The first half of this year was the most stable period for the Russian real estate market. High business activity along with stable indicators (rents, vacancy rates) suggest that the market is balanced pretty well. New office construction in Moscow slowed down and is estimated for 2012 at 526,000 square meters which is absolutely adequate for the expansion needs of corporations.
Our analysis suggests that net absorption will stabilise at 500-600 thousand sq.m per year. Thus, it will take some time for vacancy rate to decrease to one digit levels which will not create pressure on rental rates. In retail we noticed an improvement in consumer activity after a relatively slow start of the year. Shopping centers report high footfall. Retailers report positive sales trends.
The warehouse sector remains stable with low availability and steady demand resulting in high rental rates. Major attention now is drawn to the Moscow expansion, which became effective from July 1 2012. The Government plans major transport improvements in the new area and also wants to move their Federal Ministries. However, before plans are clear commercial potential in this area is unclear. Next quarter we will closely watch what is happening in the Moscow Administration regarding this expansion project. Hopefully by end of the quarter opportunities will take shape.
Another hot topic for the next quarter will be regional development. Now the development pipeline is concentrated in regions and we will soon see real estate markets emerging in the regional cities. The outlook for the Moscow market is stable. We do not expect any strong movements in the next quarter. In the mid-term, a slight increase of rents is forecasted, reflecting inflation. Currency risk remains a major factor for the USD based real estate market.