The Importance of the Russian Office Is Constantly Growing

3 December 2007

The Knight Frank Company is nearing the end of the year with notably improved performance. Focused on hiring best international specialists, the company’s personnel policy should be certainly credited for the improvement. Jeremy Oates, Managing Director of Knight Frank Moscow & CIS, has told us about the company’s position on the market and the role he is playing in Knight Frank.

Jeremy, you had worked in Asia and the Middle East for a long time and were affiliated with a Moscow consulting company in late 1990s. What made you choose Russia today?

I returned to Russia because presently it is the most interesting and the fastest growing real estate market offering great opportunities. Last time I was here the 1998 crisis forced me to leave the country. As the department of the consulting company I was working for, it simply ceased to exist. I have finally found a chance to come back and complete what I had started before, as well as to pursue a lot of new ideas.

This crisis has been over for nearly 10 years. Don’t you think it was too late to return?

Not at all. The market is rapidly developing, and many processes that are taken for granted in other countries are just being introduced in Russia.

Previously your name was associated with such companies as Cushman, Colliers, and Jones Lang. Why did you choose Knight Frank to be in Russia?

Unlike the companies you mentioned, Knight Frank is characterized with the corporate culture born of a partnership. This is what I got used to. Moreover, the Moscow Office of Knight Frank has an interesting partnership system that provides great opportunities for cooperation and further growth. The staff is very young. They are enthusiastic about their business and are motivated to learn new things and acquire new skills and knowledge. Finally, one of the partners in London is a person I went to college with, and this is how I ended up here.

Do they promise you a partnership?

I don’t believe a partnership is a possibility for me. The office already has partners. Among them are both Russian enterpreneurs and the London Office itself. My role in the company is different: To improve the quality of staff management, finance management, and the like. I will grow local partners.

The Russian real estate market is still kind of closed and operates in a clandestine manner. Many issues are resolved privately. Are you comfortable with the way this business is done?

To some extent any market is closed. Every place I worked in after I left Great Britain was characterized by doing business through personnel contacts. My work here has nothing to do with opening the gates. It is not my responsibility. I'm used to working with key players of the local market with Knight Frank, whether developers or investors, and they are very good at opening any door. My goal is just to help them. Moreover by claiming that the Russian real estate market remains uncivilized and relies on criminal schemes, the Russians are doing themselves a disservice. I don't believe it does. In many respects the Moscow real estate market is similar to others and operates through commonly accepted international rules. Suppose I come back to Great Britain tomorrow and, being new on the block, try to make an Asset Manager. This won’t happen. You need friends, and you need personal contacts for this.

What are the main differences among the commercial real estate markets in Asia, the Middle East and Russia? What prospects do these regions face?

All of these markets are developing rapidly and have certain problems and peculiarities. Thus, in Asia—Thailand, in particular—the market was recently down, but now it’s reviving. Today Korea sees a huge demand for commercial real estate, especially office realty. China has enormous potentials, and presently all of its real estate market segments are actively growing. As of today Russia is more or less in the same position, although there is an important difference: Asian markets are strongly influenced by the New York Stock Exchange and by what is happening there. Contrarily, Russia is less dependent on stock exchange risks, as its economy is based on the development of natural resources.

To me the Middle Eastern market looked most peculiar. I was lucky to work in Dubai at the time the local real estate was booming. For the last two years I was employed by an investment trust owned by a major English bank. There I encountered a number of unusual issues that needed to be resolved. The thing is that in the United Arab Emirates those investing in many construction projects are individual persons. As a result real estate is sold floor by floor, as it is customary in the condominium sector. As an Asset Manager I was responsible for making right investment decisions. However given these market peculiarities, for a big investment company such as ours investing in real estate became a problem. To invest, we would usually purchase an entire building. Yet in Dubai with its numerous private buyers, it was selling floor by floor that generated bigger profits. Another problem was that foreigners were banned from buying and owning some buildings. So the work I did in the Emirates proved to be an excellent experience for me.

At what stage are the Russian and Moscow real estate markets now?

Compared to real estate markets of all other countries with a developing economy, Russia—both in terms of its level and growth rate—is somewhere in the middle. Today Moscow sees a high demand for and a limited supply of practically any type of real estate. Such a situation guarantees a stable growth of development projects. Certainly, aside from Moscow other millionaire cities, where retail and storage segments are developing especially fast, are also building various commercial projects. So the market is not facing any serious problems today. This is not to say, however, that every segment of the market is going in the right direction: Thus, all of the Moscow office projects nearing completion are of the same grade. Nonetheless I believe that market mechanisms will help resolve this problem. As the forthcoming difficulties with receiving construction loans from the banks will make this problem quite apparent, developers will begin to focus on new directions. All in all, I think Russian real estate development will enjoy another 3-5 years of stable growth, which in Moscow may even last longer. To a substantial extent, the duration of growth will depend both on oil and gas prices as well as on general economic growth in Russia.

If tomorrow oil prices drop to $50 per barrel, how will this affect the Russian real estate market?

I doubt the impact will be significant. To me, we have enough of natural resources, let alone huge human capital. A recession, if any, will be small and will exist mainly in government reports. Everything will be compensated with a high demand for office, retail, and storage space. Russia’s accession to the WTO will also boost the economy.

One of the major aspects of your career is asset management. How do you intend to use this experience in Knight Frank?

Knight Frank already has its own asset management strategies. My input into this area is not sufficiently big yet. However, it is my intent to eventually use my knowledge in full so that the company efficiency can be improved. As to asset management strategies, today Knight Frank has two skillful professionals. One of them is Peter Anderson, who was working in Australia for a long time. His last assignment was China, and he has extensive experience in managing high-rise buildings. Another one is Dmitry Filin, who was employed by the Hines Company for many years and is very knowledgeable in the local market. So these two build the basis of the company’s asset management strategies.

Is Knight Frank offering Fee Service to its clientele?

No, it isn’t. While working in Korea in a Cushman branch, I came across companies specialized in Fee Development Services, Bovis Land Lease, for example. I would say that theoretically tenant’s planning of the property’s interior may trigger competition. If the property area is big enough, companies like Bovise may be interested in it. However, we tend to cooperate, rather than compete, with such companies, as the services we offer are highly specialized.

How did Knight Frank perform in 2007 in terms of efficiency and productivity?

A happy customer is our main achievement. This year 45% of our clients came back to us, and this is characteristic of our work. With regard to property leasing, as of the last quarter we leading the industry, especially in the office segment. We have also made a number of exclusive deals on the residential market.

How would Knight Frank rank itself among the Moscow top five consulting companies?

As long as our clients are satisfied, I’m not concerned that we are not leading in some areas. We are doing our best to provide high quality services without trying, however, to become the Number 1 Consultants at any price. The number of our clients speaks for itself.

How fast is the Moscow Office developing in comparison with your other offices worldwide?

The office is developing at the same pace with the market. Last April a conference for commercial property managers from all over the world was held. Kirill Starodubtsev, our General Manager, and President of Knight Frank India made a joint speech on the developing markets. The London Head Office was highly impressed with their presentation. Office size, employees qualifications, and prospects of growth were also found very impressive. Thus, the Moscow Office is though of highly. Moreover, a lot of entry-level professionals and employees of our other offices are trying to receive training and experience here. So the importance of the Russian Office is constantly growing.