % 9.5-10,5 Retail, % 9.5-10,5 Industrial, % 12-13 In 2014, the real volume of transactions decreased, which was expected given the current market conditions. According to figures from 2014, investment volume is estimated at $3.5 billion, which is 60% lower in comparison with previous year, when this indicator amounted to $8.2 billion.
Transcript of Investment · Kermen Mastiev Head of Division, Sales & Acquisitions Office Department...
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Investment
Year-End Review | 2015 | Russia | Colliers International
Key trends for 2014 Throughout 2014, the main deterrent for the commercial real estate market was the geopolitical instability that led to a sudden devaluation of the domestic currency, a rise in infl ation and a deceleration in economic growth in the second half of the year. Nevertheless, according to the results for the year it is evident that Russian and foreign investors continued to search for new investment opportunities, analyzed assets and closed transactions in the Russian commercial real estate market.
Usually, the closing of major transactions is completed during the 4th quarter; however, in connection with the sudden devaluation of the domestic currency lasting through November and December, followed by the Central Bank decision to increase the “key rate” up to 17%, it was diffi cult to proceed with the completions of such transactions.
Thus, in case of the domestic currency stabilization and “key rate” decrease during the 1st quarter of 2015, it is possible to expect that some transactions that were not fi nalised in 2014 will be closed.
Overall volume of real estate investment deals, 2007-2014, billion $
20082007 2009 2010 2011 2012 2013 2014
4.54.9
3.0 3.1
7.48.0 8.2
3.5
Source : Colliers International
Capitalisation rates in various segments in Moscow by the end of the year, %
Source : Colliers International
* Prime commercial real estate, leased at market terms, located in Moscow; with major Russian and international tenants
2008
Office Retail Industrial
2007 2009 2010 2011 2012 2013 2014
10,010,5
11,0 11,0 11,0
12,5
11,5
8,5
9,0
14,5
11,011,0
10,0
9,09,5
9,0
8,5
13,5
11,0
10,510,0
8,5
8,0
Key investment figures in 2014 INDEX VALUE
TRANSACTIONS, $ MILLION 3 490
Office, $ mln 1 370
Retail, $ mln 1 015
Industrial, $ mln 59
Hotels, $ mln 559
Other, $ mln 487
PRIME YIELDS, AT THE END OF THE YEAR
Office, % 9.5-10,5
Retail, % 9.5-10,5
Industrial, % 12-13
In 2014, the real volume of transactions decreased, which was expected given the current market conditions. According to fi gures from 2014, investment volume is estimated at $3.5 billion, which is 60% lower in comparison with previous year, when this indicator amounted to $8.2 billion.
2 Year-End Review | 2015 | Russia | Colliers International
Investment distribution by country, 2009–2014, billion $
Breakdown of real estate investments by region in 2014, %
Moscow
St. Petersburg
Regions
10%5%
85%
Source : Colliers International
Russia
2009
10
8
6
4
2
02010 2011 2012 2013 2014
10%
Foreign
90% 68% 77% 85% 76% 82%
32%
23%15% 24%
18%
The decrease in investment activity in 2014, given the economic and political instability, was anticipated. Moreover, compared to the many major transactions with trophy assets closed in 2012 and 2013, there was an increase in the number of transactions with a unit cost less than $50 million. An additional factor for the decrease in the average transaction volume was the limited access to debt markets during the second half of 2014.
During recent years a number of companies specializing in commercial real estate investments were able to create diversified portfolios of prime assets, which, in turn, attracted institutional investors, who made several indirect investments in commercial real estate. Throughout 2014, the investment company Goldman Sachs acquired 12% of the shares in O1 Properties, with a total transaction value of $200 million. Russian investors also followed the same strategy of investing in their existing portfolios. As a result, in the 4th quarter of 2014, Colliers International was involved in a milestone investment transaction on a European scale for a total value of about €295 million. The investment holding O1 Group Limited owned by Boris Mints acquired a 16.1% equity share and obtained a majority interest in the public investment company CA Immo, the portfolio of which is estimated at €3.6 billion and includes assets located in Germany, Austria and throughout Eastern Europe. This trend demonstrated once again that Russian investors are active in foreign markets as well, where they are looking for stable returns and risk diversification.
Traditionally, the Russian real estate investment market remains predominantly local. The share of foreign investment in Russian commercial real estate decreased from 24% in the previous year to 18% according to this year’s volumes and amounted to approximately $0.6 billion. Despite that, the main international companies that traditionally invest most actively in the Russian commercial real estate market, such as Hines, Morgan Stanley, Raven Russia, Immofinanz and PPF Group, continued to carry out their activity in Russia. Furthermore, we observed increased interest in the Russian market on the part of Asian and Middle Eastern investors. One of the Middle Eastern sovereign wealth funds acquired the Pokrovskiye Kholmy luxury residential complex for about $300-350 million.
Investors’ interest in assets concentrated in Moscow currently remains high – in 2014, 85% of transactions were closed in the capital.
Prime capitalisation yields in Moscow are estimated to be at the level of 9.5-10.5% for the office and retail segments and at the level of 12-13% for industrial properties, depending on rental rates, bank financing and cash flow quality. Currently, Russian capital is leading in terms of capitalisation yields among major European cities, which will eventually attract significant foreign capital, primarily into the Moscow market.
Dynamics of deal size distribution,2008-2014
≤$50 million
≥$100 million ≤$200 million
≥$500 million
≥$200 million ≤$500 million
≥$50 million ≤$100 million
2008 2009 2010 2011 2012 2013 2014
41%
22%
18%
15%
4%
51%
25%
15%
9%
51%
17%
16%
16%
21%
26%
130%
6%
17%
28%
30%
20%
16%
6%
43%
20%
14%
16%
7%
37%
35%
12%
11%
5%
Source : Colliers International
Source : Colliers International
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Investments by segment, billion $
Source : Colliers International
Investments by segmentIn 2014, a reallocation of demand took place – a decrease in interest in customarily popular retail and industrial property; investors mainly focused on the office segment, where 40% of the total amount of transactions were closed and the investment volume amounted to approximately $1.4 billion.
During the year, investment in retail assets amounted to around $1 billion – which is about one third of the total investment volume – besides that, hotels and large residential buildings were also acquired.
Prognosis for 2015During the first six months, the main deterrent for investment transactions will be the “key rate” which is set at 17% and was increased four times from 5.5% by the Russian Federation Central Bank during 2014. In this regard, it is important to realize that the Central Bank’s three-fold increase of the “key rate” during 2014 is a temporary measure aimed at containing inflationary pressure and currency speculation. It is most likely that the “key rate” will be decreased after foreign exchange market, oil prices and the geopolitical situation stabilize. As a result, negative consequences for the economy and, in particular, for the investment market can be minimized.
Despite the complicated economic environment in Russia, the major players’ interest in investments in the real estate market has not decreased, and at the moment they are patiently waiting for the geopolitical and financial environment within the country to stabilize.
The Russian commercial real estate market continues to be attractive for investment, and the possible reduction of sanctions, a decrease of the “key rate” and the stabilization of oil prices will significantly enhance the investment appeal of the Russian commercial real estate market.
In 2015, the Russian market remains a buyer’s market that offers a great number of opportunities for proactive investors to invest in quality assets in all segments at attractive prices.
Largest investment deals 2014PROPERTY CITY SELLER BUYER DEAL VOLUME
Portfolio of Hotel Company(84%) and Hotel Savoy(16%) Moscow Property Fund of Moscow
VTB Capital Confidentially
Imperia Tower, Phase 1 Moscow MCG Solvers Group $350-380 million
Pokrovskiye Kholmy Moscow Goldman Sachs Whitehall Funds
MiddleEast Fund $300-350 million
River Mall Moscow Bank of Moscow IC Platform $300-350 million
Berlin House and Geneva House (90%) Moscow
Confidentially Eastern Property Holdings
$220-260 million
BC Hermitage Plaza Moscow $195 million
BC Severnoe Siyanie Moscow $153 million
Olympic Tower Moscow Kuznetskiy most development
BIN Group of companies
5 billion rub
Retail
Office
Industrial
Land
Hotel
Other
2014
2013
2.633%
2.431%
1.721%
1.012%
0.23%
0.1 4%
0.031%
0.410%
0.616%
1.029%
1.440%
485 offices in 63 countries on 6 continentsUnited States: 146 Canada: 46 Latin America: 25 Asia Pacific: 186 EMEA: 84
$2,1billion in annual revenue
135,8billion square feet under management
15 800professionals and staff
Copyright © 2015 Colliers International.
The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
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Stanislav BibikExecutive Director, Capital [email protected]
Sayan TsyrenovDirector, Capital [email protected]
Vladislav RyabovPartner, Regional Director: Industrial, Warehouses, Land [email protected]
Vladislav NikolaevHead of Retail Consulting, Retail [email protected]
Marina TolstosheevaRegional Director, Head of Property Management [email protected]
Vera ZimenkovaDirector, Corporate [email protected]
Anna NikandrovaRegional Director, Retail [email protected]
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Kermen MastievHead of Division, Sales & Acquisitions Office [email protected]
Julia GorlovaDirector Strategic [email protected]
Eleonora Bogdanova Business Development Director of Warehouse and Industrial [email protected]
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