Are you sure?

Moscow's shopping malls may attract more interest than offices

Moscow shopping malls probably will become more attractive to real estate investors than offices and industrial developments, as Russia's consumer boom lures international supermarket and clothing chains.

Almost 72% of 390 investors interviewed by the Urban Land Institute and PricewaterhouseCoopers would recommend buying Moscow retail developments, the highest proportion for the sector in any of the 27 cities across Europe covered in a survey of the region's real estate industry. Demand for property in Russia is rising as the economy expands for a ninth straight year, offsetting concerns about political stability and property rights. Moscow, regarded as the riskiest city of those surveyed, improved seven places this year to be ranked as the 19th-most attractive market, up from 26th in the 2006 survey. „There's a ton of attention from both international and domestic investors,” Chuck DiRocco, managing director for industry trends and analysis at the Urban Land Institute, said today at a conference in Moscow. „There is opportunity, but also just so much risk associated with it.” Retail developments in Moscow and in the regions of Russia may follow similar trends to those witnessed in central European countries such as Poland, where yields have narrowed over the past decade as high-revenue tenants such as Inditex SA's Zara clothing stores and Bhs Group Ltd. moved in across the region, Lee Timmins, the head of Hines International Inc.'s Moscow, said at today's conference.

Shopping centers across central Europe are filled with „the same international tenants,” all of them generating high levels of revenue, Timmins said. Moscow office properties, where vacancy rates have fallen to be the second-lowest, may suffer as a drop in the supply of new developments drives down yields at a time when political stability concerns are intensifying, the Urban Land Institute and PwC survey showed. Developers may face more difficulties in dealing with the authorities as Russian President Vladimir Putin and Moscow Mayor Yuri Luzhkov approach the end of their terms in office. Putin has said he will step aside in 2008 as required by the constitution and Luzhkov would need to be reappointed by Putin if he's to stay as mayor when his term ends in December. Moscow's ranking as the riskiest city comes as „much of the risk is related to the political changes to come at the presidential and municipal levels,” said Oleg Myshkin, from Fleming Family & Partner, a UK money management fund. (Bloomberg)