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The volume of real estate investment in Russia was down to $1.3bn in January-June 2018, falling by 39% year-on-year, according to a July 3 report by JLL. In the second quarter alone the investment volume dropped by 63% y/y.
“Despite healthy macro fundamentals, Russia’s real estate investment market was beset by geopolitical factors in Q2," JLL's head of Research in Russia and CIS Olesya Dzuba commented, adding that "new US sanctions against Russia announced in April resulted in ruble devaluation by 7-10% and raised currency and market volatility. This, in turn, has delayed the closing of some investment deals."
Russia real estate investment volume dynamics, USD bn*
* Investment deals, excluding land acquisitions, JVs, direct residential sales to end-users.
In January-June 2018, the residential sector attracted the most investor attention, with 35% of the total volume of investment. Office spaces and the retail sector followed with a 32% and 22% shares, respectively.
The office segment also saw two large deals on the market in the second quarter: the sales of the second building of Metropolis business centre and Phase III of Romanov Dvor business centre in Moscow.
"Moscow reclaimed the title of the most popular investment destination in H1 2018, with 56% of all deals," according to JLL. Moscow was followed by St. Petersburg with a share declined of 38%. While in Moscow most deals were in the office sector (44% of the total), half of St. Petersburg deals were closed in the residential sector.
Real estate investment volume dynamics by city, USD bn
Source: JLL
Source: JLL
Despite the sanctions, the share of foreign investments remained almost unchanged, at 28% in January-June 2018 versus 29% a year ago. In the second quarter of 2018 the US funds Hines and PPF Real Estate jointly acquired the second building of Metropolis BC. "Foreign investors show interest in Russian assets, and JLL analysts anticipate several more deals with foreign capital to close in 2018," the report claims.
The pause of the monetary easing on behalf of the Central Bank of Russia (CBR) makes the cost of financing unlikely to decline in the short term, which may constrain potential investors, the Managing Director of JLL in Russia and CIS Thomas Devonshire-Griffin forecasts.
"However, the economy continues to grow, the low inflation and the ruble stabilisation at RUB61-63 per dollar, as well as the positive effect of the World Cup hosting will contribute to recovery of investor activity," he believes, while expecting the scheduled meeting of presidents Vladimir Putin and Donald Trump to "partially reverse the recent negative geopolitical influence, helping to improve the Russia investment climate."
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