Boston, MA -- (ReleaseWire) -- 02/07/2014 -- Although commercial real estate investments for 2013 look set to fall roughly $800mn short of 2012's record high of $8.8bn, BMI believes that commercial real estate in Russia is set to experience strong growth in the long term. Fuelling this strong growth will be high levels of foreign investment in Russia's real estate market, particularly in Moscow.
Foreign participation in Russia's real estate market has increalmosty doubled between 2012 and 2013. As investors hunt for higher yields, the Russian real estate market is likely to remain attractive for foreigners with yields in Moscow often up to 5% higher than those in major European cities. The 2013 Winter Olympics in Sochi and 2018 Fifa World Cup offer plenty of potential for growth in both the construction industry and commercial real estate investment. A number of significant infrastructure projects are likely to further bolster growth in these areas.
As always, Moscow represents the focal point of commercial real estate investment in Russia. From the 1 January 2014 commercial real estate owners in Moscow and greater Moscow will be affected by revised laws concerning how a property is valued and thus its tax liabilities. The main driver of the new laws is the aim of increasing budget revenues generated from real estate. According to these amendments the tax rates for office and retail real estate in Moscow will be 0.9% in 2014, increasing to 2% by 2018. These changes may have a negative effect on commercial real estate investments in Russia, with potential investors dissuaded by the costliness of any investment.
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The retail real estate market is expanding rapidly in Russia. If all the announced retail projects are completed on time, 2014 will set a record for new retail premises coming on to the market. Currently the completions figure is expected to be around 600,000 square metres, an increase of 100,000 sq m from the previous record levels in 2009. The retail sector in Russia has plenty of scope for growth, with disposable income at an already high level and increasing. Projects such as the Kuntsevo Plaza professional shopping centre in Moscow, due to open in August 2014, marks a new generation of 'lifestyle shopping centres' aimed to satisfy Russia's ever wealthier middle-classes.
Although there are numerous new developments in the office sector that have recently been completed or are about to be completed, the vacancy rate has remained stable due to high levels of demand. Saying this, Russia's regional office market lags behind Moscow. The decision by Gazprom and its affiliates to relocate its main office to St.Petersburg, shows that there is considerable demand for office space outside Moscow. To meet this demand, the quantity of office space outside Moscow could increase by 20% in 2014.
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