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