Russian Real Estate Market : CEE Context February 2014
Outline � Russia in the Context of CEE � Investment Volumes/Deal-flow � Investors: Drivers of Activity � Sector Trends: Office, Retail, Logistics � Olympics: Long Term Legacy? � Summary 2
Eastern Europe in Context West Europe East Europe Turkey Source: Colliers International 3
Eastern Europe in Context Turkey West Europe East Europe 50% 41% 9% Population [843,744 million] 2012 2007 � 65% � � � � 34.5% � � � � � 0.5% � � 65% 34.3% 0.7% Office Stock [315 million m²] Office Stock [350 million m²] � 77% � � 19% � � 4% � � � � � � � 81% 16% 3% GDP [US$20,924 billion] GDP [US$20,134 billion] � 88.4% � � � � � � � 11.0% � � � � 0.5% 90.5% 8.9% 0.5% *Cross-border Investment Volume [€155 billion] * Cross-border Investment Volume [€57 billion] � � 92% � � � � � � 7.6% � � 0.3% � � 90.1% 9.5% 0.4% * Cross-border Investment Deals [2,899] * Cross-border Investment Deals [1,190] *Investment volumes based on RCA aggregates, excluding development sites and apartments Source: UNCTAD/IMF/RCA/Colliers International � Long-term potential is very strong! – Russia is 35-40% of CEE 4
Historic Transaction Volumes Regional Total (Volumes) Russia 18.0 € Billion 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 � Up on 2012 by around 22% (€2 Billion) to €11 Billion � Europe up 17% to €178 Billion 5
Deal Volumes by Country Pre-Crisis Volumes Post-Crisis Volumes 2% 1% 1% 1% Russia 2% 2% 2% Poland 4%2% 4%3% Czech Republic Poland 5% 4% 28% Multi-country Portfolio Russia 6% 7% 40% Baltics Hungary Czech Republic Czech 11% Romania Republic Slovakia 16% Hungary Ukraine 17% Poland Russia SEE 26% 16% Bulgaria Source: Colliers International � Post-crisis: Russia increasingly dominant – long-term split � Pre-crisis: Poland dominated: Czech Rep, Hungary & Russia about even, r/o Tier 2 locations ‘didn’t quite get started’. 6
Deal Flow Dynamics Dynamics of Deal Size Distribution Breakdown of Real Estate Investments by Region Billion $ 4% 7% 20% 26% 30% 35% 41% 51% 21% 43% 28% 22% 37% 30% 25% 20% 14% 18% 12% 6% 15% 16% 16% 15% 11% 17% 89% 9% 6% 7% 5% 4% 2008 2009 2010 2011 2012 2013 Other Saint- >=$50 million >=$100 million Regional Moscow <$50 million <$100 million <$200 million Petersburg Cities >=$200 million >=$500 million <$500 million Source: Colliers International � Big Cities Dominate (despite only being 15% of country population) � Moscow & St Pete’s generate large lot size deals: product, debt, investors. 7
Player Profiles: Who’s Who? Purchaser name Residence Investor Type Rank O1 Properties Russia REIM 1 Morgan Stanley Real Estate Investing REIM 2 U.S. CA Immobilien Anlagen AG Austrian REIM 3 � Some 63% of investors BIN Group Russia Banking 4 only completed 1 deal CPI - Czech Property Investment Group REIM 5 Czech (CEE & Russia) VTB Capital Russia Banking 6 Union Investment Real Estate GmbH Germany Fund Mgmt 7 � Of the post 2009 investors, Blackstone Real Estate Fund Mgmt 8 U.S. 80 have completed more Atrium European Real Estate Limited U.K. REIM 9 than one deal Unibail Rodamco S.E. Holland REIM 10 Verny Capital Kazakhstan Pte Equity 11 � Only 5% of investors have Axa Real Estate France Insurance 12 been active from 2006 to ECE RE Investor 13 Germany 2013…..new inst capital HinesCalPERS (Russia Long Term Hold Fund) U.S. REIM 14 emerging Immofinanz Austrian REIM 15 Heitman Fund Mgmt 16 U.S. Hines Global REIT U.S. REIM 17 Rockspring Property Investment Managers U.S. REIM 18 EPISO REIM 19 Lux DEKA Immobilien Germany GOEF 20 Source: Colliers International 8
Major Driver of Property Investment Prime Office Premium EU-Prime Office Yields 10-year German G'ment Bond 10% 8% � CRE investment only ca. 3% of fund 6% allocations = €180 billion � Direct CRE investment grows by around 2 – 4% 2.5% (€ 3.5-4) billion per year � A 1% shift in re-allocation = €57 billion, a 2% 3% shift = 2013 volumes � Indirect / JVs appears to be the biggest shift – 0% already happening -2% -4% Source: Colliers International 9
Prime Yields: Russia 14.5 14.5 13.5 11.5 11 11 11 11 10.5 10.5 10.5 10 10.0 9.5 9.0 9.0 9.0 9.0 9.0 9.0 8.5 8.5 8.5 8.0 2007 2008 2009 2010 2011 2012 2013 2014 Office Retail Industrial � Yield stability expected in 2014 � Property tax policy for CRE at cadastral (market) value = transparency � Despite autocratic country politics, English law enables legal transparency 10
Office Yields: Russia v CEE v Germany Tier 1 Cities Tier 2 Cities 300 bps enough? � Moscow Yields offer a discount to other competitor markets (Warsaw and Madrid) and Germany, allowing for country/liquidity risk 11
Capital Value Indices: Moscow & St Petersburg St Petersburg Moscow Moscow - Office Prime Headline Capital Value StPetersburg - Office Prime Headline Capital Value Moscow - Industrial Prime Headline Capital Value StPetersburg - Industrial Prime Headline Capital Value Moscow - Retail Prime Headline Capital Value StPetersburg - Retail Prime Headline Capital Value 300 300 250 250 200 200 150 150 100 100 50 50 0 0 2006/Q1 2006/Q2 2006/Q3 2006/Q4 2007/Q1 2007/Q2 2007/Q3 2007/Q4 2008/Q1 2008/Q2 2008/Q3 2008/Q4 2009/Q1 2009/Q2 2009/Q3 2009/Q4 2010/Q1 2010/Q2 2010/Q3 2010/Q4 2011/Q1 2011/Q2 2011/Q3 2011/Q4 2012/Q1 2012/Q2 2012/Q3 2012/Q4 2013/Q1 2013/Q2 2013/Q3 2013/Q4 2006/Q1 2006/Q2 2006/Q3 2006/Q4 2007/Q1 2007/Q2 2007/Q3 2007/Q4 2008/Q1 2008/Q2 2008/Q3 2008/Q4 2009/Q1 2009/Q2 2009/Q3 2009/Q4 2010/Q1 2010/Q2 2010/Q3 2010/Q4 2011/Q1 2011/Q2 2011/Q3 2011/Q4 2012/Q1 2012/Q2 2012/Q3 2012/Q4 2013/Q1 2013/Q2 2013/Q3 2013/Q4 Source: Colliers International � Values in all sectors/markets have grown � Moscow logistics flat, v. interesting looking forward (MLP Portfolio US$900mn) 12
Econ Trends Prediction Reality 5.0 4.1 4.2 4.0 3.8 3.4 3.3 3.2 3.0 3.0 Growth Rate% 2.5 3.0 2.0 2.0 1.8 1.5 1.5 1.5 1.4 1.4 1.2 1.0 0.9 0.8 0.6 0.4 0.3 0.1 0.0 -0.8 -0.8 -1.0 -1.2 -1.4 -2.0 -2.2 -3.0 Latvia Turkey Lithuania Romania Poland Estonia Hungary Bulgaria Ukraine Croatia Czech Republic Slovenia Russia Slovakia Source: Colliers International � Lower oil price has reduced the economic growth rate to around 1.5-2%..... long-term � Oil supplies up, US overtaking global position? ....need for new sectors to grow � IT & Telecoms, not Energy sector, driving take-up growth in recent years (Yandex) 13
14 Country Summary � � � � � � � � � � Investment � � � � � � � � � � Retail Market � � � � � � � � � � Office Market � � � � � � � � � � Finance � � � � � � � � � � Macro-Econ � � � � � � � � � � Politics Romania Hungary Bulgaria Czech Republic Poland Russia Serbia Slovakia Ukraine Croatia
Moscow & St Pete’s Office Market: Moscow Office Stock Moscow Office Prime Rents & Vacancy Rate % USD / month 120 20 112.9 20 Completions 18 Thousands 100 18 16.5 16 75.3 16 14 80 78.4 14 76.2 75.4 12.3 12 68.8 12 10.6 63.3 60 10 10 9.2 52.0 8.4 8 8 40 6 6 5.5 4.2 4 4 20 3.5 2 2 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 St Petersburg Office Stock St Petersburg Office Prime Rents & Vacancy Rate % USD / month 3,000 Completions 60 20 18.6 46.1 54.7 18 54.2 45.5 2,500 17.6 52 51.5 50 16 14 2,000 14.0 14.0 40 38 37.5 12 11.7 1,500 30 10 9.1 8 1,000 20 6 6.0 5.0 4 10 500 2 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 Source: Colliers International � Economic impact collectively felt in both cities, with demand falling 15 � Vacancy rising, given new supply increases.....rents stabilising or falling slightly
The Retail Market: Growth Capacity Traditional Shopping Centre Stock & Pipeline 2013 [per thousand capita, m²] 1,000 900 800 700 600 500 400 300 Belgrade 200 St Petersburg Bucharest Bratislava Budapest Moscow Warsaw Prague Zagreb 100 Sofia Kyiv 0 Source: Colliers International � SC capacity remains, esp. Moscow – also driving logistics demand � St Pete’s going through a repositioning phase
The Retail Market: Growth Capacity Shopping Centre Distribution Moving East Size of SC Stock Source: Colliers International � Growth in other ‘1Mn+’ Cities..Nizhny Novgorod, Perm, Yekaterinburg, Volgograd � Aura SC in Novosibirsk acquired for US$ 250mn in 2013
The E-commerce Market: Growth Capacity Online Retail Sales Forecast: Russia 2020 � The likes of Ozon, KupiVIP and Lamoda leading the e-commerce business in Russia � Increasing demand for modern warehousing across Russia from retailers and 3PLs
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