MarketBeat Q3 2017 is Cushman & Wakefield’s quarterly snapshot of Russia’s commercial real estate market at the moment when the downturn has technically ended, indicators have stabilised, but the next growth cycle is clearly postponed to 2018. Against this backdrop, the report asks a key question: can the recovering consumer market become the main driver for offices, retail, warehouses and hotels?
The report brings together a concise macro review, capital markets analysis and a sector‑by‑sector look at Moscow and Russian commercial real estate. It shows that macro indicators are gradually improving, inflation and the key rate are coming down, and both household and corporate lending are recovering — but overall economic growth remains slow and fragile.
Capital markets are covered in a regional CEE context: Russia’s share in investment volumes has shrunk compared to pre‑crisis years, while Poland and the Czech Republic take the lead. Within Russia, investment activity is stabilising, prime yields have not yet fully reacted to lower inflation and key rate, and the market is preparing for a gradual re‑pricing of risk.
The core of the report is a detailed analysis of the Moscow office, retail, warehouse & industrial and hospitality markets over the first three quarters of 2017, with particular focus on where the market has already bottomed out and where the true start of the new cycle will likely fall in 2018.
What’s inside
- Outlook & Macroreview: updated forecasts for GDP, inflation, FX, key rate, budget balance and household consumption; evidence that each new forecast revision brings small improvements but does not change the “slow growth” baseline; risks of renewed inflation and rouble depreciation and why even the pessimistic scenarios imply only a moderate correction; analysis of household debt recovery, falling overdue loan ratios and strengthening consumer confidence.
- Capital markets: overview of CEE investment volumes and Russia’s changing role in the regional landscape; stabilisation of Russian commercial real estate investment after several weak years, but at lower‑than‑expected growth rates; discussion of prime office, shopping centre and warehouse capitalisation rates and their lagged reaction to lower inflation and the Central Bank’s key rate; structure of 2017 investment transactions and the outsized role of a handful of landmark deals.
- Offices (Moscow): a market in transition — high tenant demand alongside indicators that still trail 2016 on some metrics; record low levels of new construction in H1 followed by a pick‑up in Q3; expectations for a larger wave of completions in Q4, driven by delayed projects (including major Moscow City towers); net absorption turning from strongly negative in H1 to positive in Q3, hinting at a gradual recovery by year‑end; record number of lease and sale transactions as occupiers take advantage of the lowest rental rates since the 2000s; moderate vacancy growth in 2017 due to new supply, with a forecast of gradual vacancy decline from 2018 as construction volumes ease; rental rates stabilising in RUB with limited upside at the level of inflation and a shrinking share of USD‑denominated leases.
- Retail (Russia & Moscow): consumer confidence slowly recovering after several difficult years, but households remain cautious and conservative in spending; retail turnover in Russia and Moscow returning to positive growth, driven first by food retail and then by a belated rebound in non‑food categories; uneven performance across retailers — some see robust turnover and footfall improvements, others still face weak demand; record‑low new shopping centre construction volumes in 2017 both nationwide and in Moscow, with developers significantly cutting back earlier pipeline plans; clear shift in focus towards neighbourhood and community formats rather than new large regional malls; analysis of retailer strategies — experimentation with new formats, cross‑brand collaborations, brand repositioning and active expansion of grocery chains into new cities and regions; prime shopping centres strengthening as supply tightens, with slight rental uplift at approximately the level of inflation.
- Warehouses & Industrial (Moscow region & regions): strong, broad‑based demand for warehouse space across almost all Russian regions; stabilised but low rental rates in the Moscow region despite high demand and sharply lower new construction volumes, reflecting fierce competition among developers and willingness to adjust rents and delivery times; decreasing vacancy in some regions and rising popularity of built‑to‑suit projects as existing stock struggles to absorb demand; forecast that total 2017 transaction volumes will match or exceed 2016; detailed breakdown of new construction and take‑up in Moscow region and key regional markets, illustrating how speculatively built projects have been scaled back while BTS schemes gain prominence.
- Hospitality (Moscow): robust expansion of modern quality hotel stock in Moscow ahead of the 2018 FIFA World Cup, with 2017 supply growth outpacing the average of the previous decade; explanation that this spike is driven more by delayed completions from the last crisis than by the upcoming World Cup deadline; RevPAR and ADR trends over the first nine months of 2017 by segment (Luxury, Upscale, Midscale, Economy), showing a complex picture where higher occupancy in some segments comes at the expense of room rates; analysis of RUB vs USD ADR dynamics in the context of rouble strengthening and its impact on Moscow’s positioning as an “affordable” destination; reasons behind weaker‑than‑expected performance in H1 (oversupply in midscale, weather, Turkey reopening, airline issues) and the reversal of RevPAR trends in summer; realistic expectations for further hotel market growth through 2020.
- Appendix: key indicators of the Moscow commercial real estate market (stock, new construction, vacancy, rents, take‑up) by segment; standard commercial lease terms in Russia for offices, retail and industrial property (lease lengths, break options, rent payment and indexation, turnover rent, service charges, taxes); links to Cushman & Wakefield’s interactive maps for offices, shopping centres, warehouses, hotels and infrastructure.
Practical value
- For investors: a clear picture of where Russia’s CRE market stands at the very end of the post‑crisis adjustment phase — yields still high, rents still low by historical standards, and a new cycle likely to start from 2018; insight into how stabilised inflation and a lower key rate should, over time, translate into marginally lower cap rates and a more active investment market.
- For developers and owners: grounded benchmarks on supply, demand, vacancy and rental levels across office, retail, warehouse and hotel segments at the moment when the market is moving from “finding the bottom” to “preparing for growth”; guidance on which types of projects (e.g. delayed office towers, neighbourhood shopping centres, BTS warehouses, midscale hotels) are best positioned for the next cycle.
- For occupiers: context for lease strategy in a “low market” environment — record high availability of quality office space, still‑tenant‑friendly warehouse terms in Moscow region, and selective landlord‑friendly conditions in prime retail and hotel assets; reference information on typical lease structures, currencies, indexation and turnover‑linked components.
- For retailers and logistics operators: a data‑backed view of the early consumer market recovery, including where demand is strongest (food, F&B) and where it lags (non‑food), and what this implies for store networks, format selection and warehouse footprint across Moscow and the regions.
- For hotel owners and operators: detailed evidence on how the Moscow hotel market is absorbing a significant supply increase ahead of 2018, which segments are managing to grow RevPAR, and how FX dynamics influence international competitiveness — all essential for pricing, capex and brand strategy.
To explore the full set of charts, sector‑by‑sector data and forward‑looking scenarios, download the complete MarketBeat Q3 2017 report.
