| 14 November 2008 |
 
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On November 6, the international consulting company Knight Frank held two events dedicated to warehouse and office real estate at Moscow’s Expocentr as part of the 2008 Moscow Real Estate Forum (MREF). The most important theme of both was the possible impact of the global financial crisis on these sectors and the outlook on the further development of the Russian real estate market.
Knight Frank representative Vyacheslav Kholopov, the director of the company’s industrial real estate department, gave a presentation on industrial parks in Russia during the first event, titled “Industrial parks: new format on the commercial real estate market.” Knight Frank partner Roman Bourtsev also spoke about the outlook on the agrarian market in Moscow and the regions. Ruslan Gotyzhev, the head of the third-party logistics division, addressed the topic of the services offered by third-party logistics providers in industrial parks.
Roman Bourtsev, Partner at Knight Frank:
“Despite the scarcity of available land within the 30-kilometer zone around Moscow, September-October 2008 witnessed an increase in the supply of land plots on the Moscow region’s agrarian market. This is connected with the fact that owners expect to realize their assets at an acceptable price and direct their proceeds toward supporting business. There will be markdowns, but in general only on plots in poor locations or with an undesirable area or shape. All in all, prices will remain stable, and we can predict moderate growth in a year or year and a half.
One of the most promising trends on the agrarian market is land development, which makes it possible to transfer agricultural lands into a different category or to acquire land for communications with the subsequent sale of plots prepared for the construction of industrial facilities.
We can predict that the rent for class A storage facilities in 2009 will be $140-160 per sq. m. per year, depending on the location of the facility, the terms of the contract and the size of the rented area. The maximum adjustment will not exceed 3-5% in the next year.”
Valentin Stobetsky, the director of the office real estate department, and Konstantin Losyukov, the director of the corporate clients division, represented Knight Frank at the “Five o’clock according to office real estate” event; they spoke about trends in market development during the financial crisis. A similar perspective was offered by the representatives of the company’s clients: Alexei Chertkov, the director of the commercial department at the International Banking Institute also talked about the outlook on development, and Roman Shaynurov from Uralseversnab gave examples of successful office projects in the regions.
Valentin Stobetsky, the director of the office real estate department at Knight Frank, was confident that oversaturation does not threaten the Moscow market, since despite the large number of office projects that have appeared, only some of them will be completed in 2009 because of the problems with liquidity and thus the percent of unoccupied buildings on the market will rise to 8-10%. The funding ratio of office space in Moscow is much smaller than the average in Europe. Currently, the majority of investors have a “wait and see” attitude, not only because of the size of the bank financing deficit but also because there is no understanding of the depth of the market’s compensating adjustments.
“The financial crisis is, to a large extent, affecting developers that were recently active in regional markets. In such a situation, banks’ and investors’ trust in the regions decreases significantly. We can predict that by 2011, no more than half of the projects that have appeared in the region will be completed,” noted Mr. Stobetsky.
The two events brought to light the most relevant trends for both sectors and also gave the market participants the opportunity to voice their expectations and predictions. In industrial real estate, it is essential to pay attention to large-scale projects during the crisis; this includes industrial parks, which continue to develop throughout Russia, and also land development, which is the most promising direction for the agrarian market.
The office segment explored aspects of regional development and work with tenants, drawing parallels between the Moscow and European real estate markets. It was noted during the discussion that the global financial crisis has destabilized the real estate market, and as a result, investors’ and developers’ activities have decreased and the constraints on bank financing have substantially increased. Nonetheless, the growth of the office market in Moscow will resume in the long-term, so supply and demand will adjust slightly.
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