OVERVIEW

Q1 2011 ELITE RESIDENTIAL REAL ESTATE MARKET Knight Frank

EXECUTIVE SUMMARY

• High activity was observed on Moscow’s elite residential real estate market in Q1 2011. Average prices on the primary market grew 10.7%, surpassing «pre-crisis» indicators. In March 2011 a record number of deals was recorded for 2010-2011. • For the first time, the average price of supply on the primary market surpassed the average price per square meter on the secondary market. Such a growth in prices was facilitated by increased attention from buyers to the market for elite new builds: The quantity of deals with new builds in Q1 2011 surpassed the quantity of deals on the secondary market twofold. • A price correction continues on the secondary market. A significant increase in the volume of supply was observed. The secondary market practically stopped being filled by apartments less than $2 mln: In Q1 2011 the share of such apartments in new supply equalled only 6%, and this considering a share in total supply of 11%. Basic supply on the secondary market now starts at $2 mln and higher. • A small growth was observed in he rental market during March, after a fall that has been continuing since October 2010. Q1 2011 ELITE RESIDENTIAL REAL ESTATE MARKET Moscow

MOSCOW. ELITE RESIDENTIAL REAL ESTATE MARKET

Elena Yourgeneva Key indicators. Urban real estate Director of Residential Average prices, $/sq m; Change in average prices / rental rates, % Market rental rates, $/month segment «Right now on the market a distinct March 2011 Q1 2011 For March 2011 For Q1 2011 For 12 months increased demand from buyers of elite residences is being observed as sales Primary 23,084 22,403 2.5 10,7 18,9 in new projects are going actively and market much of the best supply is already leaving the market. To those who are planning to Secondary 22,225 22,248 0.2 -2,61 -9,7 acquire apartments in the near future, we market recommend not prolonging this questions, as selection with each day decreases and Rental* 6,439 6,400 0.9 -5,7 -2,5 prices increase.

The growth in average prices during Q1 has * Rates presented for apartments with a total area of 80-150 sq m with high-quality furnishings

already surpassed the growth for all of 2010. Source: Knight Frank Research, 2011 We anticipate prices to grow on average 15% during H1 and to 25% for the year. With regards to the most new projects that have recently entered the market, prices are One of the main events of Q1 on the elite apartment market: By the end of the quarter, growing significantly at higher rates and residential real estate market was an buyer activity grew to record indicators for supply is contracting perennially due to the announcement frоm S. Sobyanin, Moscow’s 2010 and 2011 and in March 68 deals in elite large attention of buyers on such projects.» mayor, about a ban on construction of new builds were closed. Many developers are residences inside the Third Transport Ring. have operationally reacted to the increase This ban does not refer to projects that in demand, having increased prices already Almost 80% of deals in Q1 on the primary have already begun construction, as well as by the end of the month. That in April a market were closed with budgets projects with prepared documentation. This further increase in prices from the remaining ban has already been reflected on the elite developers awaits us is not excluded. up to $5 mln, with the most popular apartments remaining those with prices from $1 to 3 mln, as usual. The average price of supply on the primary market sharply increased, having surpassed the average price of supply on the secondary market for the first time. Distribution of deals on the primary This was facilitated by both a traditional removal of cheap supply and an increase market based on budget limitations in prices from many developers $/sq m

25 000 4% 4% 11% 4% 24 500 24 000 23 500 19% 23 000 22 500 22 000 21 500 21 000 58% 20 500 20 000 19 500 19 000 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar less than $1 mln from $5 to 7 mln 2010 2011 from $1 to 3 mln from $7 to 9 mln Primary market ecS ondary market from $3 to 5 mln more than $9 mln Source: Knight Frank Research, 2011 Source: Knight Frank Research, 2011 1 0 0 0 0 1 0 0 2 0 0 1 1 1 1 1 1 1 . 11 . 1 . 10 . 10 т. я. 1 р. 1 ль нт вр вр авг ма й 10 ок янв. дек. ап но ма рт ма рт се ию июнь фе фе 25000

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PRIMARY MARKET

Olga Bogoroditskaya Prices of supply. Change Director, Key Client Management Average prices, $/sq m Change in average prices, %

«Today we observe a situation that is March 2011 Q1 2011 For March 2011 For Q1 2011 For 12 months characteristic for “pre-crisis” markets. In many new projects that are already in the 23,084 22,403 2,5 10,7 18,9 beginning phases, 25-50% of apartments are sold. During the crisis, buyers preferred to Source: Knight Frank Research, 2011 buy residences in complexes with a high level of completion, but now we see a restoration of trust towards developers and a larger quality of deals in new projects» In contrast to the splash of sales at the end of the summer and beginning of autumn in 2009, caused by a lowering in prices practically to their minimum, as well as by sever al The largest growth in average prices sales events conducted by developers, a growth in sales during Q1 2011 occurred on a background of a growth in prices for Q1 2011 was recorded in «Impersky ‘000 sq m, $/sq m Dom», a residential complex, at 27.5%, 18 with «Legenda Tsvetnogo» 24 000 not far behind at 25.4% 16 23 000 % 14 22 000 Italyanskiy kvartal, 12 9,5% Fadeeva st., 4 10 21 000 Chetyre Solnca, 8 Tatarskaya Bolshaya 10% 20 000 st., 13 6 19 000 4 Sadovye kvartaly, 10,4% 18 000 Efremova st., 12 2

Afanasyevsky, 16,2% 0 17 000 Afanasyevsky Bolshoy III II III IV III II III IV I lane, 24 2009 2010 2011

Legenda Tsvetnogo, 25,4% Tverskoy blv., 2 Total area of sold apartments Average price on the primary market Source: Knight Frank Research, 2011 Imperskiy dom, 27,5% Yakimanskiy lane, 6 According to totals from Q1, average A visibly expressed growth period began on 0 10 20 0 3 prices on the elite new-build market the elite residential market. Developers are surpassed «pre-crisis» indicators. beginning to lift prices, because they are not Source: Knight Frank Research, 2011 ready to sell the current volumes at prices of 2009-2010. Work for all projects on the market At the market’s peak in 2008 the average price was started prior to the crisis and sales prices Not in all complexes on the primary market on the primary market was equal to $22,762 per were included in the economics of these projects was the growth in average prices facilitated sq m, and by the end of March 2011 this indicator that were higher than those seen in 2009-2010. by a change in pricing policies by developers. reached $23,084 per sp m. Growth for the quarter In a series of projects, pricing remained at according to totals equalled 10.7%, which is the levels of 2010, but thanks to a removal higher than the indicator for all of 2010 (in 2010 Currently, seeing the increased demand, of cheap supply average prices grew. average prices on the primary market grew 7.6%). developers are correcting prices by increasing The total value of sold apartments equalled them in preparation for a market entry at approximately $410 mln, which is almost half of those indicator levels included in the projects the total value of apartments sold during 2010. economics.

3 Q1 2011 ELITE RESIDENTIAL REAL ESTATE MARKET Moscow

L Savelovskaya M Rizhskaya en M Dynamo N in o Map of the gMnew projects v Sokolniki M ra o . Market pulse, TSP d s t +15,1% sk lo s y b a (Top Selling Projects)* A o y v d Barkli Park a . s Mendeleevskaya k k s M Ma . Prospekt Mira v Elektrozavodskaya y v o aM M Mk A

a s s t a . u r R M i Belorusskaya Sukharevskaya M M Baumanskaya Begovaya M M Komsomolskaya M Q1 2011 M M M Krasnye Vorota Mayakovskaya Tv Sretenskiy e Bulvar Ul. 1905 Goda r M M M skM Chekhovskaya MM Chistie Prudy a Sales in TSP as share in the y a M M s M total quantity of sales on the 62% t. M M Kitay Gorod M primary market Okhotny Ryad Pl. Revolutsii M Kurskaya Novy Arbat st. M Vistavochnaya M Borovitskaya . M Average prices of supply in 15,308 v. Arbatskaya hw M y A stov M sk M uzia TSP, $/sq m Mezhdunarodnaya ov Enth uz Smolenskaya M ut Kievskaya M Taganskaya K M Barkli VirginTretyakovskaya House Average prices of purchases 12,507 M Tag M M ans M M Marksistskayakaya s tst.. in TSP, $/sq m Kutuzovskaya M Marksistskaya Studencheskaya Burdenko st. 11 M Park Kulturi M G Average value of purchased ar Paveletskaya 1,870,000 de M nDobryninskaya M apartments in TSP, $ R Proletarskaya Frunzenskaya M ingM Trubetskaya MalayaOktyabrskaya st., 28, bld. 2 M M Sportivnaya . Volgogradsky Prospekt M v M Source: Knight Frank Research, 2011 M A y y k t T s n h in M a Dubrovka ird n Shabolovskaya y e a M T L r s a t n . In Q1 2011, the five projects in the primary s Vorobievi Gory p market with the highest sales were: M o Avtozavodskaya rt M Italyanskiy kvartal, Legenda Tsvetnogo, M R M Leninsky Prospekt in M Kozhukhovskaya Trilogiya, Sadovye kvartaly, Chetyre Solnca. g Growth in average price of TSP for the quarter Source: Knight Frank Research, 2011 equalled 15,1%. Vernadskogo Av.

Distribution of apartments sold In Q1 2011, sales were opened in four projects, on Trubetskaya Malaya st., 28, bld. 2, as well as a among which three projects that are entering residential complex located at Burdenko st., 11, in TSP by area the market for the first time: Barkli Virgin which changed its developer and opened sales House (Zachatevsky 1st lane, 8), Barkli Park after redevelopment of the project. (Sovetskoy Armii st., 6), a residential complex

5% The total area of apartments in complexes that have entered the market equalled about 35,000 sq m in Q1 2011, which is about 25% of the total supply in December 2010. 29% The change in the volume of supply on the primary market of elite residential real estate in Moscow '000 sq m 38% 165

160

155

150 28% 145

140

135

less than 120 m2 from 180 to 220 m2 130 from 120 to 180 m2 more than 300 m2 125 Source: Knight Frank Research, 2011 120 Sep Oct Nov Dec Jan Feb Mar *Five complexes with the largest quantities of sales 2010 2011 for the quarter comprise the TSP (Top-Selling Projects). The index is calculated quarterly. Source: Knight Frank Research, 2011

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SECONDARY MARKET

The Arbat area is occupying the leading position Prices of supply. Changes according to the number of deals on the secondary market as usual, which is Average prices, $/sq m Change in average prices, % facilitated by both a wide selection of secondary supply and a small assortment March 2011 Q1 2011 For March 2011 For Q1 2011 For 12 months on the primary market. During Q1 2011, only one complex held sales 22,225 22,248 0,2 -2,61 -9,7 on the primary market there % Source: Knight Frank Research, 2011 Arbat 23%

Zamoskvorechye 20% Distribution of sold apartments Distribution of sold apartments Ostojenka 13% by price by area Tverskoy 11% 2%

Yakimanka 7%

Chistye Prudy 7% 3% 11% 7% Plushikha 14% 20% 4% Sretenka 31% 13% Presnya 4%

Khamovniki 1% 17%

Prechistenka 1%

0 5 10 15 0 2 25 11% 34% Source: Knight Frank Research, 2011 44%

Apartments with a value of $2-4 mln prevailed in the structure of new supply for Q1 2011. The entrance of supply with less than $1 mln from $5 to 7 mln less than 100 m2 from 180 to 220 m2 a value of less than $2 mln practically from $1 to 3 mln from $7 to 9 mln from 100 to 140 m2 more than 220 m2 stopped from $3 to 5 mln more than $9 mln from 140 to 180 m2 % Source: Knight Frank Research, 2011 Source: Knight Frank Research, 2011 60 According to totals from Q1 2011, supply of deals: In Q1 2011 the quantity of 50 in the lower price segment continued apartments sold on the secondary market to contract and by the end of March the was 68% less compared to the analogical 40 share of such apartments equalled 11% period of 2010. of the total supply, compared to 15% at the 30 end of 2010. One can confidently say that As on the primary market, the share of deals at the given moment quality supply on the 20 with large apartments with an area of more secondary market begins at $2 mln. than 220 sq m was sufficiently great: In Q1 10 2011 31% of deals with similar apartments The volume of supply on the secondary were closed on the secondary market. 44 % 0 market of elite residential real estate grew of sold apartments were in budget $2-4 mln. less than $1-2 $2-4 $4-6 $6-8 more than 35.8% during Q1 2011. According to the $1 mln mln_ mln_ mln_ mln_ $8 mln condition at the end of March 2011, the New supply on the secondary market quantity of apartments for sale on the Total supply on the secondary market secondary market was about 820. Such a growth in supply is explained first and Source: Knight Frank Research, 2011 foremost by a decrease in the number

5 Q1 2011 ELITE RESIDENTIAL REAL ESTATE MARKET Moscow

MOSCOW. ELITE APARTMENT RENTAL MARKET

In Q1 2011, the geographic distribution of Rates*. Changes supply practically did not endure any changes compared to the analogous period of 2010. Average rental rates, $/month Change in average rental rates, %

The leading area is Tversky, which did not March 2011 Q1 2011 For March 2011 For Q1 2011 For 12 months change and whose market share equals 21% as before. Supply in Sretenky and Khamovniky 6,439 6,400 0,9 -5,7 -2,5 significantly grew. Supply decreased in Patriarshie Prudy and Arbat * Rates are offered for apartments with a total area of 80-150 sq m with high-quality furnishings

Source: Knight Frank Research, 2011

Tverskoy By the end of January, average rental rates for elite apartments ended their fall and in March 2011 a small growth was recorded Arbat $/month

7300 Chistie Prudy 7100 6900 6700 Presnenskiy 6500 6300 Zamoskvorechye 6100 5900 Sretenka 5700 III IV III II III IV III II III IV III 2008 2009 2010 2011 Khamovniki Source: Knight Frank Research, 2011

Patriarshie Prudy The distribution of supply on the rental The quantity of apartments up for rent market for elite apartments at the end decreased 6.2% according to totals from Ostojenka of Q1 2011 by area Q1 2011 Apartments Tagansky 3500 % 0 5 10 15 0 2 25 12% 3000 Q1 2011 25% Q1 2010 2500 Source: Knight Frank Research, 2011 17% 2000

Average rental rates decreased 5.7% in Q1 1500 2011 and in March 2011 reached $6,439 per month, which is 2.7% less than the analogous 1000 indicator from March 2010. 46% Moreover, in March 2011 a 9% increase in 500 rental rates was observed. Rates returned to the level of May 2010. The quantity of apartments offered for rent is moderately 0 from 80 to 100 m2 from 151 to 200 m2 I I I III I V I I I III I V I declining as usual, which leads to a small, 2 2 2009 01 2 0 2011 yet stable demand. from 101 to 150 m from 201 to 500 m Source: Knight Frank Research, 2011 Source: Knight Frank Research, 2011

6 OVERVIEW

Americas Office Real Estate Financial Markets and Investing USA Stanislav Tikhonov Evgeniy Semyonov Caribbean Partner Director [email protected] [email protected] Europe Warehouse Real Estate, Regions Valuation Services Belgium Viacheslav Kholopov Olga Kochetova Czech Republic Director Director France [email protected] [email protected] Germany Hungary Retail Real Estate Saint Petersburg Ireland Julia Dalnova Nikolai Pashkov Italy Director General Director Monaco [email protected] [email protected] Poland Professional Consulting Services Kyiv Portugal Konstantin Romanov Mikhail Yermolenko Romania Partner General Director Russia [email protected] [email protected] Spain Switzerland Elite Residential Real Estate Marketing, PR, and Market Research The Netherlands Elena Yurgeneva Maria Kotova UK Director Executive Director Ukraine [email protected] [email protected]

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