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EVENTS SCHEDULE OF MOSCOW CITY GOVERNMENT EXPOSITIONS 12.03.2013 HALL SEA BREEZE SB01 10.30-11.00 OPENING EXPOSITION CEREMONY: «NEW MOSCOW – NEW OPPORTUNITIES» 11.00-12.30 PANEL DISCUSSION: «MOSCOW AGGLOMERATION DEVELOPMENT: NEW TRENDS AND OPPORTUNITIES» HALL RIVIERA R3103 10.00-10.30 OPENING EXPOSITION CEREMONY: «MOSCOW INVESTMENT PROFILE» 12.00-12.30 PRESENTATION OF THE INVESTMENT PROJECT «MIXED-USE CENTER «VODNIY» (MR GROUP) 12.30-13.00 PRESENTATION OF THE INVESTMENT PROJECT «COMPLEX DEVELOPMENT PROJECT OF MITINO MICRO-DISTRICT, SZAO» (PIONEER-GROUP) 13.00-14.00 PRESENTATION OF THE INVESTMENT PROJECT «RDI: SPACE FOR LIFE» (RDI) 15.00-15.30 PRESENTATION OF THE INVESTMENT PROJECT ZIL 15.30-16.00 PRESENTATION OF THE INVESTMENT PROJECT «ICE PALACE «ARENA OF LEGENDS» IN THE TERRITORY OF ZIL (TEN GROUP OF COMPANIES) 16.00-17.00 PRESENTATION OF THE INVESTMENT PROJECT «KOMSOMOLSKY DE LUXE APART-HOTEL» (DONSTROY)
13.03.2013 HALL SEA BREEZE SB01 10.00-11.00 PIONEER GROUP BRIEFING: «APART-HOTELS IN RUSSIA – AN INNOVATIVE PRODUCT FOR PRIVATE INVESTORS» 11.00-12.00 CONFERENCE: TOP REAL ESTATE TRENDS IN MOSCOW & THE REGIONS. ORGANIZED BY MOSCOW TIMES 12.00-13.30 PANEL DISCUSSION: INVESTMENTS INTO CITY INFRUSTRUCTURE DEVELOPMENT 13.30-14.30 PRESS-CONFERENCE BY DEPUTY MAYOR FOR URBAN DEVELOPMENT AND CONSTRUCTION MARAT KHUSNULLIN 14.30-16.00 PANEL DISCUSSION: TRANSPORT SYSTEM DEVELOPMENT – NEW OPPORTUNITIES 16.00-18.00 INVESTORS CLUB, V CANNES SESSION BY THE RUSSIAN GUILD OF PROPERTY MANAGERS & DEVELOPERS HALL RIVIERA R3103 10.00-11.00 PRESENTATION OF THE INVESTMENT PROJECT «MIXED-USE CENTER «SAVELOVSKY CITY» (MR GROUP) 11.00-12.00 PRESENTATION OF THE INVESTMENT PROJECTS «GOLDEN MILE PRIVATE RESIDENCE», «KARETNY PLAZA» (KALINKA REAL ESTATE CONSULTING GROUP) 12.00-13.00 PRESENTATION OF THE INVESTMENT PROJECT «LARGE-SCALE MIXED-USE DEVELOPMENT PROJECT TUSHINO 2018» (TUSHINO 2018, MOSCOW) 13.00-14.00 PRESENTATION OF THE INVESTMENT PROJECT «SHOPPING CENTER IN KUTUZOVSKI PROSPECT IN MOSCOW» (TPS REAL ESTATE) 14.00-15.00 PRESENTATION OF THE INVESTMENT PROJECT «RDI: SPACE FOR LIFE» (RDI)
14.03.2013 HALL SEA BREEZE SB01 10.00-11.30 SEMINAR: REARRANGEMENT OF INDUSTRIAL AREAS IN MOSCOW AS A NEW POTENTIAL FOR THE CITY DEVELOPMENT 12.00-13.00 SEMINAR: APARTMENTS TO BE LEASED 13.00-14.00 SEMINAR: THE ROLE OF PUBLIC-PRIVATE PARTNERSHIP IN URBAN DEVELOPMENT 14.00-15.00 ROUNDTABLE: INVESTMENT ATTRACTIVENESS OF APARTMENTS ORGANIZED BY URBANUS.RU | ARENDATOR.RU HALL RIVIERA R3103 10.00-11.00 PRESENTATION OF THE INVESTMENT PROJECT «LITERATOR.ELITE RESIDENTIAL QUARTER» (HALS DEVELOPMENT) 11.00-12.00 PRESENTATION OF THE INVESTMENT PROJECT «RDI: SPACE FOR LIFE» (RDI)
CONTENTS
DESTINATION MOSCOW Residential 14 While the luxury market soars to new heights, even small apartments in the city remain unaffordable to many
Logistics 23 Moscow sits at the hub of Russian distribution networks, which is fuelling demand for modern logistics facilities
Expanding Moscow 10 New business districts are emerging as part of the bold scheme to radically increase the size of the Russian capital
Offices 17 Moscow’s resurgent economy means TQDWUV ITQYVJ KP QHƂEG FGXGNQROGPV extends beyond the city centre Retail 20 New space cannot come online quickly enough for international and domestic retailers looking for stores in the Russian capital
Hotels 26 2013 promises to be a breakthrough year for international hotel brands in the Russian capital as the market offers opportunity across the range
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Moscow’s Mayor 8 Sergey Sobyanin is steering the capital in a new direction, with the aim of making life easier for both residents and developers
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The Big Picture 6 The real estate boom of a few years ago may be over, but Moscow is still setting new records in terms of volumes of investment and construction
Development Showcase 29 Moscow is seeing new development across the board. MIPIM News looks at a selection of the brightest and the best
DESTINATION MOSCOW – March 2013 – MIPIM News Special Report. Director of Publications Paul Zilk Director of Communications Mike Williams EDITORIAL DEPARTMENT Editor in Chief Graham Parker Technical Editor in Chief Herve Traisnel Deputy Technical Editor in Chief Frederic Beauseigneur Graphic Designer Carole Peres Sub-editors Clive Bull, Joanna Stephens Proof Reader Debbie Lincoln Contributors Chris Bown, Ben Cooper, Mark Faithfull, Steve Killick, Steve McCormack, David Sands, Ivan Stupachenko PRODUCTION DEPARTMENT Publishing Director Martin Screpel Publishing Co-ordinators Nour Ezzedeen, Emilie Lambert, Amrane Lamiri Production Assistant, Cannes Office Eric Laurent Printer Riccobono Imprimeurs, Le Muy (France) Reed MIDEM, a joint stock company (SAS), with a capital of €310.000, 662 003 557 R.C.S. NANTERRE, having offices located at 27-33 Quai Alphonse Le Gallo - 92100 BOULOGNE-BILLANCOURT (FRANCE), VAT number FR91 662 003 557. Contents © 2013, Reed MIDEM Market Publications. Publication registered 1st quarter 2013.
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The new landmark commercial building in Khimki, Moscow Opens February 2014 Mebe One Khimki Plaza is a world-class environment in which to do business, better. Designed by award-winning British architects John McAslan + Partners, the 19-storey business centre offers premium facilities and services including 24h concierge, a high-tech fitness centre, a café and restaurant, art gallery, helipad and free shuttle buses to the nearest metro stations. Within minutes of both Sheremetyevo International Airport (7 km) and the centre of Moscow (20 km), Mebe One Khimki Plaza provides direct access to international and domestic markets.
Mebe means better
Development Mebe Development, Moscow Construction Mebe Construction, Moscow Design John McAslan + Partners, London
Mebe One Khimki Plaza 25 Leningradskaya Street, Khimki, Moscow Region, Russia info@mebe-one.com www.mebe-one.com
Mebe 21 Stanislavskogo Str Building: 2 Floor 6 109004 Moscow, Russia Telephone +7 (495) 580 70 35 info@mebe-group.com
Exclusive letting agent Knight Frank, Russia Telephone +7 (495) 981 00 00 offices@ru.knightfrank.com
REAL ESTATE OVERVIEW
Moscow Calling The real estate boom of a few years ago may be over, but Moscow is still setting new records in terms of volumes of investment and construction. Now regarded as one of Europe’s most attractive destinations for investors, Ivan Stupachenko reports on the Russian capital’s journey through its heady teenage years into the more mature and stable market it has now become
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N THE early 1990s a Russian band, Gorky Park, achieved worldwide fame with the hit Moscow Calling. The song describes the unlucky guy who tries to get through to a phone operator and receives the answer that all lines are busy. Today he would have no such problem — all lines are open, as a call from Moscow may well mean a good business opportunity in real estate. Many professionals working in the property industry were teenagers when the song was popular in Russia, and now they are senior managers. Likewise, the Moscow real estate market has recently stepped up into another category: it’s no longer an emerging market,
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but a stable, rather balanced one. In terms of attractiveness to the investor, it is now ranked third in Europe, according to Denis Sokolov, head of research at Cushman & Wakefield Moscow. But in business the process of growing up depends not so much on time, but more on the conditions available. Moscow is lucky. It’s the capital of an oil-rich country, the most populous city in Europe, with an increasingly wealthy population, while at the same time it has an urgent need for modern facilities. No wonder Moscow’s getting calls from interested investors. There are a number of significant factors that have driven change and put Moscow
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into its current third place in Europe. It makes sense to keep them in mind as they are still dominating both the Russian economy as a whole, and Moscow real estate in particular. The key factor here is undoubtedly a strong rise in oil prices. Since 2003 prices for Russian oil have increased dramatically, hitting a record high in 2008. It’s the same story with other commodities such as gas, wood and metals, all of which have helped to boost the economy. The lion’s share of the nation’s budget comes from oil and gas, and Moscow is the first city to absorb petrodollars. Temporary declines like that of the 2008-09 crisis were the exception rather than the rule.
their attempts to replace an antiquated infrastructure with newly-built malls and offices would deliver good returns. Citizens welcomed the winds of change, and dealing with this urban transformation was seen as good business for Moscow, and to some degree it is. “No coffee, no beer, no cigarettes” from Moscow Calling can be translated into “no malls, no offices, no warehouses” in the language of the real estate market. “Moscow still lacks highquality facilities despite big volumes of ©iStockphoto.com/Dmitry Mordolff
Moscow is the centre for administrative and financial power and is home to the headquarters of almost all the big national corporations. The city has become a desired destination for young professionals from provincial regions — and even neighbouring countries — eager to make money and build careers in Gazprom, Sberbank or any of the other industrial and service giants. Moscow is home to think tanks, research institutes and nationwide investment companies. The population has been steadily increasing
“Some big deals have been closed already this year, the mood is optimistic” with the most recent official figures putting it at 11.5 million, and with numerous unregistered residents the real number of inhabitants is thought to be considerably higher. Retail turnover has consequently increased, and rose sharply in the mid-2000s. During this period of change Moscow’s real estate infrastructure was becoming obsolete and in many respects remains so. Soviet-style warehouses, shops and offices could not meet the standards of people who were travelling across the globe and increasingly expected a westernised lifestyle. A few years ago there was still a noticeable gap between supply and demand, and investors were sure that
Knight Frank’s Nikola Obajdin
construction over the last 10 to 12 years,” says Darya Afanasieva, associate director, strategic consulting at Jones Lang LaSalle, Russia and CIS. Another driving factor comes from the Russian logistics paradox. Because of the way customs clearance works, many shippers prefer to deliver their imported goods to the Moscow region, have them cleared there and only then transport them to consumers throughout the country. Hard to believe, but true: some goods are coming into Russia through the port of St Petersburg, passing through clearance procedures in or near Moscow and are then being sold in the shops of St Petersburg. This paradox
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has boosted the construction of logistics centres around Moscow, adding to high demand for warehouses. Thanks to petrodollars and high levels of density, coupled with the Kremlin’s ambitions to show the face of a new Russia, Moscow over the past 10 years has turned from a promising destination for investors, into a city with a well-developed infrastructure in terms of GLA, numbers of malls and vacancy rates, which amount to just 1% in retail. What it lacks most now is comfort for the residents. The city is widely known for traffic congestion and transport problems which have even become a frequent subject of anecdotes and jokes. But while the Moscow government seeks to keep the balance between investors and residents’ interests, some risks come from international commodity markets. Since the Russian economy strongly depends on the wealth of European consumers, the recent signs of global recession caused a slowing of growth rates in the final quarter of 2012. Output in manufacturing continued to give alarming signs in January with the Ministry for Economic Development issuing modest forecasts for 2013. The latest data in Europe, the US and Asia suggests that they will have a better year ahead, which offered hope for Moscow too, but this wave of optimism has not reached Russia yet. Prospects for real estate remain unclear, though experts express cautious optimism. Most say the market in Moscow will be stable this year without strong movement in rates. It may be that we are now getting to a point where the industry is no longer a teenager — less reactive to outside influences, and with a big appetite and demand for growth. “A negative outlook does not encourage investors, but what we’re seeing now is that there is no problem with deals. Some big deals have been closed already this year. The mood is optimistic, and we are awaiting growth in the market in 2013 with rates increasing at about 2%-3%,” Nikola Obajdin of Knight Frank in Moscow says. “The city provides higher returns on investments than many other European destinations, as well as stable demand, making it interesting for investors to work here.” Hopefully, Russia’s GDP will increase 3.6% this year — an encouragingly different outlook to that of the EU and US. Moscow is still calling.
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MAYOR OF MOSCOW Sergey Sobyanin, Mayor of Moscow
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New leadership brings a fresh approach $%34).!4)/. -/3#/7 s -!2#(
Moscow correspondent Ivan Stupachenko explains how the mayor is steering the capital in a new direction, with the aim of making life easier for both residents and developers N AUTUMN 2010, a major shift in Moscow’s urban and construction policy came with the arrival of the new mayor, Sergey Sobyanin. The role of mayor in the city is crucial and as soon as rumours about the resignation of the former mayor, Yury Luzhkov, began circulating, speculation began about the consequences of a change at the mayor’s office. Just six months after taking charge, Sobyanin imposed severe restrictions on construction in the downtown districts, an unprecedented decision. “We have restricted new construction downtown to bring the centre into order,” Sobyanin said. In his words, “Moscow’s traffic management is a collection of all the urban mistakes one can imagine”. Other initiatives of the new administration were in line with the ban. The general aim of the policy is to shape Moscow into a city that provides a comfortable quality of life for its residents, and for it to be no longer seen as just a destination for making money. The mayor insisted on the development of public spaces such as parks, and asked for Kremlin support in imposing big fines on lorries carrying goods through the city centre. At the beginning of March Moscow introduced a partial ban on lorries travelling inside the city, a move which may cause some problems for shopping malls attempting to provide on-time delivery of goods. “Moscow is changing its approach to urban development: from a city for business, it’s being turned into a space for comfortable living,” Denis Sokolov from Cushman & Wakefield says. But there is some hope that Sobyanin will actually help not only the residents, but investors as well. In early February, in one of his public speeches, he said that 2012 had been a record year in terms of newly built real estate. A total of 7.6 million sq m (of which 2.57 million sq m was housing) marked a 10% increase on 2011. And this record is likely to be beaten. The mayor says that construction volume will increase in coming years. Great potential lies in former industrial zones which, in Sobyanin’s opinion, are not being used effectively.
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There are some other positive signs for the market. The administration is on track to make the life of developers much easier in terms of bureaucratic procedures. The city’s Department of Urban Development delivers 17 services, 13 of which are now being implemented electronically, which should mean a considerable decrease in corruption. These services include, for example, design documentation and construction permits. On closer examination, Sobyanin’s activity is likely to be more of a positive for investors and residents than a negative. Another example is his attempt to simplify the procedures for putting new buildings into operation and connecting them to water and electricity systems. In early February, he ordered the city government to make these processes more transparent and unified, with the aim of reducing the time required for all the paperwork. If Sobyanin’s attempts succeed, it will ease the burden of bureaucracy and corruption currently faced by developers. “These initiatives are likely to improve the situation and resolve serious urban problems, but there are some doubts over it,” Jones Lang LaSalle’s Darya Afanasieva says. “What is important for investors is that urban policy must be transparent and reasonable. We hope that the government will keep this in mind.”
“What is important for investors is that urban policy must be transparent and reasonable” Darya Afanasieva, Jones Lang LaSalle
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Moscow City Hall
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EMERGING DISTRICTS
Pushing the
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boundaries A bold scheme to radically increase the size of the Russian capital puts decentralisation at the heart of Moscow’s future. David Sands reports on the new business districts that are emerging as part of the city’s ambitious development plans oscow, already one of the world’s biggest and most populous cities, is doubling in size. In 2011 the then Russian President Dmitry Medvedev proposed an audacious move to expand the city limits by having Moscow city authorities take over territories totalling 1,400 sq km from Moscow Region. The New Moscow Development Plan was recently published, taking in the Sherbinka, Troitsk, Leninsky, NaroFominsky and Podolsk districts south west of existing city borders. The enlargement is expected to attract some $250bn (€187bn) of investment. Two international architectural practices have been engaged: Antoine Grumbach et Associes for the development of the Moscow agglomeration and city; and Urban Design Associates for the construction of a new $15bn centre for the federal government totalling 4.5 million sq m in the Kommunarka area. New Moscow is not to be confused with Moscow-City, a 60-ha business centre, including a clutch of office skyscrapers, being built on the Presnenskaya embankment of the Moscow River, some 4 km west of Red Square, and just east of the Third Ring Road. Presently, only 250,000 people live in the territories that have been newly included
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ment will be planned more rigorously now.” He explains that expanding the city so radically is highly controversial and the Moscow administration is not yet completely clear about how it will use the new territories. “Sometimes they say government ministries will move here, then the government agencies say no, we are staying in the city centre. I think this kind of debate will continue for a couple more years.” Tom Devonshire-Griffin, head of capital markets and regional director at consultant Jones Lang LaSalle says the boundary expansion “makes a lot of sense in that it stands everything under the Moscow city authority banner as opposed to the Moscow Region body, which is a separate political base”. “It is being done correctly — putting in place new infrastructure such as metro lines and easing planning rules. There could also be tax incentives,” Devonshire-Griffin says. “A process of decentralisation has already started since the authorities placed a ban on new commercial development within the Garden Ring and the Third Ring in 2011, so offices will have to be built in new outlying areas.” Decentralisation is also likely to make rents more affordable. “Tenants have not fully understood the concept of decentralisation but their mindset is
into the New Moscow Development Plan, but around 2.5 million Muscovites are expected to relocate there in a planned 100 million sq m of new housing. In addition, there will be up to 10 million sq m of offices and up 1.2 million sq m of shopping. Moscow city authorities are bringing in additional planning powers. For example they have put up for discussion a proposal to reduce the notice period of compulsory land purchases for government use within New Moscow from 12 months to five months. According to Denis Sokolov, partner and head of research at Cushman & Wakefield Moscow, the expansion plans will shape Moscow’s commercial real estate sector: “The city has to address big changes in the property market. Everyone treats Moscow as a cash cow and all administrative efforts are focused on the city.” “It’s a very rich city and rents for offices in prime locations are around $1,000 per sq m, reaching $1,100 per sq m in some cases. Business development has been so chaotic and so no obvious office clusters Urban Design Associates’ masterplan for New Moscow have developed. New develop-
“The city has to address big changes in the property market. Everyone treats Moscow as a cash cow and all administrative efforts are focused on the city” $%34).!4)/. -/3#/7 s -!2#(
Denis Sokolov, Cushman & Wakefield
EMERGING DISTRICTS “Moscow infrastructure needs new investment and continual upgrading. This will happen over the next two to three years”
changing and there is a growing comprehension amongst them that this has to happen.” He points out the advantages for city planning: “It’s a very positive move because Moscow infrastructure needs new investment and continual upgrading. This will happen over the next two to three years.” Devonshire-Griffin says that the expansion could be seen as having a political aspect as it expands Moscow’s powers. “But one has to take the view that it is for positive reasons, such as speeding up the planning process, as opposed to being seen as a land grab by the city.” Lee Timmins, senior vice-president and managing director of Hines Russia, who has lived and worked in Moscow since 1993, calls the New Moscow Plan “groundbreaking and dramatic,” welcoming the authorities’ associated moves to consult the investment community. “There is a lot of discussion about master planning the transportation, office clusters and their end uses, also retail and housing provision. The new mayor is very different from the previous one in that he is very will-
Tom Devonshire-Griffin, Jones Lang LaSalle
ing to get feedback and to address the balance between the needs of the city with the demands of the investment community.” International shopping centre developers, too, recognise the potential of New Moscow as the supply of retail space in Moscow already remains significantly below the figures of other European cities and there is much catch-up potential. Austrian investor Immofinanz Group has four high-quality shopping centres in Moscow, including Golden Babylon Rostokino, opened in November 2009 — the group’s most profitable shopping centre within its European portfolio. According to group spokeswoman Bettina Schragl: “The Moscow real estate market and its current development, including new urban planning and spatial use concepts, is always interesting.” The group wants to assess the new sites’ accessibility and catchment before planning development in the new location. In the mid-term the group is also looking to add residential projects to its development portfolio in Russia.
THE STATE is providing more than €1bn of funding for the Innovation Center at Skolkovo in the Odintsovsky district of Moscow Oblast, 2 km west of the MKAD ring road. Work is under way on a high-tech business area to encourage science and technology companies to locate at the complex. The authorities have granted a variety of tax incentives and special workers’ residential permits to build a highly skilled tech employment hub. A new highway has opened connecting Skolkovo to the MKAD and new rail connections are being built, giving a 40-minute journey time from central Moscow via Belorussky and Kiyevsky Terminals. A link to Vnukovo International Airport is also planned. The main elements of the Innovation Center are a university and a techno-park but it will also feature a congress centre, offices, laboratories, and retail provision. In all the Skolkovo project will cover roughly 400 ha and have a permanent population of 21,000. Employees, including commuters from Moscow and surrounding regions, will comprise about 31,000 people.
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PIK GROUP’s Buninsky project is a largescale residential scheme of affordable housing with a total area of about 1 million sq m on 128 ha in New Moscow, close to the Kommunarka and South Butovo residential areas. The site is 4 km south west of the city’s main ring road MKAD, and along the Kaluzhskoye highway. Spokeswoman Natalia Ivanova says: “We think that strategically the location is a very good prospect, and when the plans for transport and infrastructure development are completed, it will be one of the best parts of New Moscow.” Russia’s Sberbank will provide PIK with finance for the first phase of Buninsky, which will also include all infrastructure such as schools, kindergartens, parking, commercial premises and retail centres. The housing developer plans to complete the first four buildings, 60,000 sq m of the 580,000 sq m initial phase, this year.
RESIDENTIAL
The homeowners’ revolution
As the Russian capital adapts to a postSoviet system, Muscovites are getting used to the idea of buying their own property. But with prices still rising, even small apartments in the city remain unaffordable to many. Steve Killick surveys the state of the residential market
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HAT a difference a few years make. Back in 1988 Russia was still labouring under the theory that is often attributed to Karl Marx, namely that ‘property is theft’. And despite the fact that the expression came from the French philosopher, PierreJoseph Proudhon, property in Russia could not be owned privately. Then came the collapse of Communism in 1989 and things started to change. In 1992 post-Soviet Russia embarked on a massive privatisation scheme that saw state-owned housing given to existing occupiers, creating a nation of homeowners overnight. Over the last decade the world has seen a property revolution in Russia, and particularly in Moscow, with some of the most eye-watering transactions at the top end of the range and an unprecedented escalation in prices. Moscow is now one of the most expensive cities in the world with many Muscovites unable to own a property because of the high prices. Young people throughout the country are remaining at home with their parents as they cannot raise sufficient finance — an experience Russia now shares with many parts of Western Europe. From 2000 to 2007 the price of secondary housing in the Russian capital rose by a staggering 589%, with the prime sector leaping by 362% over the same period. The average price of an apartment in the best areas of Moscow now costs between $14,700 and $20,040 per sq m. Over the same period rents have also been surging with city centre apartments costing between $53.45 and $62.80 per sq m. However, since the economic crisis of 2008 when Russian oil prices went through the floor, rents and prices have slowed. This comes as a relief to beleaguered Muscovites, but it still leaves property unaffordable to many. Indeed, research released by Savills during 2012 still showed Moscow as the second-ranked city in the world when it came to fastest-growing house prices. In the 12 months to October 2012 Moscow house prices have grown a further 5.5%, with only Hong Kong ahead of that, showing a rise of 7.4%. Little wonder then that of all the residential prop-
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erty being built over the vast country that is Russia, over 10% of it — some 6.89 million sq m — is being built in the province of Moscow. Recent schemes include the 80,000 sq m project Vedis Group has been building in South West Moscow, while developer PIK started on-site with its Mironovsky project located close to Izmailovsky Park and Semenovskaya and Partizanskaya metro stations. The scheme will provide a total of 30,000 sq m of housing on 2.6 ha. “The problem is,” says Kristina Tomilina, head of in-town sales at IntermarkSavills in Moscow, “that with sales prices continuing to rise the only housing option most people can afford is leasehold, and even this is extremely expensive if you want to be in one the central areas of the city. Many of our clients are looking for somewhere small and accessible to their work during the week and then leave for their main residence outside Moscow.” When Tomilina talks about property in Moscow she is referring almost exclusively to apartments as a house or townhouse in the capital is extremely rare and those that do become available go for astronomical prices to the Russian super rich. Most apartments are small, typically between 50 and 150 sq m. One-bedroom apartments make up little more than 3% of the city’s total supply, and the idea of having en-suite bathrooms is reserved very much for the luxury end of the market. Indeed some of the older blocks dating from the days of Communism have scruffy entrances and common parts, plus a primitive pipe system that does not allow re-plumbing to provide extra lavatory and bathroom facilities. And while there has been a steady stream of new property coming to the market, Tomilina says that developers keen to cash in on the housing boom in the city are currently struggling in the mid-market sector. “Prices are still too high for many, many people,” she says, “especially the young first-time buyer. There are very many new properties that came to the market last year that are still available. Landlords have to decide whether to take a big drop in the asking price — 10% or more — or to leave the property empty. In this sector there is a lot of room for negotiation.” It is difficult for many brought up in the West to appreciate quite how alien a con-
RESIDENTIAL “Landlords have to decide whether to take a big drop in the asking price — 10% or more — or to leave the property empty”
cept even the most basic aspects of buying a home are to many Russians. Negotiation for many is a new experience and house hunters have struggled to embrace the idea of a mortgage, with some older Russians aghast at using a system that smacks so much of western, and in particular, American capitalism. And at the cheaper end of the mid-market range westerners would be surprised at quite how basic many of the apartments are, especially in the leasehold sector. Dishwashers are a rarity and, while a washing machine may be provided, it is unusual to have a separate tumble dryer. Moscow also has a centralised heating system that is controlled by the local authority. Depending on the temperature the heating will, typically, be switched on in October and then be turned off again the following May, irrespective of whether the occupiers are young and fit, or old and frail. The most staggering thing to Western eyes about the Moscow property market is the huge gulf between where most people live and the accommodation a handful of super-rich oligarchs occupy. During the depth of the 2008 economic crisis, when banks were collapsing, markets crashing and consumer confidence was at rock bottom, a Russian oligarch paid $99m for a townhouse within a stone’s throw of the Kremlin. And the Moscow agency of Knight Frank expects the number of Russians worth over $100m to soar over the next five years. With many of the existing oligarchs appointed by the state it is to be fervently hoped that the disparity between the new rich and the existing poor does not widen further. The last thing Russia, and Moscow in particular, needs is to endure another period of social upheaval.
Kristina Tomilina, IntermarkSavills
Etalon City
Kvartstroy’s Bulatnikovo project
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OFFICES
Investors join the office party Ahead of the pack, Moscow’s resurgent commercial property market is key to the capital’s post-crisis recovery. Ben Cooper reports on the robust growth in vwVi `iÛi « i Ì Ì >Ì iÝÌi `Ã beyond the city centre
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The Mebe One Khimki Plaza development, currently underway on the outskirts of Moscow
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O LOOK at Moscow’s development pipeline you wouldn’t know that the country — and the world — is still limping through the worst economic crisis in living memory. Where most of Europe is still facing flat growth and investment inertia, the Russian capital is surging ahead. Stifled for most of the twentieth century, Russian commercial property, and the economy as a whole, only really became a serious prospect for investors 10 years ago. With the market still running to catch up, Moscow, the hub of all activity in Russia, is at the heart of the action. The whole story is nicely reflected by what is going on in the Moscow office market, which attracts 40% of all investment in the city. There’s no doubt that the economic crisis did serious damage to the sector, but estimates of 700,000 sq m of new space due this year alone speak for themselves. Nikola Obajdin, head of office property at
OFFICES
Knight Frank Moscow, says: “The crisis of 2008/9 had a big impact on projects in the Moscow market. They were frozen and they’re only just starting to recover. We expect this year there will be 20%-25% more development than in 2012.” In 2012 around 550,000 sq m was completed, so an estimated increase in production this year of nearly a quarter is phenomenal, given how hard the rest of Europe is finding things. And crucially, it’s not just that development is increasing — vacancy rates are decreasing at the same time. They aren’t anywhere like the negligible levels you see in the industrial sector (offices are currently at around 12.5% for class-A developments and 14.5% in class-B) but they are a significant improvement on even three years ago. “The office market is pretty stable at the moment and take-up was good in 2012,” Obajdin says. “In 2009 it went up to 25% so it’s recovered by 10%.” Another big change, he says, is the attitude of the whole market, both in the occupiers and the developers. Spooked by the severity of the crisis, he says in 2013 everybody is taking a far more circumspect approach. “It’s become much more professional. Developers are much more cautious than they were in 2007. Nobody wants to spend more than they need to and they’re much less hurried.” And on the tenant side, he says, while there is clearly demand as the falling void rates show, it’s a much more considered approach, but a positive one. “We’re trying to cover all requests from tenants,” he says. “They’re not just taking what is on offer to them. They understand what they can get from the market and their requests are more detailed. At the end of the day this is a good thing. We have a more professional market and much better structured agreements.” This factor is partly because rents are still relatively high given the void rates, says Mark Pollitt, head of strategic agency in the
“We expect this year there will be 20%-25% more development than in 2012” Nikola Obajdin, Knight Frank Moscow office group at Cushman & Wakefield Moscow. But, he argues, this is keeping everybody’s feet on the ground. “They’re moving forward each year with demand. It’s allowing everybody to plan a bit better.” The key trend for anyone with an interest in Moscow offices, Pollitt says, is the continuing decentralisation of development. Where at one time everything happened inside the MKAD, most of it is now happening beyond the ring. Hugely complex and congested roads have been a source of frustration for years in Moscow, but until recently there was no solution. “There have always been horrendous traffic problems in the centre of Moscow,” Pollitt says. “But the authorities have realised that if they keep giving office development permits in the city centre it would make the situation worse. Developments are being encouraged on the outskirts of Moscow. Now that there are quality grade-A buildings on the third transport ring and outside businesses see those as acceptable locations.” Typical of these new decentralised developments is the Mebe One Khimki Plaza business centre, 20 km from the centre of Moscow, which is set for completion in 2014. “There has been a major decentralisation trend in commercial development in the
Russian capital and new business hubs are being created in the rapidly growing commuter cities on the outskirts,” Mebe president Mustafa Bilek says. “With the government planning to double the size of the city in the next 20 years, developers like us have increasingly been looking for sites outside Moscow’s historic city centre.” As Moscow grows, so must the transport infrastructure, and while it has not caught up yet, the Moscow government is busily extending the old Metro network to the outskirts to connect it all together. But without investment none of the opportunity will be fulfilled. And at the moment that is still very much the business of Russian companies. Figures suggest that 82% of all investment in Russian real estate comes from domestic sources. And while this figure might not completely reflect reality given how much of that is underwritten by international funds, it is still very telling. Jones Lang LaSalle’s head of capital markets for Russia and CIS Tom DevonshireGriffin believes that more international investors could and should be looking at the market, especially Moscow. While seeking home-grown expertise is, he says, clearly a good move, there are also
“With the government planning to double the size of the city in the next 20 years, developers like us have increasingly been looking for sites outside Moscow’s historic city centre” $%34).!4)/. -/3#/7 s -!2#(
Mustafa Bilek, Mebe
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many misconceptions about the market that investors should ignore. “You have as much protection being a foreigner as being a local; foreigners are encouraged. But having said that there is a lot of red tape, and it’s not as streamlined as other markets, so having local partners can make the process much easier and smoother.” It’s what Obajdin describes as a “cautious but active” time for Moscow, and Russia as a whole. Nobody will pretend that confidence has completely come back, and in today’s world of economic uncertainty, there is no telling what might be around the corner. But the facts speak for themselves: Moscow is a city with high hopes of long-overdue expansion and reinvigoration. The property industry is playing as much of a part in this as any other sector, and one thing that is certain, even in this climate, is that opportunities aren’t going spare.
ÃV Ü vwVi V ÃÌÀÕVÌ -000 sq m
ÃV Ü V >ÃÃ Ƃ "vwVi Ài ÌÃ Annual rent (US$/sq m)
1,960
2000
1200 1,090
1000
938
900
1,468
1500
800
1,220
717
760
790
2011
2012
820
840
710
1,100
640
600
1000 783
738
400
500 200
0
0 2008
2009
2010
2011
2012
2013(forecast)
2006
2007
2008
2009
2010
- ÕÀVi\ ÕÃ > E 7> iwi `
Source: Astera/BNP Paribas Real Estate
ÃV Ü½Ã Ì « £ä vwVi i>à } `i> à Óä£Ó Tenant GazpromTsentrRemont
26,062
Building Gazoil City
Merlion
16,598
Kubik BC
EEK Novartis
2013 2014 2015 (forecast) (forecast) (forecast)
sq m
16,028 15,934
Vivaldi Plaza Alcon BP, bld A (Phase I)
Russian Railways
8,811
RWM Megapolis
GazTechLeasing
8,589
Leipzig Fashion House BC
EEK
6,849
Yakovoapostol’skiy BC
BDO Unicon
6,322
Preo8
AST Izdatelstvo
5,867
Imperia Tower
Ingosstrah
5,578
Staropetrovsky
- ÕÀVi\ ÕÃ > E 7> iwi `
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RETAIL
Capital plans AMMA’s Avia Park
Retail development has been reignited in Moscow but the new space cannot come online quickly enough for retailers looking for stores in the Russian capital. Mark Faithfull reports
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oscow is not only the jumping off point for many retailers new to Russia but a growing European retail powerhouse, having survived the economic jitters in the immediate aftermath of the 2008 financial crash and the subsequent slowdown in development that followed. While international money was undoubtedly spooked by the perceived risks of investing in Russia, local banks and equity have fuelled a renewed, albeit slower
M
pace of property expansion which has resulted in negligible store vacancies across the prime shopping centres of the Russian capital. Currently, Moscow has a 24% share of the total Russian retail stock, with 123 modern retail complexes (shopping malls, mixeduse complexes, outlet villages) with a total GLA of 3.6 million sq m, according to advisor Cushman & Wakefield. The imbalance of supply and demand has also made Moscow an expensive place to do business: the latest research by advisor CBRE puts Moscow ninth in the global top 10 of highest rents for prime shopping streets for the fourth quarter of 2012, at €6,031 per sq m. An influx of new retailers is being matched by the potential influx of far more visitors. Russia hosts the Winter Olympics in 2014 and the football World Cup in 2018 and the Russian government has committed to doubling airport capacity in Moscow, while Sapsan high-speed trains will operate on the Moscow-St Petersburg and Moscow-Nizhny Novgorod lines as part of infrastructure improvements to link host World Cup cities. Undersupply of retail space is encouraging more stalled schemes to unlock, although strict planning controls are limiting where these can be located. Last year AMMA Development received GPZU (urban construction permits) for its shopping, entertainment and office complex Avia Park, with a total
leasable area of 252,000 sq m. The core of the project is its retail component, which will feature an extensive network of ‘streets’, and anchor tenants include a hypermarket, a DIY store and a sports retailer. Building works by Renaissance Construction started in the autumn, with opening planned for the fourth quarter of 2014. Jones Lang LaSalle is the leasing agent. AMMA is also developing another project on Moscow’s outskirts — the Reutov Family Mall, with a GLA of 41,000 sq m. The opening is planned for the third quarter of this year. Meanwhile, Vegas Crocus City is being built at satellite city Crocus City on Moscow’s MKAD ring road. The 230,000 sq m project, with a GLA of 100,000 sq m, is slated to open by the end of 2013 and will feature themed zones, including Times Square, Rockefeller Center and Fashion Avenue areas. Vegas Kuntsevo, comprising 231,000 sq m and a GLA of 113,000 sq m, will be built at Kuntsevo area at 56 km on the MKAD and will open at the beginning of 2014. Developer LLC MIRS is to open its Columbus project, a 277,000 sq m shopping and entertainment centre, in November 2014. The project is situated on Varshavskoe Shosse, between the third Transport Ring and MKAD on the way to New Moscow, and will include 300 shops and more than 25 restaurants. Vodny shopping and entertainment centre,
Moscow: Retail real estate 2007 2008 Total stock (1,000s sq m)
2009
2010
2011 2012
1,893 2,272 2,850 3,252 3,449 3,579
New construction (1,000s sq m) 219
379
578
402
197
152
Vacancy rate (%)
1.0
3.0
5.0
2.1
0.4
0.35
Prime rents ($ per sq m)
3,125 3,750 2,500 2,600 2,700 3,800 Source: Cushman & Wakefield
“A lot of the planned projects were put on hold, but late last year they were reinstated and work began” $%34).!4)/. -/3#/7 s -!2#(
Maxim Karbasnikoff, Cushman & Wakefield
RETAIL “Growth of competition and enhancement of online trading will make many operators correct their marketing strategies and use new tools for attracting potential clients” Fashion House’s designer outlet
Alexey Filimonov, Astera
Sombrero shopping centre
developed by MR Group, is to open in Q2 2014 and at 30,000 sq m GLA the shopping centre is part of a large-scale mixeduse scheme, including offices and a hotel. The retail includes a hypermarket, multiplex cinema, food-court, cafes and restaurants. Propping up Moscow’s designer-label reputation, a new luxury-retail offer will also arrive at the Hotel Metropol, with a GLA of 4,000 sq m for 17 exclusive boutiques opening by the summer. Maxim Karbasnikoff, head of retail in Russia, Cushman & Wakefield, says: “A lot of the planned projects were put on hold, but late last year they were reinstated and work began. Because of the construction time, that means we will have to wait for space to come on line but from 2014 we should start to see many of these projects open.” Some activity has come to the market. Sombrero, a local shopping centre to the south of Moscow in the district of Chertanovo, opened at the end of June last year. The 17,300 sq m, three-level shopping centre with a GLA of 6,200 sq m is home to an O’Key Express supermarket, Ile de Beaute, ’Stin, Gloria Jeans, Incanto, Henderson and children’s goods store Deti. Debenhams opened its first outlet in Russia with IKEA at the MEGA Belaya Dacha
mall in Moscow, debuting with a 3,500 sq m store in September. Hakan Nilsson, head of leasing at IKEA Shopping Centres Russia, says the Swedish furniture giant is also looking to freshen up the tenant mix across its estate, and to give its schemes more of a “fashion feel”. DIY stores will now be put in separate big boxes next to the centres. Alexey Filimonov, general director of Astera, an alliance member of BNP Paribas Real Estate, believes that many chain-retailers will maintain their expansion pace in 2013. “Growth of competition and enhancement of online trading will make many operators correct their marketing strategies and use new tools for attracting potential clients, for instance, social media,” he says. The lack of supply is also spurring fresh formats, such as Fashion House’s designer outlet, which is due to open in May. Meanwhile, US real-estate developer and investor Hines and local developer Belaya Dacha opened Outlet Village Belaya Dacha in August 2012, with the first phase of construction valued at $100m. The second phase, which will include more stores and a cinema, will bring the total to $250m. That new-build time lag has encouraged others to look at acquisition opportunities and following approval from the Rus-
$%34).!4)/. -/3#/7 s -!2#(
sian antitrust authorities, the purchase of the remaining 50% of the Golden Babylon Rostokino shopping centre by Immofinanz Group was finalised last year. The Golden Babylon Rostokino was developed as a joint venture with Russian-based Patero, and opened in November 2009. The 168,000 sq m GLA shopping centre is located in the densely populated Sviblovo district of Moscow. In May last year Immofinanz Group also acquired the remaining shares in the GoodZone development project from its jointventure partner. One of the largest retail projects in the city, it is the second largest shopping centre under development by Immofinanz Group and is currently under construction on Kashirskoe Shosse in the southern district of Nagatino-Sadovniki, another densely populated area of the capital. Indeed, CBRE figures last year showed that Moscow had overtaken Berlin as the number-six city in Europe for property investment. Christopher Peters, director of research at CBRE in Russia, says: “With the onset of the financial crisis in Q3 2008, foreign investors largely abandoned Russia. Once foreign investors recover their appetite for Russia, we can expect Russia’s place in this table to rise further.”
LOGISTICS
ŠiStockphoto.com/woraput
Moscow’s dynamic warehouse growth
The emergence of post-Soviet Russia has heralded a new, commercially driven logistics market, with Moscow at its centre. Ben Cooper reports on the rapid expansion taking place in and around the Russian capital
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LOGISTICS ith 2.8-4.6 million sq m of fresh logistics space due in Moscow within a maximum of five years, it’s fair to say that it’s a hungry city with a healthy supply. Decades of underinvestment by a Soviet government with little interest in logistics as anything but a functional necessity meant it simply didn’t exist as a true commercial asset even 10 years ago. With the dawning of the new Russian system a new market was born, and now, says Viacheslav Kholopov, director of industrial at Knight Frank Russia and CIS, there is much to do. “Warehouses became a mass product from 2004,” he says. “It’s one of the newest commercial markets in Russia. As of 2004 we started seeing speculative development. We started seeing rapid development and it still continues. But we’re still quite far away from Europe in terms of quantity of warehouse space per capita.” There is around 12 million sq m of warehousing and logistics stock in Russia, and some 5 million sq m of it is class-A space, mainly concentrated in Moscow. Despite the tremendous rates of growth and investment seen since the market caught on to warehousing, even Russian warehousing couldn’t escape the sudden crisis in 2008, especially in retail. “In 2008 we saw a rapid change in the market,” Kholopov says. “Retailers started experiencing difficulties that influenced the market quite significantly. As soon as the crisis hit, the rental rates went down by 30% and vacancy went up to 20%.” But now, he says, the market has already recovered and is once again thinking big. “2012 was the best in the history of the market in terms of take-up. We’ve reached pre-crisis levels in terms of demand and rental rates. Finally we’re getting to where we are supposed to be. There are big deals going on and we’re close to zero vacancy rates in the Moscow region”. This is not surprising when you realise quite how much Moscow dominates the world’s largest country. In 2012 figures suggest 82% of all warehousing and logistics deals were done in Moscow, with 7% in the second city, St Petersburg, and the entire rest of the country claiming the other 11%. Moscow always gets the lion’s share of the deals, and also benefits from the hugely outspread nature of Russia, particularly when it
W
comes to logistics. With such a mammoth task co-ordinating stocks and supplies to such a vast area, the centralised hub becomes even more important. “The country is so huge that you have to have a lot of stock in transit at all times,” says Egor Dorofeev, head of warehouse and industrial at Cushman & Wakefield in Moscow. “You need to have around two days worth of stock in transit. You can’t supply everything from Moscow, you need centres around Russia, but it’s still very concentrated in Moscow. The transport routes all go from Moscow so the first thing companies do is set up there.” But in transport and logistics Dorofeev says there is still plenty to do if Russia is going to realise its potential. “We are years behind in terms of transport infrastructure. There is an effort to catch up now and not make the mistakes of the past.” While Russia is hugely centralised around its capital, Moscow itself is decentralising. A combination of factors is making development on the edge of the capital more and more logical, and commercially viable. There is actually a huge amount of ware-
“There are big deals going on and we’re close to zero vacancy rates in the Moscow region” Viacheslav Kholopov, Knight Frank Russia and CIS
Moscow Class A Warehouse rents $ per sq m per year
150
140 132
130
120 105
135
135
135
2011
2012
2013(forecast)
110
90 60 30 0
2006
2007
2008
2009
2010
- ÕÀVi\ ÕÃ > E 7> iwi `
$%34).!4)/. -/3#/7 s -!2#(
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housing space in Moscow already, but almost all of it was built under the old government and is very far from satisfying modern requirements. “There are lots of the old Soviet buildings in Moscow still being used,” Kholopov says. “People are moving out of the space and a lot of it is being redeveloped. But a lot of it will just be torn down.” One of Moscow’s universally recognised drawbacks is the traffic problems in the city centre. As a measure to ease this, the Mayor of Moscow Sergey Sobyanin has just brought in a controversial ban on trucks inbound and outbound from the centre during daytime hours. While this will certainly ease Muscovites’ tensions on the road, it makes future citycentre development on a large scale much trickier. The ban will mean that supplies will have to be brought to the edge of the city centre and dropped off at distribution centres and taken by smaller vans into Moscow. Inevitably developers will look outside the centre to avoid this hassle, which is just what the city’s planners are hoping. The New Moscow is the city outside the MKAD, where demand for new space across all real estate sectors is the real boom story. “It’s all being driven out of Moscow by the truck ban and other factors,” Dorofeev says. “All that space is occupied at the moment so additional demand will be outside the city.”
Office, residential and retail developments are cropping up all around the edges of the city, and warehousing and logistics is becoming more and more crucial. Warehouses and distribution centres are greatly in demand, so great in fact that they can’t be built quickly enough, Kholopov says. “We are leasing all stock before it’s completed. Moscow is still a really healthy market and we don’t expect that to change in the next couple of years. It’s a great market for developers. You’re looking at rental of $135-$140 per sq m per year.” In fact there are many who wonder why, with a less than 1% vacancy rate and such attractive returns, more investors, domestic and international, aren’t grasping the opportunity. The door is open for developers to walk into Russia and get set up with some cheap and highly lucrative warehouse property, particularly in the New Moscow. “Warehousing is massively undersupplied,” says Jones Lang LaSalle’s head of capital markets for Russia & CIS, Tom DevonshireGriffin. “Demand will outstrip supply this year. It falls between the cracks. Some investors don’t understand it as a sector. It’s not ‘trophy’ enough for some of them. The Russia market is totally undersupplied and the concern is where’s the growth going to come from?”
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“The country is so huge that you have to have a lot of stock in transit at all times” Egor Dorofeev, Cushman & Wakefield
HOTELS
©iStockphoto.com/KL!K
Hotels deliver five-star returns With growing demand for accommodation in Moscow, it promises to be a breakthrough year for international hotel brands in the Russian capital. Chris Bown reports on a market offering opportunity across the range
F
or the last few years, Moscow has had the distinction of topping charts for the most expensive hotel accommodation in the world. The city’s transition from communist heartland to capitalist playground is well advanced, and as a result, the demand for hotel accommodation from visiting business people remains strong. For international hotel operators, however, the challenge has been finding suitable development partners to help deliver the quality of buildings they like. There are the added complications of clearing property title, and obtaining development permission, in a city where rules, regulations and customs may be very different from Western Europe or the US. The city had 15,275 hotel rooms in mid-
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2012, according to research by Jones Lang LaSalle Hotels, with a further 5,000 rooms to be delivered into the market by the end of 2015. Visitor numbers dropped due to the recession in 2009, but have since recovered strongly with a 20% rise in 2010 and 14% increase in 2011. Room rates have been driven up by the demand, and will remain robust, according to Christoph Harle from Jones Lang LaSalle Hotels: “The recent expansion of supply will make it more difficult for hotels to increase rates at historic levels, but the profitability of assets remains far healthier in Moscow than in other markets, driven by the city’s relatively low cost base.” Demand remains dominated by business travellers, but the city authorities are work-
ing to improve Moscow’s attractiveness to leisure visitors with recent steps easing the requirements for tourists to obtain visas. “The Moscow hotel market remains one of the strongest in the world in terms of achievable results and still offers much in the way of development opportunities for hotel investors,” David Jenkins of Cushman & Wakefield Hospitality says. During 2012, four hotels changed hands in the city, representing deals totalling $550m. Among these was the iconic Metropol which was auctioned by the city authorities as part of their privatisation plans, and bought by the owner of the Azimut chain; and the Moscow InterContinental, which changed hands for $110m. “With still less than 35% of total Moscow available hotel rooms branded there is still huge scope for growth of branded hotels in the city — especially at the economy level,” Jenkins says. “Occupancies continue to grow and we believe that 2013 will see a continuation of the positive trends seen in the past two years.” “There is definitely a demand for the twostar and three-star hotels to come in, but there’s still a market for the high end,” says Sean Clifton, an architect with practice Jestico & Whiles, who works in Moscow. As a frequent visitor to the city, he says: “It’s really hard to find a decent hotel.” The international brands are making headway this year. “There are more than 10 new branded hotels expected to open in 2013,” Jenkins says, which is a considerable growth on the previous year’s total of five. “But the majority are non-central. We will see some interesting new openings with the Novotel and Marriott and some new supply at Vnu-
Key Hotel Trends in 2012 s Luxury Hotels — flat since 2011 s Upper Upscale Hotels — almost 20% RevPAR growth, mostly through occupancy s Upscale Hotels — almost 10% RevPAR growth, combined growth in occupancy and rate s Upper Midscale Hotels — little growth on 2011 s Midscale Hotels — 10% RevPAR growth, coming all from occupancy Source: Cushman & Wakefield
kovo (Hilton) and Sheremetyevo (Sheraton) that will be good for those areas.” With demand for hotel rooms high, developers naturally want to maximise their profits, so build five-star whenever possible, something the city authorities are trying to restrict by zoning some sites for two- and three-star hotel development. The lower grades are under-represented in the market, for a simple reason. “There are opportunities in all segments,” Harle says. “At the moment, the ability to earn top dollar is just too appealing.” The pipeline remains thin, as landowners sit on sites, expecting their value to rise. And there are few opportunities for conversion, either of other commercial buildings into hotels, or for the international brands to convert existing nonbranded hotels. Some legal and ownership complications are specific to the Russian market, Harle
says. A 49-year lease is the longest often available, while land and buildings are treated separately by the legal system. “It’s a bit of a conflict, but once you own the building, they can’t take away the land beneath it.” While local development funding is costly at around 10%-12%, Russians are often more prepared to take risks, and a hotel can deliver a decent return. Like many operators, Robert Shepherd of hotel group InterContinental (IHG) depends on the development and investment community to deliver the new hotels he needs. “We’ve a network of owners and developers we’re in touch with,” he says. But hoteliers sometimes struggle to interest investors. “Because it’s early days, hotels are somewhat left behind — it’s complicated as an asset class.” The company has seven hotels open in Moscow across its brands, with a Holiday Inn coming on stream shortly.
Moscow’s top hotel deals of 2012 Hotel
Rooms
Quarter
Share
Purchaser
Est Price
Radisson Slavyanskaya 427
Q4
100%
Hotel-investOOO
$176m
Budapest
116
Q4
100%
MosCityGroup
$33m
Hilton Leningradskaya 362
Q3
100%
BIN Group
$275m
Metropol
Q3
30%
Azimut Hotels
$33.14m
273
Source: Cushman & Wakefield
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HOTELS “The market research shows an increasingly savvy domestic traveller,” Shepherd says, and they like medium-to-budget products, providing his team with a customer base for brands such as Holiday Inn Express. Those domestic travellers are also being attracted by a federal programme, which has allotted $328m to be spent on tourism and infrastructure. “We’re looking very carefully at how we localise the brand,” Shepherd says, amending the food and beverage offering to suit local tastes. Finding good staff is also an issue, in a culture that is only now coming to understand the value of good customer service. “There’s quite a challenge for talent — that’s why we set up our IHG Academy in Moscow last year.” Jestico’s Clifton faced first hand the challenge of the city authorities’ desires, as he
worked with operator Mamaison on its Pokrovka Suite development in the city. “The zoning plan has been trying strategically to get one- and two-star hotels built,” he says, and the proposed site had been zoned for a three-star development. “But the operator wanted to develop a five-star product.” Eventually, permission for five-star accommodation was granted, but this after much of the structure had been built. “It became like a refurb,” as the higher quality interiors were scoped out. Clifton says his firm has a simple set of principles that make development in Moscow less daunting than it might be. “We always partner with a local practice — that gives you far less problems getting permits. In my view, it’s like anywhere, if you’re doing the right thing, then life isn’t too hard.”
“There are opportunities in all segments. At the moment, the ability to earn top dollar is just too appealing” Christoph Harle, Jones Lang LaSalle Hotels
Mamaison is just one of the international hotel brands now in Moscow
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THE TOP 10
Ten of the best
MIPIM News puts the spotlight on a selection of the most innovative and interesting projects in the city and around the Moscow region Metropolis
The Metropolis shopping centre became the subject of Russia’s biggest-ever property deal when Morgan Stanley Real Estate Investing paid a reported $1.2bn to developer Capital Partners. Opened in 2009, it provides 82,000 sq m of fully enclosed retail space and 2,900 parking spaces on the Leningradskiy highway in the north-west of the city. Tenants include Karusel and Stockmann, along with international brands including Michael Kors, H&M, Gap, River Island, New Look, DKNY, Bebe, Jaeger, Uterque, Imaginarium, and Zara. The shopping centre is part of the 311,000 sq m mixed-use Metropolis complex which includes three office buildings totalling 80,000 sq m.
Vodny
MR Group has started construction on the 166,300 sq m Vodny mixed-use complex on a former industrial site in the north of Moscow. The project includes a 28-storey 61,570 sq m office building as well as a 50,000 sq m three-level shopping centre. The mall includes a food-court, cinema complex, fashion gallery and parking, and is due to complete in the second quarter of 2014.
Emerald Hills
Etalon’s flagship project in the Moscow region, Emerald Hills, is located in the town of Krasnogorsk. This economy-class residential complex, occupying 80 ha, is currently under construction. The project will feature 20 buildings of between 16 and 25 storeys, with a total net area of over 868,000 sq m. The project is due to be completed in 2016.
Sfera Mall
Sfera Mall is a new 82,000 sq m shopping centre located in Obukhovo, 24 km from the city centre in the Moscow Region. Auchan has signed a pre-letting agreement for a 17,000 sq m anchor store and the project is now under construction with completion scheduled for late 2014. The scheme has been designed by Dyer architects with Colliers International as development consultant.
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THE TOP 10
Mebe One Khimki Plaza
Tsvetnoy
Tsvetnoy is a retail development on the site of the old market on Tsvetnoy Boulevard, in central Moscow. The building was designed by George Grigoryan and the interior was created by British designers HMKM and architects Lifschutz Davidson Sandilands. Tsvetnoy covers a total area of 36,522 sq m over eight retail floors, including three floors that are dedicated to the food market, cafe and restaurants. The building also includes three underground parking floors with 387 parking spaces. Lots of new brands, including All Saints, Reiss, Maje, Iro, Zadig et Voltaire, House of Harlow and Jerome Dreyfuss have entered the Russian market for the first time at Tsvetnoy.
Mebe One Khimki Plaza is a new 19-storey business centre in Khimki, Moscow Region, located 7 km from Sheremetyevo International Airport and 20 km from the city centre. Designed by the British architects John McAslan + Partners, the 84 m-high angular building creates a new visual landmark along Leningradskoye highway. The project will provide 26,415 sq m of class-A office space, designed to international commercial specifications. And as a LEED Gold certified building it will set new standards in sustainable design in Russia. Mebe Development’s first commercial office building in Moscow will complete in February 2014
Summit
Unicor Management Company has recently completed this 60,000 sq m mixed-use complex on the site of the Soviet-era Hotel Minsk, built in 1963 and demolished in 2003. The northern end of the site houses a class-A business centre, while the five-star InterContinental Moscow Tverskaya hotel occupies the southern end. The first floor of the retail area with panoramic glazing has direct access to Tverskaya Street and there is underground parking. Knight Frank and Magazin Magazinov are letting agents.
Orbita
Orbita-2 business park is located in Strogino, one of the fastest-growing districts of Moscow to the west of the city centre. Amtel Properties is developing the new business environment and creating additional infrastructure for the district. Orbita-2 Business Park is a new mixed-use scheme that comprises both offices and a hotel. Its total area is 112 264 sq m including offices, a 207-room Hampton by Hilton hotel, restaurants as well as a multipurpose sports centre including squash courts.
Federation Tower Capital City
Constructed by Ant Yapi and project-managed by Proje Yonetim for the Capital Group, the Capital City complex was completed in 2009. Although the project team was Turkish, the architecture is rooted in the Russian constructivism of the 20th Century, with clear geometric forms giving the twin towers a distinct identity. Capital City provides a mix of office and residential uses with apartments occupying levels 19-73 of Moscow tower and levels 19-62 of St Petersburg tower.
In 2012 Federation Tower became the tallest building in Europe, outstripping the Shard in London. It forms part of the Moscow International Business Center and has been under development since 2003. Federation Tower consists of two towers with a central spire. The East Tower rises to 93 storeys and the West to 62 storeys and they house a mix of offices, hotel suites and apartments with restaurants and cafes in the sky bridges linking the two towers. The third structure, the spire, is growing between the two towers and is projected to reach 506 m in height.
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