MarketBeat Q2 2017 is Cushman & Wakefield’s quarterly review capturing the moment when Russia’s commercial real estate market stands on the edge of a new cycle: the economy is formally out of recession, inflation and the key rate have fallen to historic lows, the consumer sector is showing the first stable signs of recovery — and the real estate market is about to react.
The macro section outlines updated forecasts from the Ministry of Economic Development and Oxford Economics, describing a combination of slightly improved short‑term expectations and very modest mid‑term growth. It highlights record‑low inflation, gradual key rate cuts, healthy household debt dynamics with rising consumer and mortgage lending, and a stabilised corporate debt profile, alongside still‑weak wholesale and retail borrowing that constrains the speed of consumer recovery. The capital markets chapter places Russia within the wider CEE investment landscape: overall regional volumes have been maintained thanks to Poland and the Czech Republic, while Russia’s investment market has stabilised at a lower level, with domestic capital dominant and the share of foreign investors starting to grow from a very low base.
The sector chapters provide a detailed view of Offices, Retail, Warehouse & Industrial and Hospitality. In Moscow offices, H1 2017 is characterised by very low new construction — including a quarter with no new deliveries for the first time in market history — against the backdrop of one of the strongest first‑half take‑up figures in recent years and temporary negative absorption in Q2. Retail real estate is analysed in the context of a cautious consumer market recovery and a multi‑year minimum in new shopping centre construction in Russia and Moscow, with a clear bias towards neighbourhood schemes and low‑budget concepts. The warehouse market shows stabilisation in the Moscow region with high demand but lower rents and construction volumes, and exceptionally strong demand in the regions. Hospitality focuses on Moscow’s hotel market, where modern room stock is growing faster than the long‑term average while hoteliers are still working to translate higher occupancies into sustainable ADR and RevPAR growth ahead of the 2018 World Cup.
What’s inside
- Macro & consumer: revised GDP, inflation, FX and key rate forecasts through 2019; the role of low inflation as a “game changer” for real estate and investment decisions; analysis of household debt, with mortgages still leading but consumer credit rebounding for the first time since 2014; early but uneven signs of consumer market recovery in Russia, Moscow and St Petersburg, with regions in some cases outpacing the capital.
- Capital markets: CEE investment volumes and Russia’s reduced share compared with the pre‑2014 period; stabilisation of Russian commercial real estate investment just below a multi‑year norm; expectations of a slight increase in annual volumes and a gradual return of foreign investors; current and forecast prime yields for offices, shopping centres and warehouses in the context of falling key rates and low inflation; overview of the largest H1 2017 deals and the structure of capital (domestic vs EU vs other).
- Offices (Moscow): H1 2017 office market dynamics with strong overall take‑up but negative net absorption in Q2; record‑low new construction volumes, including the unprecedented absence of new completions in Q2; about 1 million sq m under construction or reconstruction with many deliveries postponed beyond 2017; moderate vacancy increase due to negative absorption and previously completed schemes with high vacancy, alongside a wide choice of quality space in all submarkets; stabilised rental rates in RUB and USD, early signs of a return of dollar‑denominated leases in class A, and a split of transactions by lease currency and segment.
- Retail (Russia & Moscow): consumer confidence and retail turnover trends, with forecasts for incomes and retail sales upgraded for 2017 but remaining conservative mid‑term; very low new shopping centre construction at the national level and in Moscow, with 2017 likely to mark the lowest annual delivery for a decade; dominance of relatively small‑scale schemes, focus on projects near transport hubs and neighbourhood centres; analysis of Moscow shopping centre vacancy structure by scheme type (prime, sustainable, recently opened, planned), showing higher vacancy in new centres and low vacancy in established prime assets; retailer trends including expansion of grocery chains, growth of catering space, active development of discounters and low‑cost concepts, and the increasing importance of e‑commerce and mobile channels.
- Retail economics & street retail: stability of the prime rent indicator in prime Moscow malls over six consecutive quarters, with an expectation of renewed growth as consumer recovery takes hold; explanation of compound rent structures (base rent plus turnover) and their typical ranges for fashion retailers and anchors; snapshot of Moscow high street rents and the impact of large‑scale pedestrianisation on tenant mix, with food and convenience replacing fashion and jewellery in several locations.
- Warehouse & Industrial (Moscow region & regions): a stabilising market in the Moscow region with strong demand but lower new construction volumes and decreasing net rents; explanation of why rental rates fell further in Q2 despite tight supply, including the influence of a few aggressive developers with lower construction costs; forecast for annual take‑up below the record levels of 2015–2016 but still healthy, and for a gradual decline in vacancy by year‑end; contrasting regional markets, where H1 2017 take‑up already exceeds the whole of 2016, new construction is lower but sufficient, and rental rates are rising in some areas as vacancy falls, driven largely by food retail chains.
- Hospitality (Moscow): hotel supply expansion with modern quality stock growing faster than the 10‑year average due to delayed completions, particularly in midscale and economy segments; performance trends in H1 2017 — modest occupancy gains achieved largely at the expense of ADR in RUB terms, but significant ADR growth in USD due to rouble appreciation, with implications for Moscow’s price competitiveness; uneven RevPAR dynamics across segments (Luxury, Upscale, Economy) and explanation of why a weak first half does not preclude meeting full‑year budget targets; discussion of how growing room stock increases the complexity of revenue management ahead of the World Cup.
Practical value
- For investors: a clear reading of where Russia’s CRE market stands just before a likely cyclical turn in Q3, with low inflation, stable or slightly falling yields and tenant‑friendly rents; context on the timing and nature of foreign investors’ gradual return and the relative positioning of Russian assets within the CEE universe.
- For developers and landlords: concrete benchmarks on construction, take‑up, vacancy and rent levels across office, retail, warehouse and hotel segments; guidance on where development risk is lowest (e.g. BTS warehouses in regions, small‑scale neighbourhood retail, selected hotel segments) and where delayed projects may need further phasing or repositioning (large office towers, certain shopping centres).
- For occupiers: an informed backdrop for lease decisions as the market moves from a “tenant’s market” towards a more balanced phase — availability of quality office space, stabilising warehouse rents, still‑soft retail terms in weaker assets, and growing competition for prime shopping centre and street retail locations.
- For retailers and logistics operators: evidence‑based insight into the early stages of consumer recovery, the consolidation and expansion strategies of food retailers, the rise of low‑budget concepts and catering, and the implications of regional warehouse shortages driven by retail chains.
- For hotel owners and operators: a nuanced view of Moscow’s hotel market as it absorbs a significant increase in modern stock, manages only gradual improvements in occupancy and ADR in RUB, and faces new challenges from rouble strength in USD terms — all crucial for pricing, capex and brand strategy decisions ahead of 2018.
To see all charts, detailed sector indicators, forecasts and expert commentary, download the full MarketBeat Q2 2017 report.
