Investment in Russian real estate grew by more than 35-fold in the past five years and will continue to expand, said Michael Lange, a founding partner and chairman of Jones Lang LaSalle Inc.'s Russian office.
Russian building projects attracted about $4.5 billion in 2006, compared with about $120 million in 2001, Lange said in an interview. About 60% of Russian real estate investment in 2006 came from international investors, he said. „The appetite has risen substantially,” Lange said. „It's a mixture of international institutional investors, direct and indirect institutional insurance capital. Overall we've had a fantastic ride. Investors like Moscow, confidence is rising and we strongly believe that this will continue for a number of years to come.”
Demand for property in Russia is rising as the economy expands for a ninth straight year, benefiting international companies such as Chicago-based Jones Lang LaSalle Inc., the world's second-largest real estate broker. It's also helping domestic developers including St. Petersburg-based Mirax Group, which is building Moscow's Federation Tower, which will be the tallest building in Europe. Russian residential construction climbed 15% to 50 million square meters (538 million square feet) in 2006, according to the government's statistics service.
„We have seen hotel groups going into the market, like the Ritz and the Four Seasons establishing themselves around Red Square,” Lange said. Construction of a Ritz-Carlton hotel 200 meters (656 feet) from the Kremlin, led by Capital Partners, an international private equity group, was finished in December. The hotel is scheduled to open in June 2008. Other international groups also plan to open hotels in the Russian capital, Lange said.
International investors have focused on retail properties, offices, hotels and warehouse projects in Russia, while residential buildings have been mostly managed by local companies, according to Lange. Moscow's „very nontransparent” residential market, which in terms of rental prices can be compared with London and New York, is still „only 10 years old” and will continue to grow over the next few years, he said.
„There is so much money in Russia today, and so few tangible assets, people will buy anything,” Alexei Rybnikov, CEO of Micex Stock Exchange, the country's largest market, said in an interview in Moscow on Thuesday. „Real estate is something they can understand. There are lots of good development projects, lots of good investment quality projects.”
Moscow City, a 1.2 million square meter international business center, including the Federation Tower, to be completed in 2012, is likely to see demand for all the space it offers, according to Lange. The center's size is equal to Moscow's total new office space built in 2006, Jones Lang estimates.
Moscow, Europe's largest city, is contributing 25% to Russia's GDP, Lange said. The government's goal to diversify the economy away from crude oil exports, Russia's main export commodity, will help boost investment in infrastructure projects as well as shopping malls, he said. „There is still a lot of catching up to do in terms of roads and big projects like airports,” Lange said.
„We expect foreign investors to play an important role in this area over the next years.” Russian regions, which have 11 cities besides Moscow and St. Petersburg with a population of more than 1 million, will see further growth in real estate, Lange said. Jones Lang is now working on construction of 35 shopping centers in 25 Russian cities, Lange said. „St. Petersburg has outgrown everyone's expectations” in the last two years, he said. (Bloomberg)