RostiksRostiks is among the several franchise restaurants that will be a part of the new business parks

To analyze the two billion dollar deal and its impact on the Russian real estate market, The St. Petersburg Times turned to Oleg Barkov, general director for the St. Petersburg office of Knight Frank:

“The market is very promising. It’s far from saturated, especially in the regions,” Barkov said. “But in Russia investors could face difficulties in acquiring land plots and obtaining the engineering infrastructure. If they have signed prior rent agreements with chain tenants, it could be easier for them to accumulate the necessary resources,” Barkov added.

Barkov considered operating through a joint venture and developing projects from scratch to be favorable. “They will not have to negotiate with local partners or bargain. In Russia, developers and land owners are not easy partners to negotiate or merge with,” he said.

According to Barkov’s estimations, about 100 foreign investment funds operate in Moscow looking for new projects and about 30 funds in St. Petersburg.

“Interest to the Russian real estate market has been steadily growing for the last three years. The problem is that investors find very few appropriate objects for investment,” he said.

Nevertheless, according to Knight Frank’s data, in the first half of 2007 Russia held first place in Eastern Europe in terms of foreign investment into real estate.

The largest western funds and banks including Morgan Stanley, Merrill Lynch, Goldman Sachs, Immoeast, Quinn Group, JER Partners, Rutley Russia and others have announced investment of millions of dollars into real estate in Moscow, St. Petersburg and other large cities in Russia.

According to Knight Frank, capitalization rates in Russia are still higher compared to European markets. Profitability of A-class office centers in Russia varies between 8.5 percent and 10.5 percent a year, of luxury shopping centers – between nine percent and 11 percent, and for logistic complexes – between 10 percent and 12 percent. Russia is ahead of Poland, the Czech Republic and Romania, where capitalization rates vary between six percent and eight percent a year.

According to The Financial Times, two weeks ago Deutsche Bank, AIG and the Redwood Group paid an estimated $450 million for a portfolio of industrial property in Russia. Earlier this month RBC news agency reported that Taller Capital will invest into a network of over 100 shopping and industrial areas in Russia and Ukraine. Located on major high-ways, the areas will combine industrial premises, warehouses, shopping and entertainment centers and hotels.

The company and its partners will invest about $100 million into each area, and the project is expected to be completed by 2014.

Sketches of a logistics hub at Moscow's Domodedovo International Airport
Source: LoneStar Ventures (www.lonestar.ru)

While Russia's natural resources still draw the most attention abroad, in the last several years major global investment banks have turned their attention towards investing in the real estate, financial services, and retail supply chain management industries in the Russian Federation. To read more about this trend, click on the links below:

Taking Stock of Russia's Growth

The Russian Construction Boom Continues

Truth and Beauty...And Russian Finance

Investing in Russia's Growth Sectors: Construction, Manufacturing, Retail Distribution