In The Search For Clarity

27 Apr, 2010, Moscow

Cushman & Wakefield are pleased to announce the publication of the Q1 2010 quarterly report.

The first quarter of 2010 did not bring any new ideas to the real estate market although there is still some good news. We expect new players on the market to take a greater role with new business models and approaches.

Investment market. The total investment into commercial real estate in the first quarter was $485 mn. Prime yields were revised to lower ones as a result of the tight offer and increasing demand of the office occupiers. We now see both the vendors and investors on the market and the main thing—the fair market price

Retail market. The economy is stable, and retail turnover is growing. Russian consumers are more and more confident in the future; nevertheless retail market dynamics are weak. An average weighted rental rate for prime space in Moscow shopping centers remained $2,200 per sq. m per annum. The total quality retail stock reached 2,900,000 sq. m at the end of the first quarter. By the end of the year 550,000 sq. m more are expected to be delivered. Vacancy rate in the top shopping centers of Moscow didn’t change and remained 3%. There are almost no new brands on the market. The rest of retails mainly consider capital cities as priority for their expansion.

Office market. Take up in Q1 2010 was significantly stronger than in any quarter of 2009. The total take up for Q1 2010 was 290,000 sq. m. New construction is diminishing but still exceeds net absorption. We expect total office deliveries in Moscow to reach 1 million square meters by the end of the year. Vacancy rate grew and reached 17,3% as an average on the market. As of March 31 there were 3.66 million square meters offered for lease and sale in Moscow. 1.93 square meters are offered in completed buildings. An average Class A rental rate is $640 per sq. m per annum while for Class B - $310 per sq. m per annum. Now the market reached its bottom consolidation of rents had started.

Warehouse market. The 1Q 2010 was characterized by supply reduction and high and stable demand in the Moscow region and increasing demand in the other regions. In this quarter only 15,000 sq m of quality warehouse space were put into operation. At the same time during this quarter more than 160,000 sq m in Moscow and more than 57,000 sq m in the regions were absorbed by the market. The biggest share of demand comes from distributors and retailers.

Tim Millard, Managing Partner, Cushman & Wakefield, Moscow, commented on the Q1 2010 results: “Our research publication for the first quarter of 2010 could be called “Upbeat” instead of “Marketbeat”! The majority of indicators give cause for optimism. Most independent observers are in consensus in increasing their estimates for GDP growth in Russia in 2010, unemployment has peaked and is now dropping and the economy is underpinned by a high and stable oil price. In commercial property there is increasing activity and interest in the capital markets, yields are falling in all sectors, office leasing activity in the first quarter of 2010 has returned to the levels of 2007 and 2008 and Year on Year increases in retail trade and Disposable Income are suggestive of strong recoveries in the retail and warehouse sectors to come.
There are a number of significant deals in the pipeline which we believe will anchor the recovery and will lead to stronger sentiment, higher confidence and increased activity in all sectors of the market. We may well look back on the first quarter of 2010 as the time when the Russian Economy turned the corner and the first half of 2010 as a unique opportunity for acquiring property – both for occupation (lease or buy) and investment”.

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