Cushman & Wakefield -

In spite of the current macroeconomic situation, we continue to see high demand for agricultural land in black earth regions of the Russian Federation, with foreign investment funds some of the most active of our clients.

Purchases are made not for speculative aims, but for creating quality agriculture enterprises. These funds' interest is supported by the fact that agricultural land pricing is traditionally denominated in rubles and the Russian currency's devaluation has made it particularly attractive for purchases made in major foreign currencies.

We have also noticed serious interest from a number of Russian and international investment funds in buying agricultural land for the purpose of creating investment instruments based on rental income. For this group of investors, having a stable tenant plays a major role. The tenant can participate in funding and receive a dividend income.

Of note is also the activity of Russian agriculture funds, which have already acquired and farm large agricultural land plots. Such companies are unfreezing their investment programmes and are beginning to acquire more agricultural land. Their investment is directed towards growing their portfolio.

Thaw in the land market

The Moscow Region's land market is the most attractive for buyers and is clearly beginning to segment. Land plots for cottage construction are no longer popular and our forecast is that demand for these land plots won't increase over 2009.

However, land plots for commercial use (retail, logistics etc.) remain attractive and demand for this type of land is gradually increasing. Potential buyers are also showing particular interest in land plots located up to 30 kilometres from the Moscow Ring Road. Land plots further away have lost their appeal and we forecast that demand for these won't increase in 2009.

Buyers are currently a clearly defined group of companies acquiring land plots for business development purposes. Among these are retail chains, logistics operators and industrial companies. We also see interest from Russian producers of goods. High levels of tax for imported goods and the ruble's devaluation have made imported goods too expensive for Russians consumers, so now is a good time for Russian companies to develop their production facilities. Among companies interested in purchasing land plots are food processing companies, furniture makers etc.

We find it interesting that many land plot buyers are ready to take definitive steps to acquire land due to the current low prices. In January and February, there was little activity on the land market. In March and April, however, buyers have been increasingly active in signing letters of intent and undertaking legal and technical due diligence. We expect that many land plot deals will be finalized in July-August. We are currently working on 12 deals for the purchase of land plots.

As far as regional markets go, we note that cities with populations of between 500,000 and 1m have lost their attractiveness for many buyers. However, cities with populations of over 1m remain popular. The only exception to this is the Central Federal District, where cities with populations of fewer than 1m continue to be attractive. Buyers of regional land plots are mostly retail chains. Prices have fallen by up to 40% in comparison to pre-crisis levels and are currently almost $1m per hectare for cities with populations of over 1m and less than $600,000 per hectare for cities with populations of under 1m.

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