4/2019 REAL ESTATE MONITOR Magazine of the Association of European Businesses CAPITAL · OFFICE · RETAIL · WAREHOUSE · HOSPITALITY · HOUSING Contents Introduction Letter from the Chief Executive Officer 01 Letter from the Chairperson of the AEB Real Estate Committee 02 Moscow market overview Capital market 03 Retail market 06 Office market 10 Warehouse market 13 Hospitality market 18 Housing market 23 St. Petersburg market overview Office market 27 Retail market 27 Street retail market 28 Warehouse market 29 Publication name/ Published by/Учредитель: Chief Editor/ Release date/Дата выхода: Publisher’s address/ Наименование издания: Non-profit making partner- Главный редактор: 15 December 2019/ Адрес издателя, редакции: AEB Real Estate Monitor ship “Association of Y.S. Melnikova/Мельникова Ю.С. 15 декабря 2019 года 16, bld. 3, Krasnoproletars- (“АССОЦИАЦИЯ European Businesses”/ Publication volume and Cost/Цена: Distributed free kaya str., 127473, Moscow, ЕВРОПЕЙСКОГО БИЗНЕСА: Некоммерческое партнерство number/Номер выпуска: of charge/Бесплатно Russia/ Россия, 127473, Обозрение рынка “АССОЦИАЦИЯ 04, 2019 г. Москва, ул. Краснопроле- недвижимости”) ЕВРОПЕЙСКОГО БИЗНЕСА” тарская, д. 16, стр. 3 The “AEB Real Estate Monitor” is registered with The Federal Service for The information in this publication is not exhaustive. While all reasonable care Supervision of Legislation in Mass Communications and Protection of Cultural has been taken to prepare it, the Association of European Businesses accepts Heritage, Certificate registration ПИ № ФС77-24458/ СМИ “АССОЦИАЦИЯ no responsibility for any errors it may contain, whether caused by negligence ЕВРОПЕЙСКОГО БИЗНЕСА: Обозрение рынка недвижимости” or otherwise, or for any loss, however caused, sustained by any person that зарегистрировано в Федеральной службе по надзору за соблюдением relies on it/ Информация в данном издании не является исчерпывающей. законодательства в сфере массовых коммуникаций и охране культурного Несмотря на то, что были предприняты все меры предосторожности при ее наследия. Свидетельство о регистрации ПИ № ФС77-24458 от 23 мая 2006 подготовке, Ассоциация европейского бизнеса не несет ответственности за The opinions and comments expressed here are those of the authors and do наличие возможных ошибок, допущенных по невнимательности или другим not necessarily reflect those of the Non-profit making partnership “Association причинам, а также за любой вред, понесенный любым лицом, которое будет of European Businesses”/Мнения/комментарии авторов могут не совпадать руководствоваться данной информацией. с мнениями/комментариями учредителя публикации, Некоммерческого партнерства «АССОЦИАЦИЯ ЕВРОПЕЙСКОГО БИЗНЕСА» Introduction AEB Real Estate Monitor | 4/2019 Dear readers, Let me kindly present the fourth issue of the “Real Estate Monitor” in 2019. It contains data on the Moscow and St. Petersburg real estate markets for the third quarter of the current year. At the capital market we see a dramatic growth of investment volume, with the Moscow share drastically increased and the St. Petersburg share sharply declined. Frank Schauff Among major trends in retail sector is the rise in the number of international brands Chief Executive Officer, which entered the Russian market. Association of European Businesses As for the office part, it traditionally reviews office take-up, asking rents and key new projects. The warehouse market is marked by low share of speculative construction, and a high rate of take-up in regions. Comparison of average daily rates and occupancy dynamics at the Moscow hotels for the period of 2018-2019 is provided in the hospitality part. Finally, the housing market section comprises data on supply, demand, budget rates, and tenants’ profile. As usual, the St. Petersburg part traditionally covers average rents in the office market, vacancy rate in shopping centres, and volume of the warehouse market completions. I express genuine gratitude to members of the AEB Real Estate Committee for their activities. Valuable inputs provided for “Real Estate Monitors” on a quarterly basis are so much appreciated. Dear readers, as we are embracing 2020, I would like to wish everyone a Happy New Year! The coming year is remarkable for us, as the AEB will celebrate its 25th anniversary. Various tasks have already been accomplished due to enormous efforts and ongoing support rendered by member companies, and I hope that a myriad of other fruitful outcomes will be delivered in the future. AEB Real Estate Monitor | 4/2019 1 AEB Real Estate Monitor | 4/2019 Introduction Dear readers, The proportion of Generation Z in the market is growing. They are also technology- savvy, which means they will demand the increased use of high tech solutions in all real estate process, whether related to buying or selling an asset, or investing. Generation Z’s digital-native expectations are driving companies to innovate faster and compete on a digital rather than a physical landscape. Tatjana Kovalenko The biggest trends of last year were AI, IoT and big data. Smart homes and smart Chairperson of the AEB offices are now a reality, and only becoming more advanced in their capabilities. This Real Estate Committee, leads to changes in urban development as well. Deputy General Director, SENDLER & COMPANY In 2019, transformation to the new era of stagnation 2.0 is finished in Russia. Slow growth, redundant regulation, permanent lawmaking and campaigns to stimulate development manually are the main characteristics of the new cycle. The investment market is showing its first signs of revival. In addition, the Russian market is now more focused on internal investments. The net outflow of foreign capital is low, with only EUR 67 million leaving Russia in 9 months. Construction and real estate are still in the credit compression stage. Generation Z cares about their health, especially mental health, and is more stress- sensitive than previous generations. This emotional fragility affects their patterns. This stimulates developers to show an increasing interest in rethinking concepts and extending existing properties in all real estate sectors. For example, lower consumer activity stimulates retailers to search for new sales channels, diversify formats, introduce new technologies and collaborate with other market players. Since 1995, when Amazon shipped its first book out of a garage in Seattle, consumers have grown to embrace the “e-tail” lifestyle. In particular, millennials and generation Z are driving demand for goods and services to be delivered to their doorstep. This trend is not expected to stop, and e-retailers are quickly snapping up industrial-use buildings and land to be as close as possible to the consumer base they need to serve. To stay as close to their target markets as possible, e-retailers are also opening warehouses in urban locations and taking advantage of these densely populated areas’ built-in employee bases. We see such trends in Russia as well, where OZON, Wildberries, Lamoda and many other are continuing to develop their warehouses throughout Russia to be closer to their consumers. Please enjoy the following, and we’re looking forward to welcoming you at our Committee meetings and events! 2 AEB Real Estate Monitor | 4/2019 Moscow market overview | Capital market AEB Real Estate Monitor | 4/2019 Russia real estate investment market | Q1 2019 Russia real Russiaestate real investment estate investment market |market Q1 2019 | Q1 2019 RMoscowussia r marketeal es overviewtate RussiRinussivae sratmeal reale net se tmsatataertkeet iCapitalnves market,tme nQ3t 2019market inve• In Qs1 2019,tm the investmeent nvolumet inc remased by 32a% YroY tok USD979emt, the indicator reached its highest level for the last three years. • In Q1-Q3 2019, the investment volume increased by deals closed in other regions (outside Moscow and St. Pe- 36%• The sigYoYnifi ctoan tUSD inves tme2.5n billion,t volume Q3incr e2019ase at volumethe beginn reacheding of the yUSDear c an btersburg)e explained baccountedy a few large tforransa 9%.ctio ns which were postponed from • In Q1 2019,• I2018n t heQ1 i2019,tnov 2019.estme the nintv veosltmeument ivncolrumeeased inc breyas 32ed% b YyoY 32 %to Y USD979oY to USD979m, them ,i tndhei catindoicatr roera rcheeached itds ihtsig hheighests lte lveevel lf oforr t thhee lalast thrreeee y yeeaars.rs. 873 million, up 60% from Q3 2018 figure. • Prime yields compressed by 25 bps in all sectors in Q3 2019. • The signifi••c TheaThent sigionffivneceifistmec saecnttn ointr v voccupeosltmeumeinedt i ncv tohelrumee laseadie inc antgr e tpohasesitie be aont gith nnien beQing1gi 2019, nnof ingthe a o cyfc etouhearn yctieanarng fbcoaern 39e bxpe% laie oxpfned tlaihened btoyt albay fv eaow lfumee wla rlag. reRge etsir tansaderansantialcctiti o(laonsnsnd ww phloichts fworee rree sip pdeoostpnstptialono edned fr omfrom 2018 to 2019.• 2018dTheev e lt opmeooffice 2019.nt) asectornd retail occupiedfollowed, wit theh 27 leading% and 22 %position respecti vinely . Q1-Q3 As benchmarks for the market we consider Moscow prime • The office•2019,• s TheTheect o osrffih accountingoccupacere soecf St.itedor P occuptehete r forlsbeiadiedu r32%g tn hergem poleai adiofsitine ndontheg hpo igin hsititotal ,Q aon1t 232019, involume.% Q o1f 2019,athcecou c o Residentialanucntictnourgy’n sfti ovnro glu39 fmeo%r 39 oinf% yieldsQt heo1f 2019 ttheo tbetween alt ov tevalors lvuumeos l22ume 8.5-10.0%.% R .fe oRsire dethsideen ftialnutialll for y(la e(laar ndofficesnd 2018 ppllo.ts The ffoandr r Mos rre esishoppingsidecdeonwntial