It is like 2014 all over again… I have written three draft opinions in recent days – only for them to be overtaken by events. In the deluge of news and volatility I have but one message:
I believe markets have overshot and will correct. We are already seeing the Russian stock market rise as investors see a buying opportunity. With so much noise it is worth remembering a few facts (with a nod to Macro-Advisory and Chris Weafer for some of the stats):
For the real estate market the risks are less immediate. The occupational markets are now largely ruble denominated so ruble volatility is less of a problem.
Geo-political issues are unlikely to have much effect on Russian consumers. Real wages will continue to rise as will consumer spending – and this will support the retail and warehouse sectors where supply is already starting to get tight.
Sanctioned business and government entities are not significant in the Russian office market, often being owner-occupiers. With economic growth, a rising oil price and falling interest rate business activity will also continue to pick up speed. Market conditions are positive for the office sector.
However, investment sentiment is likely to be effected by the noise and this may reduce capital markets transaction volumes.
Conversely, as Russian investors have fewer alternatives available to them internationally they may buy more at home.
Ignore the noise – play the fundamentals. The Russian market remains very good value.
Disclaimer – since writing this there is a real risk of an escalation in the standoff between the US and Russia in Syria – if the situation degenerates into a conflict all bets are off.
Tim Millard has been working in real estate market in Russia since 2003 and is director of Research, Strategic Consulting, Valuations and Hotels & Hospitality Group for JLL.