Land is investors’ priority

The market of investments in real estate is characterized in 2013 by lack of new operators. This notwithstanding, a certain growth of capital investments in this market segment was nonetheless observed.

According to Colliers International, the total investments in St Petersburg real estate in 2013 came close to US$ 1.4 billion, which testifies to the steady market growth, given that a year previously the figure varied between US$ 1 and 1.2 billion. The investors’ activity mainly focused on real estate for home and office.
In 2013, the segment of land plots was still the leader, accounting for 45% of the total investments (a year previously it was 70%). The overwhelming bulk of investments in land were made for housing construction (86%). So the Renaissance Construction Company announced its plans to build 600 thousand square metres of residential facilities on an area of 40 hectares of alluvial territory of Vasilyevsky island. The Construction Trust Company purchased a 55 ha plot in Lomonosovsky district for implementing a project of comprehensive land development. Several deals were concluded to acquire land for housing construction in the city centre. In addition to housing, the demand remains high for land to be used for commercial and industrial purposes. The Colliers International analysts believe that crucial for St Petersburg’s market was the built-to-suit deal for building by the PNK Group a multi-temperature storage facility, 43 thousand square metres large, for the Verny grocery shopping network.
On the commercial real estate market (excepting the land) the investors’ demand became particularly high for office space. In the total investments the share of offices came close to 27% (US$ 370 million), which is 6% above the previous year’s figure. Two thirds of all the transactions with office facilities were standard investment deals. The biggest of them was acquisition of the River House (total area 28 thousand sq m) by the Jensen Group International investment company and sale of two existing business centres (total area of around 7.5 thousand sq m) by the Sponda Company. Five operating business centres, previously belonging to the LCR Company, changed hands. Now they are owned by the Fort Group Company, which formerly predominantly dealt in commercial and elite residential real estate. At the same time, a third of investments was made by ultimate users of business centres, i.e. the assets were acquired not for making subsequent profit.
Investments in St Petersburg’s commercial real estate in 2013 amounted to 8.4%. A year previously they were 5.8%.
Albert Kharchenko, East Real Director-General says: “At the moment, the capitalization rates to which the market is orientated varies from 9 to 10% for high quality office centres, depending on the facility class. The recoupment period is between 10 and 11 years. In many aspects this figure is determined by the fill-up time and leasing rates. So, the cost of business centres today varies on average between 2 and 3 thousand euros per sq m depending on the type of the building, its floor area, etc.  However, there are costlier offers on the market, too, since the proprietors realize the demand for their property and thus dictate the prices,” says Mr.Kharchenko.
Yelena Valuyeva, Mirland Development Corporation director for marketing notes: “There are few foreign investors because of the obvious scarcity of objects and projects in Russia that would meet the Western investors’ requirements. Besides, most of them are in the major cities like Moscow and St Petersburg. That is why these two megacities get the overwhelming bulk of investments from foreign investors.”
Mikko Soderlund, Okhta Mall SRV Group project director-general explains: “Real estate is always a local business. Entry into a new foreign market always entails numerous problems, for instance, a search for an investor may take years since one must pick out the partners who know this market and in who one trusts. Thus, for implementing our Okhta Mall project, the SRV concern set up the Russia Invest foundation with participation of Finnish companies. Here the concern performed as a co-investor, assuring the interest for its partners and fostering their confidence in success of the endeavor. The foreigners need a reliable guide to new markets, which is not always easy to find. In addition, St Petersburg’s status of a museum city complicates implementation of large-scale investment projects in real estate.”
Andrey Boikov, director of the NAI Becar company’s department of investment sales in St Petersburg does not expect changes in the structure of the demands. “There are no symptoms of stagnation on the market, which is why the cost of real estate will grow gradually and without unexpected sharp fluctuations,” he notes.
Adds Juha Vättö, Director-General of Lemminkainen Rus private joint stock company: “As a rule, the foreign investors are interested in acquiring finished modern facilities, commercial ones in particular. But the supply of such objects on the market of St Petersburg is very limited. Nonetheless, the amount of foreign investments also grew last year as compared to 2012, coming close to 25% of the total investments.”