The document provides an overview and analysis of Russia's real estate market in Q4 2013. It finds that Russia's GDP growth slowed to an estimated 1.4-1.5% in 2013, down from the government's earlier forecast of 3.4%, as industrial production and fixed investments declined. Retail sales remained the main driver of economic recovery. Total commercial real estate investment volume was around $7.45 billion in 2013, similar to 2012 levels. The office and retail sectors attracted the most investment, with Moscow receiving around 70% of total deals. The retail market continued expanding into regional cities, with 63 new shopping centers completed across Russia in 2013 totaling over 1.4 million square meters of space.
This document summarizes research on e-commerce and shopping centers in Russia. It finds that while online retail is growing rapidly at 20-30% annually, it still only accounts for 2% of total retail sales. Shopping centers also have significant growth potential and could make up a quarter of retail sales by 2020. The document also examines online and in-store shopping trends and predicts both will continue growing in importance through a multi-channel retail model. Infrastructure limitations may slow the growth rate of online retail in Russia.
A slow start to 2013 in the Russian economy is now widely recog-nized. Jan-May GDP growth is recorded at 1.8%, about twice lower than the previous year. Governments forecast for 2013 is still at 2.4% and acceleration in the second half of the year is still a very likely scenario. IMF is a bit more optimistic and sticks to a 2.5% projection.
But this slowdown is an important marker of change. Russia is no longer part of the emerging markets world. It is in the more developed group not because of the slower growth but because of its higher economic base. Russian GDP per capita is 40% higher than the world average. With estimated 2.5% it is still in line with the global outlook of 3.1% and almost 3 times higher than 1.2% outlook for advanced economies. At the same time, with over $14,000 USD GDP per capita Russia is now closer to developed countries than to B(R)ICS.
Consumer market remains strong. Retail trade turnover in Jan-May increased by 11.4% in nominal terms in comparison to same period the previous year. Even after adjusting for inflation it shows strong growth of 4%.
Inflation is accelerating from 6.6% last year to a very likely 7% and higher for the current year. However, soft commodity prices may put pressure on food prices.
For real estate community this means that the sentiment remains negative without any material evidence and without new bearish fundamentals. All the existing factors are already priced in. Real estate market is in the green zone but risks are increasing. There is strong doubt that demand for real estate will grow. However, Rus-sia in general and Moscow specifically is still undersupplied with quality product.
That is why even during a weak second quarter, there was a signifi-cant increase in transactions in the warehouse sector. Supported by solid demand, construction rate had increased and warehouse sec-tor showed record levels of activity in Q2.
This document summarizes research on e-commerce and shopping centers in Russia. It finds that while online retail is growing rapidly at 20-30% annually, it still only accounts for 2% of total retail sales. Shopping centers also have significant growth potential and could make up a quarter of retail sales by 2020. The document also examines online and in-store shopping trends and predicts both will continue growing in importance through a multi-channel retail model. Infrastructure limitations may slow the growth rate of online retail in Russia.
A slow start to 2013 in the Russian economy is now widely recog-nized. Jan-May GDP growth is recorded at 1.8%, about twice lower than the previous year. Governments forecast for 2013 is still at 2.4% and acceleration in the second half of the year is still a very likely scenario. IMF is a bit more optimistic and sticks to a 2.5% projection.
But this slowdown is an important marker of change. Russia is no longer part of the emerging markets world. It is in the more developed group not because of the slower growth but because of its higher economic base. Russian GDP per capita is 40% higher than the world average. With estimated 2.5% it is still in line with the global outlook of 3.1% and almost 3 times higher than 1.2% outlook for advanced economies. At the same time, with over $14,000 USD GDP per capita Russia is now closer to developed countries than to B(R)ICS.
Consumer market remains strong. Retail trade turnover in Jan-May increased by 11.4% in nominal terms in comparison to same period the previous year. Even after adjusting for inflation it shows strong growth of 4%.
Inflation is accelerating from 6.6% last year to a very likely 7% and higher for the current year. However, soft commodity prices may put pressure on food prices.
For real estate community this means that the sentiment remains negative without any material evidence and without new bearish fundamentals. All the existing factors are already priced in. Real estate market is in the green zone but risks are increasing. There is strong doubt that demand for real estate will grow. However, Rus-sia in general and Moscow specifically is still undersupplied with quality product.
That is why even during a weak second quarter, there was a signifi-cant increase in transactions in the warehouse sector. Supported by solid demand, construction rate had increased and warehouse sec-tor showed record levels of activity in Q2.
Real estate market in 2013 made a good start. Despite economy slowdown and negative industrial production index market remained solid in Q1 with record investment volumes and strong sector performance. Political and macroeconomy trends in Russia become more or less shaped after turbulent year 2012 and micro level prospects are now more or less clear. Corporations are not planning any significant expansion and focus on operational efficiency. So relocations are well planned driven by solid reasoning.
Extraordinary investment market results (3.4 USD bn in Q1 2013) are driven by two large deals that were negotiated in 2012.
However despite good start of the year we do not change our forecast for 2013 because of the expected slowdown in Q2 and disruption of business caused by March events in Cyprus.
Cyprus jurisdiction used widely by Russian real estate companies and investors due to favorable double tax avoidance treaty, English legal system and flexibility of local banks. Bank crisis will not destroy this system but will disrupt investment activity until major issues are settled down. It is not clear so far will any other jurisdiction may compete with Cyprus for real estate operations, but undoubtly investors will explore other options.
In Q2 economy will face recovery of industrial production so after Q1 destocking half year figures will be similar to previous year. However real estate market will slow down a little bit in comparison with fast start of the year.
Major threat for real estate business is increasing currency risk. Growing budget deficit creates pressure on Ruble which may lead to exchange rate ajustment later this year. However so far it is unclear how government will handle this deficit. That is why our 2013 outlook remains basically unchanged.
Indicators to watch in Q2:
-Logistic construction volumes
-Office take up in Moscow
-Shopping centers footfall