MarketBeat Q4 2017 is Cushman & Wakefield’s quarterly review that marks the end of a four‑year downturn and the beginning of a new real estate cycle in Russia. While the economy is only slowly recovering, key commercial property segments have reached the bottom, and the market is starting to warm up on the back of structural changes in demand rather than speculative growth.
The report combines a macroeconomic outlook for Russia with a detailed analysis of all major commercial real estate sectors: Capital Markets, Offices, Retail, Warehouse & Industrial, and Hospitality & Tourism. It explains why 2017 became the turning point: rents had adjusted downwards enough to restart transaction activity, households began to shift from a savings model to consumption, and banks’ restructuring and state interventions set the stage for a new phase in the investment market.
Against this backdrop, the report discusses how political events and banking sector turbulence constrain asset value growth, why the government will prioritise social and macro stability over aggressive expansion, and how a conservative budget, low inflation and underperformance versus global growth still leave Russia’s real estate indicators “in the green zone”. It also outlines which sectors of the economy are poised to become new drivers of space demand.
What’s inside
- Macroreview: GDP, inflation, FX and interest rate forecasts through 2021 based on official and independent projections; the end of the recession and a shift to slow, stability‑driven growth; conservative oil price assumptions in the federal budget; the paradox of low inflation in an economy used to high price growth; the structural weakness of the consumer market and why it can support short‑term growth but not become a long‑term engine.
- Consumer market & households: analysis of how household spending is expected to stimulate growth in 2018 after three years of decline; long‑term consumption projections by category, showing fast‑growing services (healthcare, insurance, finance, tourism, foodservice) versus slow‑growing traditional goods (clothing, footwear, electronics); household debt structure and trends — mortgage, consumer loans and fast‑growing microcredit; evidence of a clear turn from saving to spending at the end of 2017 and its implications for retail turnover and space demand.
- Capital markets: investment volumes in Russian commercial real estate in 2017 and forecasts for 2018–2019, placed in the context of Central & Eastern Europe; Russia’s position compared with Poland and other core CEE markets; yield compression across office, retail and warehouse segments following lower inflation and key rate; discussion of why domestic investors continue to dominate, with foreign capital representing only a small share and likely to remain below one‑fifth of the market in the near term; overview of the largest investment deals of 2017 and the role of state control over major commercial banks in bringing assets to market.
- Offices (Moscow): office market at the bottom of the cycle, with most Q1–Q3 indicators weaker than in 2016 but catching up by year‑end; high new supply in 2017 driven by previously postponed projects, especially in Moscow City; net absorption dynamics turning from negative in H1 to positive in Q4; record‑high annual take‑up close to 2 million sq m, returning to pre‑crisis levels; distribution of demand by submarket, with Moscow City as the clear leader; stable overall vacancy with a trend towards declining availability in class A over 2018–2020; rental rate levels in RUB and USD and a forecast of only indexation‑level growth; sharp decrease in the share of USD‑denominated leases, with rouble leases becoming the norm in class B and prevailing even in class A.
- Retail: the retail property market moving “from quantity to optimisation”; record‑low new shopping centre construction in Russia and Moscow in 2017 — the lowest level in a decade and roughly half of the previous year’s volume; focus on extensions and refurbishments of existing schemes rather than new megamalls, with around 60% of new GLA delivered as additional phases; maturing market structure where annual new supply is less than 10% of existing stock; shift in pipeline towards smaller, neighbourhood and community centres under 20,000 sq m, reflecting demand for convenience and proximity; stabilisation of commercial terms in 2017 with first signs of rental growth in the prime segment; analysis of rental structures in successful Moscow malls, showing widespread use of fixed‑plus‑turnover rent and different percentage ranges for gallery tenants and anchors; early signs of consumer confidence recovery, combined with a still‑strong savings preference and limited expectations for rapid retail sales growth.
- Retail formats & tenants: developers’ focus on increasing footfall and rethinking concepts; evidence that the era of super‑regional malls is over, with growth now mostly organic through extensions of existing medium and large schemes; active development of food halls as traffic generators and new anchors; optimisation of grocery formats (exit from less efficient supermarket chains, focus on strongest concepts); moderate expansion by large operators and international newcomers, including Japanese and sportswear brands expanding into regional cities; development of Russian chains with international ambitions.
- Warehouse & Industrial (Moscow region and regions): a turning year for Moscow warehouses — consistently high demand in H2 2017 led to falling vacancy and stabilised rents after a multi‑year decline; developers abandoning speculative construction in favour of built‑to‑suit, with new projects typically launched only after pre‑lease or pre‑sale agreements; 2017 supply significantly below 2016, yet expected to rebound in 2018 with most of the pipeline already pre‑committed; forecast of only slight further vacancy reduction and stable rents, preserving a “tenant’s market” in terms of choice but with more tailored solutions; detailed analysis of supply concentration by highway, showing a strong focus on the south‑eastern corridors; take‑up structure dominated by retailers, especially fashion and food, with large average deal sizes and stable total demand both in Moscow and the regions; regional markets showing lower new construction in 2017 but a strong recovery in demand, especially in St Petersburg and Ekaterinburg, and a continued preference for BTS schemes.
- Hospitality & Tourism (Moscow): 2017 as a year of stabilisation and preparation for the 2018 World Cup; record‑high occupancy for modern quality hotels based on 12 years of data, achieved at the cost of slight pressure on ADR due to increased supply and ramp‑up discounts; strong growth in modern room stock driven by delayed completions, with the bulk of new rooms added in midscale and economy segments and one upper‑upscale opening; analysis of occupancy, ADR and RevPAR by segment, showing particularly strong performance in luxury, upscale and economy hotels; explanation of how H2 2017 reversed weaker H1 results, with monthly RevPAR surpassing both 2016 and 2013 benchmarks from June onwards; conclusion that Moscow’s hotel market is well‑prepared to accommodate a sharp increase in visitors during the World Cup and to manage higher guest volumes in the short‑ to mid‑term.
Practical value
- For investors: a clear view of the inflection point where Russia’s CRE market moves from a prolonged slump into early‑cycle growth; understanding how yield compression, slowly growing rents and continued dominance of local capital define the risk/return profile in offices, retail, warehouses and hotels; insight into timing — when foreign investors may start re‑entering and which asset types are best placed to benefit.
- For developers and owners: benchmarks on stock, new supply, vacancy, take‑up and rents across major segments, plus forward‑looking guidance for 2018–2020; clarity on where development risk is lowest (e.g. built‑to‑suit warehouses, neighbourhood retail centres, selective class A office schemes) and where focus should be on concept optimisation rather than new builds (large regional malls, secondary offices).
- For occupiers: context for lease strategy at the bottom of the cycle — record‑high availability of quality office space, stabilising warehouse rents with strong tenant leverage on specifications, maturing retail terms in shopping centres and hotel markets in balance between occupancy and rates; reference information on standard lease structures, currencies, indexation and turnover‑linked rents.
- For retailers and logistics operators: an evidence‑based view of consumer market transformation — slower overall consumption growth but rapid expansion in selected service categories — and how this will reshape demand for shopping centre formats and distribution space; guidance on which retail concepts (neighbourhood, food‑anchored, service‑heavy) and logistics strategies (BTS vs speculative, regional vs Moscow‑centric) are best aligned with these trends.
- For hotel owners and operators: a detailed assessment of how Moscow’s hotel sector has absorbed a significant supply increase without destabilising RevPAR, and how well it is positioned for the 2018 World Cup as a “dress rehearsal” for future peak‑demand events; basis for pricing, capex and positioning decisions in a stabilising market.
To explore the full charts, forecasts, sector‑by‑sector breakdowns and expert commentary, download the complete MarketBeat Q4 2017 report.
