On October 23rd, 2014, we updated our
By continuing to use LinkedIn’s SlideShare service, you agree to the revised terms, so please take a few minutes to review them.
IN DEPTH RUSSIATAMING THE52 www.estatesgazette.com 2 February 2013
THE MARKET THE WEEK PRACTICE & LAW W EG L LIFER ussia isn’t the easiest of Moscow and St Petersburg. corruption, will be debt, R deb debt, Russia, buoyed countries to warm to. At the World Economic enough to alleviate concerns concerns oncerns by high v y high volumes of igh And not just because Forum in Davos last month, and nervousness around natural resources, is in a temperatures can Russian prime minister Dmitry entering a market that has not considerably stronger position plummet to -20°C. Medvedev called for continued always had a shining (see graph, p54) as the The fear of falling international investment in reputation when it comes to country’s public debt is novictim to corruption still casts a Russia generally and the transparency. more than 10% of GDP. Adark shadow over a market country’s real estate market A PR drive from the Russian report published bywhich, in pure ﬁnancial terms, speciﬁcally, to fuel future government to attract overseas PricewaterhouseCoopers lastis becoming an increasingly economic growth. And just last interest is one thing. But month went so far as to predictattractive investment option week the Russian government whether it stacks up as a valid, that Russia will be the leadingfor foreign companies. revealed it has awarded a sensible business decision European economy by 2030 After being hit hard by the $500,000 contract to without the hard sell remains and could be one of the top 10global economic crisis in 2009, Goldman Sachs over the next another. Here Estates Gazette in the world by 2050.the Russian economy has three years to market the investigates whether the case Whether or not thesebounced back rapidly by country’s development success for UK investment in the predictions come to fruitionEuropean standards. GDP stories to foreign investors. Russian real estate market is – analysts and commentatorsgrew nearly 4% in 2012, a With the 2014 Sochi Winter strong enough to outweigh the have suggested they could beﬁgure expected to be repeated Olympics and 2018 FIFA potential risks. far-fetched – the noise beingover the next 12 months, World Cup just around the made around investment andaccording to the World Bank. corner, it is clear that the door The investment conundrum development opportunitiesThe country’s property into Russia is wide open – the First and foremost, the hard in Russia are becomingsector has followed a similar convoluted Visa process statistics cannot be dismissed increasingly positive –pattern, showing stable permitting – for overseas ﬁrms – and they paint an undeniably particularly when it comes togrowth throughout 2012 wanting to cash in on a tempting picture. real estate.thanks to a strong retail growing property market At a time when most “A major transformationpipeline, a booming industrial worth more than $620bn. But European countries are facing happened in Russia in 2012sector and a steady increase in the big question is whether the painfully slow climbs back to that went unnoticed by many,”shopping centre, warehouse opportunities, twinned with economic health as they says Denis Sokolov, head ofand office prime yields in promises of a crackdown on struggle with mountains of research and developmentPwC predicts Russia will be the leading European economy by 2030, but is thebusiness case for UK investment in the Russian real estate market strongenough to outweigh the potential risks? Emily Wright reports from MoscowE BEAR GETTY IMAGES 2 February 2013 www.estatesgazette.com 53
IN DEPTH RUSSIA consultancy in Cushman & – of total investment into Wakeﬁeld’s Moscow office. “We Russian real estate in 2012. RUSSIAN INVESTMENT MARKET: ON THE UP are no longer in the emerging This is despite undergoing a market state. Russia became a period of transition as the new BY SECTOR solid real estate market last city government, which came year, with Moscow ranked into power in October 2010, third in the list of top has spent two years reworking European property investment its vision of the city’s urban markets.” planning policy. This has Once again, the ﬁgures speak resulted in several key schemes volumes, showing that being suspended, which has investment in Russian real seen a slight slowdown in the estate reached a historic high in Moscow office market. But 2012, hitting $8bn (see box, with 12.5m² of office space in above right). Preliminary total in the capital and a 5% forecasts by Jones Lang LaSalle rise in investment into this predict an annual investment sector in 2012, there are still volume of at least $7.5bn plenty of opportunities for 2006 2007 2008 2009 2010 2011 2012 2013 F in 2013, of which around growth (see interview, p58). Source: Cushman & Wakeﬁeld one-third will be from overseas Cushman & Wakeﬁeld’s investors. Sokolov predicts a strong year The argument for for Moscow in 2013 despite the distribution centre – are the Federation Tower, planned investment is being supported “restrictions imposed by the looking at these sectors. for completion in 2016, which by international and UK new administration” with Pharmaceuticals is another will become the tallest in property ﬁrms already take-up of offices remaining interesting sector for Europe; and major operating in the market, who strong, steady hotel and investment. It is now law that infrastructure projects, such as stand to pick up work on the residential sectors, and a boom all pharmaceutical companies the reconstruction of Gorky swathes of resulting deals. in warehouse development. selling drugs in Russia must Park, the grounds of Luzhniki “The more international JLL’s Chadsey agrees: “We produce a proportion of their Olympic Complex, Dynamo investors there are, the more are noticing a lot of investment product here, so the companies Stadium and Petrovsky park. work there will be for in office ﬁt-out in Moscow and are all building their own And you couldn’t talk about international property and a swathe of industrial work in production centres throughout the Moscow real estate market project management ﬁrms oil and gas and distribution Russia. Industrial is big across without mentioning Skolkovo. operating in Russia,” says Ian centres. A lot of international the country.” The Russian equivalent of Chadsey, associate director of companies investing in Russia Other main future schemes Silicon Valley is just an hour’s project and development at – such as Adidas, which is include the Moscow drive from the capital – a Jones Lang LaSalle, Russia & expanding and needs a new International Business Centre; 400-hectare site set to become CIS. “Non-Russian investors are likely to want to deal with Westerners or very good English-speaking Russians. We usually work with American, British and German ﬁrms who know we abide by the UK Bribery Act and the US anti-corruption laws.” Reward The key to securing investment in Russian property and persuading more international property companies to join those already operating successfully in the country – including Jones Lang LaSalle, CBRE, Colliers, Cushman &Wakeﬁeld, Knight Frank and Aecom – will be the calibre of opportunities up for grabs. There is a shortage of high- GETTY IMAGES: DMITRY MORDVINTSEV quality real estate in Russia, so development prospects remain good – but you do have to know where to look. Not surprisingly, Moscow is home to the majority of development. The capital received 88% – around $6bn54 www.estatesgazette.com 2 February 2013
THE MARKET THE WEEK PRACTICE & LAW EG LIFE gross leasing area (GLA) ofRUSSIAN INVESTMENT MARKET: ON THE UP 15.4m m² as of October 2012. About 100 projects are underBY ORIGIN BY GEOGRAPHY construction in a retail pipeline that totals 4.6m m². One square Foreign investors Moscow metre is about 10.76 sq ft. Domestic investors St Petersburg The major sports venues and Regions infrastructure projects planned for the 2014 Winter Olympics and 2018 FIFA World Cup are all tied up in government contracts, but the planned improvements to transport links between airports, major cities and key districts should see more regional development and investment opportunities across the country in the long term.Source: Cushman & Wakeﬁeld Risk one of the world’s biggest high- No matter how impressive theUSEFUL CONTACTS TIPS FOR A COLD CLIMATE tech cities. It is twice the size of economic ﬁgures or OUTSIDE THE BOARDROOM London’s Olympic Park and development pipelineBritish Embassy, Moscow will include a research opportunities, the threat ofSmolenskaya Naberezhnaya 10 ● Leave enough time to university with 1,800 students, corruption still taints theMoscow 121099 arrange a visa before 40 corporate research and Russian market. It remains aTel: +7 (495) 956 7486 travelling to Russia as there development centres and a serious issue, despite the are reams of forms to contend “Technopark” housing up to government’s attempts toBritish Consulate-General, St Petersburg with. A visa application costs 1,000 start-ups. The dispel fears that doing businessPL Proletarskoy Diktatury 5 around £119, but you can pay government has invested $3bn in Russia is difficult.191124 St Petersburg more for help from an agency over four years into this mega Having said that, theTel: +7 (812) 320 3220 to speed up the process. project, which it hopes will increase in international ﬁrms ● Once in the country, carry modernise Russia signiﬁcantly, operating in the country andwww.ukti.gov.uk/ukti/russia your passport or some form making it a market leader in global giants such as Ikeawww.ukinrussia.fco.gov.uk/en of ofﬁcial photo ID with you at technology and research making a public stand against all times. You will need this to development. And you won’t corruption has seen a marked get into most ofﬁce buildings ﬁnd many potential investors improvement, according to and you will be ﬁned if you are arguing with that. those with experience of unable to provide it if you are St Petersburg – though a operating in the market. stopped by an ofﬁcial. much smaller market than “If you choose to avoid it, ● Navigating the Moscow – also continues to corruption has become a pretty underground system signs and stops – which are in “If you choose to avoid it, corruption has Cyrillic – is made a lot easier by downloading the Moscow become pretty much a non-existent issue” and/or St Petersburg Metro apps, which translate the perform well, particularly on much non-existent issue in signs into standard script. the retail front, as it maintains Russia now,” says Charles ● Always negotiate taxi fares a strong lead in terms of quality Cresser, now a partner at IDC at the start of the journey. retail stock – 437m² per 1,000 Consult but who spent two Waiting until the end could inhabitants – with large-scale years growing JLL’s capability result in a hiked up price. openings in 2011-12 including in Moscow. “You have to choose ● Do not turn down vodka. Leto (80,000m²) and RIO to avoid it, though. If you go Whether in a business or a (52,500m²). The Galeria out there thinking you might social environment, shots (it shopping centre sale here in try your luck, then that option is unlikely to ever just be the 2011, for $1.1bn to a fund is still very much available. But one) of vodka are a key part of managed by Morgan Stanley, I wouldn’t recommend it. Russian living. If a bottle is became the largest in the “When I was working in put on the table, it is history of the Russian market. Moscow it wasn’t hard to ﬁnd a traditional that no one leaves Maxim Karbasnikoff, head good supply chain who were all until it is empty. Eating of retail services at Cushman & paying their workers and something small like a Wakeﬁeld, says that retail where everyone was paying piece of meat is advised in across Russia will continue to their taxes. And, ultimately, if between each shot. Mixing be a strong market from 2013 people want to go to Moscow the spirit with any other form onwards. Quality retail stock to work with the likes of JLL or Moscow: 12.5m² of ofﬁce space of alcohol is not. consisted of more than 500 any of the similar international shopping centres, with a total companies then they have to 2 February 2013 www.estatesgazette.com 55
IN DEPTH RUSSIA show they are squeaky clean.” corruption issues: “I have He adds that it has been DEBT: RUSSIA’S SURPRISE SAFE HAVEN STATUS hardly seen any evidence of helpful that giants such as corruption in the two years I Unilever, HSBC, Ikea, Government gross debt, % of GDP have been here. All I heard Debenhams and Adidas are all before I arrived was ‘Russia is currently rolling out ambitious corrupt, you have to be really expansion plans in the country careful, there are so many despite not always having issues.’ Personally, I don’t see it. trouble-free experiences. Working for an international To make a stand against ﬁrm is likely to have something corruption, Ikea famously put to do with that. Most of my a freeze on expansion in June clients are international, so I 2009 after investing $4bn in am not dealing directly with Russia over 10 years as it Russian government or refused to pay bribes to safety companies.” inspectors. The hope is that, with such a “What Ikea did proves that countrywide push to attract you can now work in Russia overseas investors, the next and avoid corruption if you step will see Russian ﬁrms that stand up against it and refuse have yet to embrace a new way to work in a certain way,” says of doing business cracking Cresser. “It wasn’t easy for down on corruption. Dmitry them, but they did it and that Mints, chairman of O1 has paved the way for other Properties, one of the country’s foreign ﬁrms to expect the leading property ﬁrms, says his same sort of transparency.” company purchases all of its Chadsey adds that working 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013F buildings using English law. for an international ﬁrm Source: International Monetary Fund signiﬁcantly reduces Russian roulette While taking all of the reports about Russia’s new, clean Nevsky Prospekt, St Petersburg transparent approach to business at face value would be foolish, it seems that working on the right projects with the right companies has genuinely helped to unlock a market that is on an upward trajectory. “Moving to Moscow was much harder than I was expecting,” says Chadsey. “But once I got used to it I realised just how important this market is. The economy is much better here than in the US or the rest of Europe and the best part is that Russian and international companies have responded well to companies like us – global property companies – and everyone either wants to work for us or with us. REX FEATURES “It is a huge culture shock but, even though I hate the cold, dark and snow, I am convinced that there has DOING BUSINESS IN RUSSIA never been a better time to be in Russia.” ● Be on time for meetings, but not favoured in Russia as a rule. will, more often than not, be do not expect your Russian ● Presenting or holding a viewed positively. DMITRY MINTS INTERVIEW, PAGE 58 counterpart to be. Though a meeting in English is usually ● At business dinners the good indication of how serious acceptable. most senior attendees sit in For more on opportunities in Russia and beyond, a meeting is taken is how ● Negotiations are tough and the centre of the table. You download Europroperty Trends from the App punctual they are. can involve a degree of theatre. should be sat opposite your Store or via www.estatesgazette.com/eptrends ● Pitches and presentations Caving early is a sign of immediate counterpart. should be simple. Visuals and weakness, so standing your ● Refusing a dinner invitation is PowerPoint presentations are ground despite loss of tempers considered exceptionally rude.56 www.estatesgazette.com 2 February 2013