2016 Russia Commercial real estate

Transcription

1 216 Russia Commercial real estate Market Overview H1 216

2 H1 216 Research & Forecast Report Investment market Key results of H1 216 By the end of H1 216, key macroeconomic indicators were showing a certain level of improvement compared to previously made forecasts. The national currency strengthened its positions throughout Q While in the beginning of 216, the currency fluctuations reached 1% from the average exchange rate registered in Q1 216, in April-June this spread reached not more than 4% from the average (65.93 RUB/USD). Decreasing rouble volatility together with enhanced forecasts for GDP growth by the year end and the key policy rate cut further to 1.5% might be considered as positive signs of current market stabilisation. However, investment market players still remain cautious, which is illustrated by the results of Q In H1 216, the total volume of transactions amounted to $2.4 billion, which is twice as high as the results of H However, from this volume only 23%, or $547 million, was closed during April-June 216. The last time such a low level of investment transactions in the second quarter of the year was in 29, when the transaction volume reached comparable figures. At the same time, a number of assets are currently under negotiations both in Moscow, and in regions, thus maintaining our forecasts for a total annual volume of $4 billion. Current economic conditions and difficulties with debt management lead to some cases in which the asset that was previously the security for the loan was transferred to the creditor. At the same time, the volume of cash deals still exceeds the quarterly investment figures observed throughout last two years in H1 216, their total volume reached nearly $1.3 billion. Key market indicators in H1 216 $ bn RUB INDICATOR F Q1 Q2 Q3 Q RUB/USD exchange rate Brent oil price, USD/bbl R axis VALUE Total volume of investments, $m 2,415 Office 2,132 Retail 24 Industrial 147 Hotel 112 Prime yield*, % Office % Retail % Industrial 12-13% * Prime commercial real estate, leased at market terms, located in Moscow, with major Russian and international companies as tenants Investments volume in real estate in Russia H2 216F Brent oil price and RUB/USD exchange rate $14 $12 $ $8 $6 $ $2 $ 2 H1 216 Russia Colliers International

3 H1 216 Investment distribution The office market remains one of the most active and demanded for investors. As of the end of H1 216, the total transaction volume in this sector amounted to 88% or $2.1 billion. Last year, by the end of H1 215, investment volumes in the office sector reached 44% ($514 million). The largest buildings acquired since the beginning of this year are two office towers located in MIBC Moscow City Eurasia Tower and Evolution Tower, and the Prezident Plaza. The retail segment, despite the presence of attractive assets offered for sale, is still witnessing a low level of activity in terms of transactions numbers and volume. Its share in the total investments figure does not exceed 1%. Current market stabilisation and the strengthening of the national currency are gradually resolving the situation in this market. If a year ago potential buyers could hardly evaluate an asset s future revenue due to the difficulties in rental cash flow forecast on one hand and the instability of the tenant mix in a shopping centre on the other, the situation is becoming clearer in the new market reality. From our point of view, the stabilisation observed in retail market will force investment activity to go up. An example of a recently closed deal in this segment is the purchase of SC Solnecnhy I by IT Development company from the Finnish investment fund Sponda. Investment activity is also observed on the industrial market. The major investors here are mainly Russianbased companies. As a result, investment volumes in the warehouse segment in H1 216 reached $146 million. The largest deal closed was the purchase by RDIF and Mubadala Development of warehouse complexes developed by PNK Group: PNK Chekhov-3 (1, sq m) and PNK - Severnoe Sheremetyevo (16, sq m). Among regional deals, the sale of the Eurosib logistic and warehouse complex in St. Petersburg is worth mentioning. The buyer is the transport company Modul, which opened its own terminal and logistic complex on the basis of this asset. The average deal size by the end of H1 216 reached $142 million, which is largely due to the office transactions closed at the beginning of this year. By the year end we expect the average size of deal to remain at a high level, exceeding the indicators of the previous years. Real estate investment volume distribution by sector in H1 216 Prime yields, Moscow market 15% 14% 13% 12% 11% 1% 9% 8% 7% 1% 5% 6% Office 88% Industrial Retail Hotel Office Retail Industrial 12.5% Real estate investment volume distribution by deal size 1% 8% 3% 3% 11% 11% 23% 21% 3% 2% 5% 2% 4% 11% 15% 8% 8% 8% 11% 1% 13% 2% 12% 1% 17% 4% 22% 1% 1% 2% 1% 3% 16% 6% 28% 36% 31% 25% 17% 18% 4% 2% 39% 44% 64% 42% 43% 49% 5% 35% 56% 69% 24% 21% 21% % H1 216 > <2 3 H1 216 Russia Colliers International

4 In terms of investment distribution in Russian commercial real estate by regions, Moscow takes the leading position. In H1 216, its share in the total investment volume reached 92% of the total transaction volume, or $2.2 billion. St. Petersburg is also witnessing partial interest from investor. Since the beginning of the year, the total investment volume in commercial real estate reached $148 million, which is substantially higher that the results of H1 215, when the figure was only $9 million. The Russian investment market keeps being oriented towards internal funding, while the share of foreign investors remains at a low level. Despite the low number of deals with foreign capital, the geography of foreign investors includes countries such as USA, Germany, Czech Republic and UAE. In addition, we observed a record high level of funds allocation in real estate from property end-users. Despite low number of such deals, in terms of volume these transactions amounted to an 84% share of the total investment volumes in H Trends and forecast The current stabilisation of macroeconomic indicators might have a positive impact on the investment market, with Russian capital still dominating in transaction volumes. At the same time, we cannot neglect the current process of assets being transferred to bank ownership, which is the result of owners defaulting on their commitments. The scale and depth of this process will be largely dependent on the ability of owners to enhance the current status of their assets. Given the situation is improved, banks might be ready to undertake debt restructuring. However, this restructuring process will likely not affect all troubled assets, and part of them will fall into ownership of banks. As a result, financial organisations might become more active real estate market players, representing not only money lenders, but acting as owners of large Moscow properties, thus potentially forming their own asset portfolios for further sale. In the event of stabilization of the currency rates and oil prices, we expect the market to become more active. This will result in an increasing number of deals on one hand and the resuming of negotiations process for the assets being currently on the market on the other hand. We expect investors focus to remain on the high-quality liquid properties with stabilised cash flow and secured long-term lease agreements. Real estate investment volume distribution by region $bn Real estate investment volume distribution by investor type 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% $ bn H1 216 Moscow St. Petersburg regions % H Financial companies/institutions and funds/reit Developers and property companies Non-real estate companies Hotel owners or operators Real estate investment volume distribution by capital source , H1 216 Russian Foreign 4 Investment Market Overview H1 216 Russia Colliers International

5 million sq m of GLA H1 216 Research & Forecast Report Office market Supply The total supply of high quality office space in Moscow exceeded 16.9 million sq m by the end of Q The total volume of office completions in Q2 216 amounted to 111,8 sq m, which is almost two times higher than the supply volumes in the previous quarter (63,1 sq m of office space). However, the annual rate of supply was negative during April-June of 216 the level of completions was 16% lower than that in Q2 215, and 65% less than during the same period of 214. The volume of completion in the first half-year also showed a slowdown in construction: from January 216 about 175, sq m of office space were completed, which is 19% less than in H1 215 and 67% lower than the result for H Since the beginning of the year, the completions were represented mainly by Class B+/- properties, their share comprising 73% of the total new supply. Class A was added to only by one project G1 with office space of around 3,2 sq m. The general structure of office supply has not changed, as every year more than 5% of completions are represented by Class B+/-. Currently, Class A offices comprise 23% of the Moscow office market, and Class B +/- about 77%. Key market indicators INDICATORS H1 215 H1 216 Total stock, million sq m Class А Class В Completions, thousand sq m Take-up, thousand sq m Vacancy rate, % Weighted average rental rates in CBD, $/sq m/year Completions dynamics 1,6 1,4 1,2 1, Class А Class В Class А Class В % Buildings completed in Q2 216 PROPERTY CLASS DEVELOPER / OWNER OFFICE AREA, sq m,8,6-3% G1, phase I А ComStrin 3,252 Technopark Otradnoe, phase II B+ Motek-TS 25,3 Riverside B+ New Life Group 21,5 Riverdale B- Glincom 16,5 Selektika B+ GC Elvicom 15,95 Rodionovsky Business House В+ Absolut Realty 2,3,4,2, Q1 Q2 Q3 Q4 216 Forecast 5 H1 216 Russia Colliers International

6 thousand, sq m In terms of territorial characteristics, the largest share of office properties is formed by the office area in the Central Business District (CBD), where more than 5.8 million sq m of quality office space is concentrated, which amounts to 34% of the total market. Over the past two and a half years, this business district has moved from first to third place in terms of new completion growth as a result of the redistribution of completions to more distant areas of Moscow. Since 214, the main volumes of new premises have been delivered to the West of the CBD (2% of completion for the period) and in the South-West (17%). The share of these submarkets accounts for 1.5% and 4.% of all office space in Moscow respectively. Demand In Q2 216, demand was more positive than at the beginning of the year. The amount of leased and purchased office space increased by 5% QoQ and amounted to 243, sq m. It is premature to talk about a full revival of demand because the indicator still shows a 2% decrease annually (in Q , sq m). In H1 216, less space was completed than in H1 215 about 45, sq m vs 533, sq m. In the changes to demand structure an increase in purchases can be identified in comparison to the previous year. The regularity of such transactions is certainly lower than during the pre-crisis period in 213. However, while the average quarterly volume of sold office space in 215 reached only around 16, sq m, in H1 216 the average quarterly amount of sold office space increased up to 5, sq m. The same trend was observed in the segment of sales by units under 5 sq m: in H1 216, 11,6 sq m were purchased, while in the same period in 215 the sales volume was not more than 8, sq m. Completions by submarket North-East -,3% - East - 1% - South-East - 1% - Leninskiy - 1% - Tulskiy - 2% - North - 3% - Suschevskiy - 3% - Elektrozavodskiy - 3% - Leningradskiy - 6% - North-West - 7% - South - 1% - Moscow City - 12% - CBD - 13% - South-West - 17% - West - 2% thousand sq m Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Take-up distribution by sector in H % 1% 2% 1% 3% 7% 11% 16% 2% 2% Energy/Industrial Construction/Development Public IT & Telecoms Manufacturing Professional services Retail Pharmacy and life sciences Banking, Insurance & Investment Other* * Other sectors include individual entrepreneurs, media Take-up by type of deal Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Take-up distribution by type of occupation 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Q1 Q Lease Sale New occupation Renewal/renegotiation 6 H1 216 Russia Colliers International

7 thousand, sq m A significant share in the total number of transactions is still formed by renewals and renegotiations of lease terms the share of these deals in H1 216 exceeded 3%. A similar figure was registered at the end 215. The structure of office tenants and buyers has undergone slight changes. Thus, the share of the Energy and Industrial segment increased from 7% in Q1 216 to 2% in Q2 216 due to the acquisition of 3, sq m in Park Pobedy business centre by RUSAL. An increase in the share of the Construction and Development sector was also noted: in Q1 216 it formed 13% (while it was less than 5% for the same period in 215, as well as for all of the last year) and for Q2 216 the share increased further to 2%. The share of public organisations in the total volume of transactions was 16% in Q2 216, whereas they formed no more than 1% in 215 in total. Vacant premises In Class A, the vacancy rate amounted to 22.9% (+1. percentage points QoQ), in Class B+/- 1.9% (+1.7 percentage points QoQ). The average vacancy rate corresponds to 14.9% or 2.2 million sq m in absolute terms for all classes. The highest vacancy rate was observed in the South-West (3%) and in the West of the capital (29%) outside the CBD. Within the CBD, this indicator increased relative to Q1 216 from 8% to 9%. The next submarkets in terms of the vacancy rate are South (23%) and MIBC Moscow City (19.4%). Available vacant space on the market is heterogeneous and is formed mostly by the office buildings located between the Garden Ring and the Moscow Ring Road (MKAD). However, in 214 due to the large volume of new completions in the MKAD area the growth of the share of this ring zone is most noticeable (from 5% to 12%) in the total vacant space in Moscow. Sale prices Since the beginning of 216, we have observed an increasing number of requests for office purchases, the majority being due to the expectations of potential buyers of price falls in parallel with the rental decline. However, it is worth noting that asking prices denominated in roubles have not shown any significant decrease since the end of 214. By the end of Q2 216, the market average recorded sale price in Class A business centres was RUB275, per sq m, while in Class B+/- offices average prices varied between RUB12, and RUB16, per sq m. At the same time, we are still observing certain discounts from the posted rouble prices. Vacant premises distribution by ring zone in H1 216 Vacancy rate by class 3% 25% 2% 15% 1% 5% % 1% 12% 5% 1% 12% 4% 9% 2% 7% 5% 1% 8% 18% 17% 18% 2% 3% 33% 33% 36% 31% 29% 31% 33% inside BR BR-GR GR-TTR TTR-4TR 4TR-MKAD outside MKAD 6.3% 3.1% 17.6% 16.5% 19.7% 17.4% 13.6% 1.% 12.3% 7.6% 15.1% 14.9% 7.% 7.2% Vacant space distribution by submarket in H H % 22.9% 12.6% 1.8% Class A Class B 35% 3% 25% 2% 15% 1% 5% % A B- B+ Average vacancy rate, % 7 H1 216 Russia Colliers International

8 thousand, RUB/sq m The leading position in terms of price levels is taken by submarkets in the city centre, where Class A and B+/- premises are offered at an average of RUB315, per sq m, and by MIBC Moscow City submarket, where asking sale prices amount to RUB245,-45, per sq m. As for the offices far more removed from the CBD, near the Third Ring Road (TTR), where the major supply is formed by Class B+/- offices, the average asking price in Q2 216 was RUB18, per sq m for Class B+, and RUB15, per sq m for Class B-. Properties located between the TTR and the Moscow Ring Road (MKAD) are currently being offered at an average of RUB17, per sq m for Class A and RUB115,- 13, per sq m for Class B+/-. Despite the stable average sales prices, certain decline was observed in the secondary market. For example, in several towers in MIBC Moscow City the decline reached 1% form the submarket average values. However, these changes do not reflect the general trend, but rather refer to the current financial constraints of some individual property owners. The internal structure of demand changed slightly. The general economy instability resulted in demand being concentrated in specific office segments, while previously interest in terms of desired space was more widespread. Based on clients demand, the following groups of the most in demand office sizes can be defined: 2-5 sq m, 1,-2, sq m and 8,- 12, sq m. Rental rates Asking rents denominated in US dollars underwent correction throughout the last quarter. As at the end of H1 216, the value of USD-denominated asking rents in Class A properties had adjusted downward by 5%. In comparison, the annual reduction of these values throughout 215 was 8%, while in 214 the figure was 12%. At the same time, the majority of property owners are fixing the upper limit of the exchange rate band at the internal rate when concluding new lease contracts, which in fact means a further rental decline by 15%. In Class B+/- properties, the majority of supply is denominated in roubles. The asking rental values for such office buildings did not change throughout Q2 216, amounting to RUB12,565/sq m/year. Simultaneously, on the back of a slight stabilization of the currency, the market average rent recalculated into dollars has changed, reaching $393/sq m/year for Class A office buildings, and $24/sq m/year for Class B+/- offices. Average sale prices by distance from the centre Base rental rates for Class A offices $/sq m/year Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 RUB/sq m/year Base rental rates for Class B offices BR-GR GR-TTR TTR-4TR Moscow-City 4TR-MKAD outside MKAD A B+ B- Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q $/sq m/year RUB/sq m/year 8 H1 216 Russia Colliers International

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10 million, sq m % At the moment, the highest rental level is observed in the CBD $44 /sq m/year as an average for all segments of quality offices (-1% QoQ), including office premises in prime locations, where the weighted average rental rate recalculated into dollars for Class A and B+/- reached $6/sq m/year (-4% QoQ). Among other submarkets with the most expensive offices, worth mentioning are MIBC Moscow City and the Leningradskiy submarket with a weighted average rent recalculated into dollars of $453/sq m/year and $33/sq m/year respectively. However, it is worth bearing in mind that around 8% of supply offered in these areas is denominated in roubles. Thus, the average asking rouble rent here reaches RUB26,825/sq m/year for MIBC Moscow City and RUB14,15/sq m/year for the Leningradskiy submarket. Trends and forecast In H2 216, we expect a slight increase in new office supply compared to H Nevertheless, we maintain our forecast of annual completions at the level of 5, sq m. Looking towards 217, the financial stability of potential tenants and their willingness to look for new offices will remain highly dependent on the general economic situation. In the case of the economy stabilizing, we see certain potential for growth in new demand up to 2% YoY in 217. A similar picture of growing demand was observed in 21 after the crisis period of As for the market activity in H2 216, we expect it to remain at a moderate level, with a high probability of the annual level of take-up finishing 3-4% lower than that in 215. According to our estimates, the overall vacancy rate in the Moscow office market in 216 will stay at the level of %. The reduction in asking base rental rates throughout 216 will not exceed, according to our estimates, 5-7% on average, while values of rental rates recalculated into dollars will remain dependent on exchange rates fluctuations. In the short term, the key indicators in the segment of office sales will remain at the level of H We do not expect price growth until the general stabilisation of the economic situation. However, in 217 we expect the formation of more balanced market in terms of supply and demand. Office space in Moscow City Vacancy rate, take-up and completions Top-5 business centres expected for delivery in Moscow in H2 216 PROPERTY CLASS DEVELOPER 1 IQ-Quarter A 2 Federation Tower «East» CiTer Invest B.V., Hals Development OFFICE AREA, SQ M 123, А AEON Development 1, 3 Neopolis А A-Store Estates 48,85 4 TYPE OF BUILDING 1/17 B. Pionerskaya NUMBER OF BUILDINGS OFFICE AREA, SQ M Completed 11 91,24 Class А 8 793,44 Class В ,8 Under construction 4 466,2 Class А 3 365,2 Class В+ 1 11, Total 15 1,321, Take-up, million sq m Completion, million sq m Vacancy rate, % А Vertolety Russii 23, Oasis B+ BIN Group 33, **business centres are marked on the map, p. 5 1 H1 216 Russia Colliers International

11 thousand, sq m Research & Forecast Report Office market Supply In H1 216, the St. Petersburg office market increased by 16, sq m across 13 office buildings, most of which assigned to Class B. The total leasable office space increased by 6%. It is worth mentioning that more than 7% of supply in H1 is completed and offered for end-user needs rather than rental purposes on office commercial market. In H2 216, 14, sq m of office space is anticipated to be put into operation. If there is no postponement of compliance time frames, YOY growth of office space will exceed the average indicator by 3% in the last 7 years. However, such volumes of new office area is not expected to have a significant impact on the market indicators due to the fact that not all office buildings will be presented for lease. More than half of new supply will be offered for sale or for the use of end-customers landlords or tenants who entered into an agreement during the construction phase. Taking into account the forecasted volume of objects scheduled for completion by the end of 216, the largest share of the total quality office stock will be concentrated in the Moskovskiy district where office development has been active for 1 consecutive years. Key market indicators, H1 216 INDEX VALUE Total stock, million sq m 2.65 Class А 1.3 Class В 1.62 Completions, thousand sq m 16 Net absorption, thousand sq m 135 Vacancy, % 1.5 Weighted average rental rates, RUB/sq m/month* * Rates include OPEX and exclude VAT Completions Class А 9.6 Class В 11.4 Class А 1,254 Class В 91 Major office buildings completed in H1 216 NAME ADDRESS CLASS Nevskaya Ratusha, Phase II Victoria Plaza, Phase II OFFICE AREA, SQ M 2 Novgorodskaya st. A 53,5 2 Pobedy sq. B+ 27,5 Megapark, Phase II 22 Zastavskaya st. В 14, ExpoForum (bldg 2) 66 Peterburskoe hwy. A 11,4 5 ExpoForum (bldg 1) 66 Peterburskoe hwy. A 1,4 Lakhta, Phase II 4 Optikov st. В 1, F 11 H1 216 Russia Colliers International

12 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 thousand, sq m Demand According to the figures for H1 216, the office space net absorption volume reached 135, sq m, that is 2.7 times higher than the numbers for the same period of 215. Such high indicator was reached due the delivery of the new office buildings to the market completely occupied by tenants or intended for the end-users. To name few examples, II Phase of Victoria Plaza and office buildings within EXPOFORUM Convention and Exhibition Centre that will be accommodating Gazprom subsidiaries TGK-1 and OGK-2. A number of important deals were concluded in existing office buildings through Q Lease agreement between Flandria Plaza and Stroygazconsulting company has become the largest deal on St. Petersburg office market since beginning of the year. It must be noted that the majority of deals in H1 216, amounting to 65%, was closed in Class A office segment. In H1 216, we observed dynamic activity of companies engaged in the IT sector, construction projects and engineering services apart from commodity sector. In additional, companies engaged in pharmaceutical industry expanded occupied space as well as opened new offices. Certain interest was among the companies providing professional services in audit, education and legal areas. In H1 216, Gazprom satellites companies, leased about 35, sq m office space. Their share in the total take-up this year is expected to increase gradually. Demand distribution by tenant type 1% 8% 6% 4% 2% % H1 216 Public authorities Manufacturing Retail Other Construction, development Pharmacy and Life Science Financial companies and banks Professional services IT & Telecom Energy and resources Net absorption and vacancy rate % 2% 15% 1% Vacancy rate In H1 216, the volume of available space in St. Petersburg quality office buildings amounted to 1.5% vs 12.2% registered at the end of 215. Despite the substantial volume of new office stock, vacancy rate has decreased in absolute numbers by 24, sq m. Such a significant decline was due to the dynamic absorption of Class A office space. Vacancy rate in Class A segment declined from 14.8% to 9.6%. On the contrary, Class B vacancies showed small growth throughout H1 216 with the vacancy rate increasing by.8% and reaching 11.4%. A tendency of tenants to move from office buildings located in peripheral districts of St. Petersburg forced vacancy rate to increase. Tenants exploited the opportunity to improve current commercial terms of leasing agreements and to improve the quality of the workplaces by relocating. Due to the slowing rate of office development there is a limited supply of large office blocks (more than 3, sq m.) that are present in only 1 office buildings F Net absorption Vacancy rate Vacancy rate by class 25% 2% 15% 1% 5% % 5% % Class A Class B 12 H1 216 Russia Colliers International

13 Total stock, under-construction volume, vacancy and rental rates* * - Rates presented include OPEX and exclude VAT 13 H1 216 Russia Colliers International

14 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 $/sq m/year* Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 RUB/sq m/month* Commercial terms Asking rental rates In H1 216, the average rental rate in Class A office building increased by 4.5% totaling RUB1,254/sq m/month, including operating expenses and excluding VAT. The increase in average rental rate can be explained by the fact that in the midst of dwindled supply and an upswing of demand among certain areas of business, high-quality office buildings scaled up asking rental rate accordingly In class B, by contrast, a slight decrease of roughly 2% in asking rental rates was caused by the washout of liquid supply as well as market entrance of new premises in the locations situated at a considerable distance from the city centre, where the rental rates are lower than the average. Average rental rate in class B is RUB91/sq m/month, including operating expenses, excluding VAT. 6 Class A *Rates include OPEX and exclude VAT Class B Trends and forecast > While we forecast record completion of new office space by the end of 216, the share of property offered for endusers in the total volume of new supply is steadily increasing. > However, bearing in mind large volumes of total scheduled completions in 216, there is a chance that the vacancy rate on the St. Petersburg office market will increase by 1-2%. > We expect Gazprom satellites companies to increase its share in the total net absorption volumes. > According to our estimates, annual growth of rental rates in high-quality office buildings amid limited supply is going to reach 7-1%. > Shrinkage of the new construction volume is likely to lead to the deficit in the supply of large units in quality office premises in conditional on expansion of businesses operating on St. Petersburg market. USD-denominated rental rates and the exchange rate Class A Class B USD exchange rate *Rates include OPEX and exclude VAT Major office buildings scheduled for completion in H2 216 NAME ADDRESS CLASS OFFICE LEASEABLE AREA, SQ M FORT TOWER 143 Moskovskiy pr. A 24,5 Uralskaya 4 4 Uralskaya st. B 15,4 Graffiti 15 Kondratievsiy pr. B 13,4 Polis 8 Sofiyskaya st. B 13,15 Tuhachevskogo, 2 Plot 1 Marshala Tuhachevskogo B 9,1 Na Politekchnicheskoy 6 Politekchnicheskaya st. A 7, 14 H1 216 Russia Colliers International

15 H1 216 Research & Forecast report Industrial market Russia Supply Key market indicators, H1 216 As of the end of H1 216, the total stock of quality warehouse space reached 19 million sq m. As in previous years, the major share of existing industrial stock comes from Moscow and the Moscow region 64%, St. Petersburg and the Leningrad region around 14%, while other regions comprise 22% of existing quality stock. The completion volume in the first six months of the year reached 49,5 sq m, from which 147, sq m of new warehouse space were built in the Moscow region, 133, sq m in St. Petersburg, and regional market increased by 129,5 sq m. The largest completion volume, excluding Moscow and St. Petersburg, was observed in Ekaterinburg, where 7, sq m were delivered to the market throughout H Second place among regional cities was taken by Vladivostok with a delivery volume of 28,5 sq m, from which 12, sq m were built within a built-to-suit agreement for the retail company Kari. As for other cities, we observed a low level of new warehouse completions throughout the last half year. In general, it is worth mentioning that in the crisis period, given the declining demand for new space, developers have ceased speculative construction outside the Moscow region. This has hit smaller regional cities. While available space in ready projects can be found only in large millionplus cities, it is hard to find a quality warehouse with large vacant blocks outside the capital city and the federal centres. For this reason, if a tenant requires 2-3, sq m of quality industrial space in more distant Russian regions, it needs to conclude an agreement with a developer for the construction of a built-to-suit property a year and half prior to beginning operational activity. INDEX VALUE Total stock, million sq m 19 Completions, thousand sq m 49.5 Regional completions (excluding Moscow and St. Petersburg), thousand sq m Take-up, thousand sq m 559 Regional take-up, thousand sq m 9.2 Regional vacancy rate, % 8.6% Average rental rate*, RUB/sq m/year 3,8 Average sale price*, RUB/sq m 35, * Here and below rental rates are given excluding VAT, OPEX and utilities, the sale price is net of VAT Total stock distribution, % 5% 14% 4% 2% 1% 2% 2% 6% 64% 15 H1 216 Russia Colliers International

16 thousand, sq m Demand Since the beginning of the year, the total take-up on the regional Russian market reached around 9, sq m, (excluding Moscow and St. Petersburg), which is 3% higher YoY (in H1 215, the take-up level in regions reached 67, sq m). In H1 216, the largest volume of closed transactions was observed in Samara, where 27,5 sq m of quality space was leased, and in Ekaterinburg where the take-up figure amounted to 25,26 sq m. The largest share of demand came from the food retail segment (X5 Retail Group, Auchan, etc.), which strengthened their presence not only in million-plus cities, but also in cities with a population starting from 5, inhabitants. In H1 216, we also observed interest in quality warehouse space even in cities with a population around 25, inhabitants. This is firstly due to the fact that in the crisis period landlords are ready to offer the most attractive commercial terms for potential clients in order to implement built-to-suit projects. Home appliances and electronic goods retailers also increased their activity, showing demand for Class A warehouse blocks of 2,-3, sq m. The e-commerce segment continues its expansion in the market. For example, the internet retailer Ozon rented a warehouse block of 3,4 sq m in Kazan, and is planning to implement two built-to-suit properties by the end of 216. A number of other e-commerce companies are currently looking for appropriate warehouses, and we expect that by the end of this year the volume of warehouse space rented by the e-commerce segment will increase. Market balance Compared to H1 215, the vacancy rate in the Russian regions has increased and is now at 8.6%. This is the result of logistics optimisation by a number of companies, which vacated part of their industrial space. Another factor that forced an increase in the vacancy rate is the relocation of tenants to newly constructed built-to-suit properties. For example, this year Sportmaster which previously leased a large volume of warehouse space in a speculative project, has moved to its built-to-suit property, which has resulted in an increased volume of vacant space in the local market. The highest vacancy rates are in Samara (17.9%) and Voronezh (16.8%), while the cities with the smallest levels of vacant space are Rostov-on-Don (4.7%), Kazan (4.6%) and Perm (less than 1%). An additional vacant supply also comes from companies that have built new built-to-suit properties and currently offer part of the space for sublease. The average asking rent in the regional industrial market in H1 216 amounted to RUB3,8/sq m/year. The average sale prices ranged between RUB33, and RUB38, per square metre. CITY Take-up distribution in Russia Take up distribution by tenant type in H1 216 Major lease and sale transactions in H1 216 in Russian regions COMPANY Regional vacancy rate in H1 216 AREA, SQ M PROPERTY Samara Auchan 25,36 SamaraTransAvto Orel Yekaterinburg Х5 Retail Group Х5 Retail Group Yekaterinburg KDV 8, % ,43 RLS 13,69 PNK-Kosulino Moscow St. Petersburg Regions Logistics park Pyshma H1 21 H1 211 H1 212 H1 213 H1 214 H1 215 H % 3% 86% Retail and distribution companies Logistics operators Manufacturing companies Others 16 H1 216 Russia Colliers International

17 thousand, sq m Trends and forecast Currently, we can observe a significant lack of speculative construction activity in the industrial market. This is due, on the one hand, to the low demand for ready warehouse complexes, and low profitability of projects on the back of low rental levels, and long payback period on the other. However, the majority of developers own a portfolio of land plots suitable for the construction of distribution centres and warehouses in a built-to-suit format. It is worth mentioning that federal retail chains, such as Auchan, X5 Retail Group and others have expanded their presence in terms of warehouse facilities in cities with population less than 5, inhabitants, where they are building distributional centres within built-to-suit schemes. We expect this trend to continue until the year-end, because in the current period tenants are in the winning position of gaining the most attractive commercial terms from landlords. Despite the vacancy rate showing growth throughout H1 216 in the regional Russian market, there is still space for further market improvement and development because Class B and C properties of lower quality are still dominant in the regions. We expect the regional supply volume in H2 216 to reach 48, sq m. Total stock and new construction forecast Major industrial complexes completed in Russian regions in H1 216 CITY PROPERTY AREA, SQ M Yekaterinburg Total stock (H1 216) New construction (H2 216) Industrial Park PRO- BUSINESS-PARK, DС Sportmaster, Phase I 49, Vladivostok Aviapolis Yankovskiy 28,5 Yekaterinburg Ulyanovsk Industrial Park PRO- BUSINESS-PARK, ВD Verny T1, Angarniy Logistics Complex 21, 2, Major industrial complexes planned to be completed in H2 216 Yekaterinburg Logistics park Uralskiy, Phase III 4, Yekaterinburg Chkalovskiy terminal 4, Perm A Plus Park Perm 3, Chelyabinsk Integratciya, Phase III X5 Retail Group 1, 17 H1 216 Russia Colliers International

18 H1 216 thousand, sq m H1 216 Research & Forecast Report Industrial market Supply As of H1 216, the total stock of quality industrial space in the Moscow region market reached 12.2 million sq m, of which Class A properties constitute 9.8 million sq m, and Class B properties account for 2.4 million sq m. In H1 216, 147, sq m of industrial space was put into operation, which is much lower than the figures for H1 215, when delivery volumes reached almost 4, sq m. This was mainly due to the fact that amid lowering demand developers prefer first to realize already existing vacant space before launching new speculative projects. The largest share of existing supply can be found in the south and north of the Moscow region. A number of developers built large logistic parks in these areas in 214, which in turn resulted in an increasing volume of available Class A properties. Among such projects are the PLT-Severnoye Sheremetyevo logistic park on the north of the Moscow region, the Dmitrov logistic park developed by Ghelamco, the Sherrizone Nord logistic park developed by Griffin Partners and others. In the south, projects such as South Gate developed by Radius Group can be mentioned, where the developer is currently building a built-to-suit warehouse for Leroy Merlin, the Synkovo logistic park developed by Stroitelny Alliance Holding, the PLT-Chekhov 3 logistic park and others. Key market indicators INDEX H1 215 H1 216 Total stock, million sq m Including: Class A Class B Completions, thousand sq m Take-up, thousand sq m Vacancy rate, % Average rental rate, RUB/sq m/year* 4,2 4, Average sale price, RUB/sq m* 43, 4, * Here and below rental rates are given excluding VAT, OPEX and utilities, the sale price is net of VAT Completions and take-up , Major industrial complexes, completed in H1 216 PROPERTY Freight Village Vorsino (Phase II) Logopark Synkovo DEVELOPER AREA, SQ M Freight Village Ru 35,6 Holding company Stroitelny Alliance 27,95 3 Completions Take-up H1 216 Russia Colliers International

19 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Demand In H1 216, the highest activity in the market was demonstrated by Russian retailers: leading food retail chains such as X5 Retail Group, Magnit, O Key and Lenta; household appliances and electronics (Eldorado), and construction supplies and home goods (Castorama). Companies from these segments usually leased large blocks of Class A warehouse space ranging from 1, sq m to 5, sq m. In the current crisis situation, Russian companies tend to be more flexible and mobile than Western companies, which usually cease their investment activity during turbulence until the market stabilises. In the last half year, we also observed interest in leasing small warehouse blocks between 2,5 and 3, sq m in Class A properties. This is due to the fact that developers are offering rather advantageous commercial terms for quality warehouse space for potential tenants, which stimulates many companies to relocate their facilities to Class A schemes from buildings in lower segments. Vacancy rates Currently, the Moscow industrial market is witnessing an exhaustive volume of available industrial space in existing warehouses, because properties being built in recent years are being leased out at a slow pace. In addition to this, a number of companies on the market have downsized their leased space, which in turn has formed additional vacant space in the market. By the end of H1 216, the volume of available Class A space reached almost 1.2 million sq m. The market average vacancy rate amounts to 11.3%, which is significantly higher than the figure for H %. As long as the new construction pipeline remains limited, we expect the vacancy rate to decline in the medium term. Major lease and sale transactions in H1 216 COMPANY PROPERTY AREA, SQ M O Key Logopark Sever-2 59,6 Castorama PLT-Chekhov 3 42,5 Santens Service South Gate 3, X5 Retail Group Logopark Sofyino 22,87 Belligen Springs Park 16,56 Geba Trilogy Park Tomilino 14, Take-up distribution by tenant type in H % 5% 4% Vacancy rate, % 75% Retail and distribution companies Logistics operators Manufacturing companies Others Rental rates At the moment, rental rates have entered a stabilisation phase with the market almost completely switching to the rouble zone. The transition process from USD-denominated market to rouble-denominated rents was uneven. While some companies accepted the new currency during the first months of the crisis, others tried to maintain USD rents as long as possible, and it took longer for them to accept new terms. Currently, almost all new lease contracts are signed with rouble rates. Rental values have not showed significant changes since the end of 215: the average Class A market rent amounts to RUB3,8-4,2/sq m/year, Class B rent RUB3,-3,5/sq m/year. A number of Class A projects are being offered at a lower rate, RUB3,5/sq m/year, but such exceptions do not reflect the general market trend colliers.com/<<market >> 19 H1 216 Russia Colliers International

20 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 $/sq m/year RUB/sq m/year Trends and forecast Rental rates* On the back of the lowering construction pipeline for speculative warehouses, the existing volume of vacant space will gradually decrease, which in turn lead to the stabilisation of market rental rates. A slight discount from the market average will be observed mainly in the warehouses located in the highly-competitive and dense zones of the Moscow region north and south. Regarding the currency used for leased contracts, we do not expect the market to transition to USD-rents in the medium term , We also expect that given the large volumes of available stock in the Moscow market, there will be a rising trend of adapting already built premises to the needs of tenants interested in a long-term lease contract for such a building Major warehouse complexes scheduled for completion in H2 216 * Rental rates are calculated using the average exchange rate for the last month of the quarter PROPERTY DEVELOPER AREA, SQ M PNK-Valischevo PNK Group 117,9 South Gate (Leroy Merlin) Atlant warehouse complex, bldg. 29 Radius Group 1, Atlant Metalloplast 6,35 Vnukovo II Logistic Partners 5, Britovo Dmitrovskiy Logistic Park (C1 block) Sovremennye Skladskiye Technologii 49, Ghelamco 2, 2 H1 216 Russia Colliers International +1 colliers.com/<<market >>

21 thousand, sq m Research & Forecast Report Industrial market Supply In H1 216, St. Petersburg warehouse market has increased by 133, sq m reaching 2.74 million sq m. The major volume of completions was formed by built-tosuit projects and amounted to 81%. Prevailing number of completions in H1 was realized by A Plus Development company (8, sq m). Share of speculative warehouses in the total volume of existing stock amounts to 54% or 1.5 million sq m. In terms of geographical distribution, the majority of existing warehouses are concentrated in the southern part of St. Petersburg: in Moskovskiy and Pushkinskiy districts, accounting for 38% of the total existing supply. By the end of 216 declared volume of new completions will remain at low levels, about 4, sq m. The combination of limited demand for new warehouse facilities and slight decrease of rental rates doesn t allow developers to invest in new construction projects. Nevertheless, a number of companies has announced plans for develop in industrial segment. For example, Admiral group of companies has declared intention to construct three objects in Kronshtadt and in Maryino industrial park with the total area more than 7, sq m. These objects are expected to be completed by 219. In addition, during SPIEF 16 Committee for investment of Saint Petersburg, Pulkovo Airport JSC and electronic retailer Ulmart entered into agreement. This agreement involves the construction of logistic complex on the site of Special Economic Zone Aeropolis. Announced deadline for completion is set for 22. Major warehouse complexes completed in H1 216 PROPERTY ADDRESS AREA, SQ M Armada Park, Phase II Shushary, Moskovskoe hwy. 27,9 A Plus Park Shushary Shushary, Moskovskoe hwy. 69,5 A Plus Park Shushary (NPK Katren) Shushary, Moskovskoe hwy. 1,5 Key market indicators, H1 216 INDEX VALUE Total stock, million sq m 2.74 Completions, thousand sq m 133 Take up, thousand sq m 49 Vacancy rate, % 5.9 Average rental rate, sq m/year* Total stock and completions RUB4,1 * Here and further, rental rates are given excluding VAT, OPEX and utilities F Total stock at the beginning of the year Completions 21 H1 216 Russia Colliers International

22 Q1 211 Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 $/sq m/year RUB/sq m/month thousand, sq m Vacancy rate, completions and take-up Demand Decreasing volume of new speculative stock of warehouses amid demand level remaining stable has led to declining vacancy rates that are set at 15, sq m, or 5.9% vs 7% at the end of 215. In H1 we observed decreasing number of deals despite reduces level of vacant space. Since the beginning of 216 the total volume of deals has reached 5, sq m, which is almost two times lower than the figure for H1 215, when the volume of deals accounted for 97, sq m. Retail and distribution companies, as before, form a substantial part of demand it is accounted for 54% of the total number of closed deals. Food retail segment is less active. Due to amended financial terms of construction imposed by new economic reality, food retail operators became more thorough in their requirements for new warehouse premises. For the first time, the share of manufacturing companies in the total number of closed deals increased and reached 32%. We observe heightened interest for leasing of small warehouse areas from furniture manufacturers, manufacturers of wearing apparel as well as companies operating in food and metal industry. In H1 the average rental rent was RUB4,-4,2/sq m/ year (excluding VAT and OPEX). Trends and forecast Construction of warehouse facilities under built-to-suit agreements and a low proportion of speculative warehouses in the total volume of ongoing projects will cause further decline in a vacancy rate during H Rental rates are unlikely to be changed significantly despite limited supply of large-sized blocks in existing premises and a low level of new speculative warehouses completion. According to our estimates, the demand for industrial premises will be formed by both domestic and foreign companies that seek to improve the quality of leased facilities or to expand available spaces to take an advantage of current market conditions. Major industrial complexes, scheduled for completion in H2 216 PROPERTY ADDRESS AREA, SQ M Ulmart distribution centre Piskarevskiy pr. 18,7 Wurth Shushary, Moskovskoe hwy. 14, % % 3 15% % % 5 % H1 216 New completions (speculative & bts) Take-up Vacancy rate, % Rental rates dynamics Class A, USD-rent Class A, RUB-rent Demand distribution by tenant type 1% 3% 8% 33% 27% 8% 34% 23% 6% 19% 23% % 32% 18% 14% 4% 63% 68% 66% 53% 54% 2% 44% % H1 216 Manufacturing companies Logistics companies 22 H1 216 Russia Colliers International Retail and distribution companies +1 colliers.com/<<market >>

23 thousand, sq m H1 216 Research & Forecast Report Retail market Supply For the first half of 216, the total stock of retail space in quality shopping centres in Russia amounted 24.7 million sq m, of which 63% are located in regional cities (excluding Moscow and St. Petersburg). In the first half-year, 16 shopping centres with a total GLA of 528 thousand sq m were opened in Russia. The largest openings in the first half-year include SEC MegaGRINN (Phase I) in Kursk, Sedanka City in Vladivostok, UgraMall (Phase II) in Nizhnevartovsk and Italmas in Izhevsk. The major cities are still the priority locations for new retail development in all Russian cities. Currently, the regional cities of Russia account for 6 million sq m of quality retail space and the average provision of retail space is 39 sq m per 1, capita, which is 2.3 times more than the Russian average. For the first half of 216, Yekaterinburg was the leader among Russian cities (excluding Moscow and St. Petersburg) in terms of the provision of retail space with a value of 624 sq m per 1, people, shifting Samara to 2 nd place with 567 sq m per 1, capita, and Nizhniy Novgorod in 3 rd place (544 sq m per 1, capita). The city with the least provision of retail space among major Russian cities is Perm (168 sq m per 1, capita), which has, according to our estimates, the greatest potential for new retail development. Dynamics and regional structure of annual completions, F Key market indicators in H1 216 INDEX Total stock in high quality shopping centres, thousand sq m (GLA) Completions in Russia, H1 216, thousand sq m (GLA) Completions in Russian regions*, H1 216, thousand sq m (GLA) Number of shopping centres opened in Russia, H1 216 Number of shopping centres opened in Russian regions*, H1 216 *Except Moscow and St. Petersburg VALUE 24, Key shopping centres, completed in Russian regions in H1 216 PROPERTY MegaGRINN, Phase I CITY GBA, SQ M GLA, SQ M Irkutsk 115, 6, Sedanka City Vladivostok 94, 45, F Regional cities Moscow St. Petersburg UgraMall, Phase II Nizhnevartovsk 57,5 4,15 Italmas Izhevsk 54, 4, City-Mall Sterlitamak 54, 38, Pioner, Phase I Barnaul 8, 37, Akvapolis Pskov 62, 31, Akademichiskiy Yekaterinburg 6, 3, Kovrov Mall Kovrov 49,9 26,5 23 H1 216 Russia Colliers International

24 A comparison between Russian million-plus cities and European capitals, comparable in size, currently shows that almost all of them have potential for further retail real estate market development and the completion of at least one large-scale or several community shopping centres. For example, Warsaw, comparable to Yekaterinburg, has 64 sq m of retail spaces per 1, capita, while the figure for Budapest is 557 sq m; retail space provision in Prague reaches 732 sq m, which is higher than in Nizhniy Novgorod, which is a city comparable by population. However, a limiting factor to achieve the European average in Russian cities is the lower spending power of the population and unstable economic conditions. Demand Despite the fact that in the current economic situation Moscow and St. Petersburg remain the priority cities for new store openings for most retailers, in the first half of 216 many brands decided to launch their first stores in regions of Russia that are new for them. The most significant examples in the fashion segment are such openings as Podium Market in Krasnodar, Henderson in Mineral Vody and Dior in Nizhniy Novgorod. In addition, in the near future it is expected that Inditex will enter the Irkutsk and Kursk markets the operator has already signed leases in the SilverMall and the Europa shopping centres. The most active expansion in the Russian market is shown by retail chains operating mainly in the low cost segment. Therefore, in addition to grocery discounters, plans for further expansion have been announced by fashion retailers such as Sela (opening of 5 stores by the end of the year), Familia (doubling the chain by the end of 218), as well as Gloria Jeans, Baon, Zenden and others. As for other segments, the leaders from the expansion point of view are M.Video, which plans to open 2 more stores this year, DIY retailer Leroy Merlin, which intends to open 17 new stores by the end of the year throughout Russia, and Decathlon, which is actively considering new land plots in Russian regional cities. Retail space provision, sq m per 1, capita The provision of quality retail spaces in the Russian million cities and European capitals (sampling) Krasnoyarsk Voronezh Volgograd Russian regional million-plus cities European capitals over 1 million people (sampling) The structure of international brands newcomers in the Russian market by segments, H1 215 (inner ring) and H1 216 (outer ring) 31% Rostov-on- Don Prague Samara Nizhniy Novgorod Chelyabinsk Kazan Ufa Omsk Warsaw Yekaterinburg Novosibirsk 8% Budapest Minsk Bucharest Perm Population, 216, thousand people Kiev 36% 46% 46% 15% 18% Entertainment Fashion Catering Others 24 Retail Market Overview H1 216 Russia Colliers International

25 Macroeconomic overview In connection with the ongoing reduction in consumer demand, retail turnover declined by 5.7% (YoY) in the first five months of 216. In the structure of retail turnover, the share of grocery sales at current prices is 49.5%, while manufactured goods take 5.5%. In the group of non-food retailers the leaders in terms of declines in sales (decline by 12% and more YoY at comparable prices) are clothes and shoes. Generally, at the beginning of 216 the downward trend in disposable income in the population has remained. Real disposable incomes in January-May 216 were 95.1% YoY. According to Rosstat, the population continues to save money on purchasing goods, while the share of savings in the structure of the population s income decreased by 4.1% (YoY) in the first four months of 216. Trends and forecasts > About 1.6 million sq m of high quality retail space are planned for completion in Russia by the end of 216; however, according to our estimates, about 3-4% of this space could be postponed to a later date. Currently in Russia, a total of 45% of about 5 million sq m of quality retail space at various stages of construction has been frozen for an indefinite period. > More active expansion of retail chains to the regions, which were ignored by professional retailers for a long time due to their geographical remoteness or politicaleconomic aspects as, for example, Primorsky Krai or the Caucasus will become a positive trend over the coming years. > As for retail development, some key developers remain interested in major Russian cities for new projects even during the crisis. In particular, IKEA continues to search for new land plots in million-plus cities, where MEGA the shopping centres are not yet represented (Perm, Chelyabinsk, Krasnoyarsk and Voronezh), and Maxi- Development is carrying out projects in cities that have a population of 3,-5,. Key macroeconomic indicators Major shopping centres, planned for completion in Russian regional cities by the end of 216 PROPERTY INDEX VALUE, % Inflation, January-May 216, YoY 2.9 Real disposable income, January-May 216 CITY -4.9 Unemployment, January-May Real retail turnover growth, January-May 216, YoY Source: Ministry of Economic Development, Rosstat -5.7 Real retail turnover and disposable income growth Source: Bank of Russia, Rosstat Disposable income growth, % YoY Retail retail turnover growth, % YoY GLA, SQ M Goodok Samara 115, Novo-Irkutskiy Irkutsk 84, Okhta Mall St. Petersburg 78, Chizhov Gallery, Phase III Voronezh 61,7 Riviera Lipetsk 61, Star City Mall Tumen 53, Rubin, Phase II Tver 51,5 MegaGRINN, Phase II Kursk 69, Galaktika, Phase I Barnaul 65,4 Maxi Arkhangelsk 49,2 25 H1 216 Russia Colliers International

26 thousand, sq m of GLA H1 216 Research & Forecast Report Retail market Supply The total stock of quality shopping centre space in Moscow and satellites amounted 6,275 thousand sq m by the end of H1 216, 87% of which is located in classic shopping centres. Retail stock per 1, capita in the Moscow region was 452 sq m, which is 2.7 times higher than the country average, but still leaves a potential for the development of new professional shopping centres in the region. The completion of SEC Riviera was a key event in the Moscow retail market in H During the first month of operation, the number of stores opened by tenants was quite low 36 stores or 31% of retail space, including anchors, which, however, is comparable to the average occupancy of shopping centres opened in 215. In the first two quarters of 216, four shopping centres with a total GLA of thousand sq m opened in Moscow. Key market indicators in H1 216 INDEX Total stock, including specialized SC, thousand sq m (GLA) VALUE 6,275 Total stock, thousand sq m (GLA) 5,452 Completions in H1 216, thousand sq m (GLA) Number of shopping centres opened in H Vacancy rate, % 8.5 Retail stock per 1, capita, sq m (GLA) 452 Also a new unusual retail format entered the Moscow market in the first half of the year Box City, implemented by Crocus Group. It is a shopping centre made of shipping containers, the tenants of which will be designer fashion stores and catering companies. It is planned that the project will be of a seasonal nature. Completion dynamics in Moscow region in halfyear periods Shopping centres, completed in H PROPERTY ADDRESS GLA, SQ M DEVELOPER 6 5 Riviera 18 Avtozavodskaya st. 1, Riviera 4 3 Vostochniy Veter Micro-district of the 1 st May, Balashikha 15, Morton Group of companies 2 1 Akvarel Yuzhnaya 9 bldg 1 Kirovogradskaya st. 7,6 Imagine Estate F Noviy 57 Yubileyniy Ave, Reutov 7, Centrstroy Completions in H1 Completions in H2 Completions in H2 216 (forecast) 26 H1 216 Russia Colliers International

27 New Moscow* In 216, it has been five years since the expansion of the Moscow city administrative boundaries through the inclusion of territories located in the south-west of Moscow region. Besides the fact that Moscow's territories increased almost 2.4 times, the retail real estate market of the city formally raised by more than 9, sq m of retail space. Along with this more than a half of total retail stock in New Moscow is formed by not classic but rather market type shopping centres, the largest of which are Slavyanskiy Stan and the cash&carry agrarian cluster Food City. According to our estimates, the share of classic high-quality shopping centres in New Moscow does not exceed 26% of total retail stock, and 62% of it is made up by the shopping centre MEGA Tepliy Stan. A feature of the joined territories is their low urbanisation level (at least 25, people live on 148 million "new" hectares), which hinders developers plans for new largescale retail development. As a result, most existing retail facilities are concentrated near the MKAD along the Kievskoye and Kaluzhskoye highways, which allows them also to attract Moscow residents. The retail real estate market of New Moscow is formed mainly by small local shopping centres located in towns, or by free-standing hypermarkets along the highways. In addition, there are several specialised shopping centres on the territory of New Moscow Vnukovo Outlet Village, a furniture centre in Business Park Rumyantsevo and the agrarian cluster Food City. Currently, the market of high-quality retail real estate in New Moscow is at its initial growth stage. However, these territories are one of the priorities of Moscow's development, including residential construction. According to data from the New Moscow Development Department, the completion of about 2 million sq m of residential space is planned by the end of 216, which will increase the permanent population by 11, people and will require a parallel development of quality infrastructure, including retail. Besides the local shopping centres and street retail premises on the ground floors of under-construction housing estates, New Moscow, according to our estimates, has the potential to implement several new high-quality shopping centres, which will allow residents to make daily purchases and to spend leisure time without needing regular trips to Moscow. Several shopping centres with a total area of about 37, sq m have already been announced in New Moscow, including large-scale projects such as SkyMall and Salaryevo Mall. In our opinion, the most successful will be the project that enters the market first, and thus offers a concept quality comparable to the best malls within the borders of the MKAD. The biggest shopping centres in New Moscow, excluding free-standing hypermarkets PROPERTY Slavyanskiy Stan Food City Mega Tepliy Stan Rumyantsevo RIO Rumyantsevo Vnukovo Outlet Village Akvarel ADDRESS Micro-district Slavyanskiy Mir, Mosrentgen GLA, SQ M 3, 22 Kaluzhskoye Hwy, Mamiry, Sosenskoye 242,5 21 Kaluzhskoye Hwy, Sosenskoye 4 Kievskoye Hwy, 22 km, Moskovskiy 8 bldg 1 Kievskoye Hwy, 23 km Bldg 8 Lapshinka village, Moskovskiy 44 Zheleznodorozhnaya st., Shcherbinka 1, DEVELOPER Slavyanskiy Mir Group of companies Kievskaya Ploschad 155, IKEA 5, Rumyantsevo 45,3 Tashir 26,9 Diona IM Company Structure of existing retail areas in New Moscow, % 74% 26% Non-professional SC Professional** SC 16% Super-regional SC (GLA >75, sq m) Community SC (GLA 2, 5, sq m) Neighborhood SC (GLA <2, sq m) **Professional shopping centre a shopping centre with a combination of the following characteristics: thoughtful commercial and architectural concept; effective floor plans; most of the tenants are operated by professional retail chains; the project is managed by a professional management company. 5% 5% *New Moscow means territories in the south-west of Moscow region, joined to Moscow s boundaries in H1 216 Russia Colliers International

28 Demand Major Moscow shopping centres opened in the last few years with high vacancy rates, are gradually being rented by tenants. In addition, there is some rotation of tenants in the top shopping centres that have already been operating for a long time on the market. The leaders of the first half of the year among Moscow shopping centres (opened before 216) in terms of the number of new stores openings were Aviapark, Columbus, Mozaica, Zelenopark, Europeyskiy and Afimall City a total of 8 new tenants leased 55, sq m in these shopping centres in the last 6 months. About one-third of the space (32%) was opened in SEC Aviapark, including the opening of such large-scale tenants as Kidzania, KIABI, Gloria Jeans and Leonardo; 26% of space was opened in SEC Zelenopark, which launched the fashion plaza in Q2 a gallery of clothing and shoe stores, including fashion anchors Zara, H&M and Reserved. The main share of space in new openings was taken by fashion tenants (59%), while the 2 nd place was taken by entertainment with 18% the main role was played by the opening of Kidzania in Aviapark on area of 1, sq m. In terms of the number of openings, the 1 st place was taken by fashion tenants (54 stores), while catering was in 2 nd place (12 new outlets). As for the entry of new international brands, in H1 216 the first mono-brand stores of such retailers as Victoria's Secret (Europeyskiy), Newby London (Afimall City), Barbour (GUM), Armani Exchange (Aviapark, MEGA Tepliy Stan, MEGA Khimki, Avenue South-West), Kiko Milano (Okhotniy Ryad), HolikaHolika and Lion of Porches (Aviapark), Urban Decay (Atrium) and Loriblu Outlet (Vnukovo Outlet Village) were opened. Moreover, in Q2 plans to enter the Russian market were announced by such international brands as the Israeli fixed-priced coffee chain Cofix and the Canadian chain Press Café. Also, the Austrian brand of decorative lighting Eglo is planning to open its first mono-brand boutique in Russia. Despite the huge number of new international brands in the Russian market, the expansion of newcomers in the last year and a half, unlike previous years, is rather selective: although international brands were previously ready to open more stores, now we are basically talking about two or three stores, and mainly in Moscow. Key stores openings in Moscow shopping centres*, H1 216 SHOPPING CENTRE BRAND SEGMENT AREA, SQ M Aviapark Kidzania Edutainment 1, Zelenopark Inditex (Zara, Zara Home, Bershka, Stradivarius, Pull&Bear, Massimo Dutti, Oysho) Fashion 6,59 Europeyskiy Podium Market Fashion 4,35 Columbus Koton Fashion 4,15 Aviapark KIABI Fashion 3,5 Zelenopark LPP Group (Reserved, Cropp, House, Fashion 3,315 Mohito, Sinsay) Zelenopark H&M Fashion 2,45 Mozaica Europeyskiy Domovoy Victoria s Secret Household goods 1,9 Fashion 1,7 Aviapark Gloria Jeans Fashion 1,5 Europeyskiy Leonardo Hobby goods 1,15 MEGA Tepliy Stan * In shopping centres, opened before 216 Uniqlo Fashion 1,1, shopping centres data Structure of stores area, opened in H1 216, by segments, % of area* 6% 3% 5% 4% 3% Fashion (clothes, shoes, accessories) Entertainment Hobby goods Household goods 19% 6% Children goods Catering Others * Based on a sample of shopping centres, opened before H1 216 Russia Colliers International

29 thousand, sq m sq m per 1, capita Vacancy At the end of H1 216, the vacancy rate in Moscow shopping centres, calculated on the basis of actually opened stores, increased slightly. The growth in vacant space, formed due to the opening of SEC Riviera, was offset by the active opening of stores in SEC Aviapark, Columbus, Afimall City, Zelenopark and others during the first half of 216. According to calculations based on information about signed lease agreements and tenants that are currently doing fit-out works in shopping centres, planned for completion by the end of 216, the growth in the vacancy rate in the second half of the year will not exceed 1.5-2%. Thus, the average annual vacancy rate will be at around 1-11%, given the trend of active leasing of existing shopping centres in Moscow. Trends and forecasts > According to our estimations, about 425, sq m of high quality retail space will be completed in H2 216 in Moscow. > The smooth recovery of retail real estate development in Moscow region should be expected not early than in 22. The supply of quality retail space in Moscow, offered for lease, in the next 5 years will be gradually reduced due to two key factors: selective launching of new construction by developers and a reduction in completion as a result; gradual leasing of retail space in existing large-scale shopping centres in terms of the recovery of demand for retail space from retailers. > The development of the Moscow retail real estate market will maintain the trend of the last a year and a half, namely change in the strategy of active development to a strategy of reasonable and prudent business management both for developers and retailers. In terms of reducing consumer demand, tight bank financing and limited foreign investment, mostly high-quality projects will enter the market. In addition, the gradual improvement in the economic situation will provide an impulse to new brands to enter Russian market and for the expansion of retail chains that are already present. Nevertheless, one should not expect the aggressive expansion of retailers observed before the crisis of 214. Vacancy in Moscow shopping centres 12% 1% 8% 6% 4% 2% % 6.% H1 216 H2 216F Annual completion dynamics and dynamics of retail spaces provision by % 3.% 2.% 2.8% 6.% 8.% 8.5% F 217F 218F 219F 22F % Annual completion dynamics in Moscow Dynamics of retail spaces provision in Moscow estimation, developers data 29 H1 216 Russia Colliers International

30 MID-YEAR H Research & Forecast Report Street Retail Main trends At the end of H1 216, the reconstruction of main shopping streets under the My street program influenced the Moscow street retail market, which contributed to a decrease in pedestrian and automobile traffic, as well as a reduction in the revenues of owners and tenants of street retail premises. This year, due to an initiative by the Moscow authorities, new rules for organizing summer cafes were introduced, which impose a uniform placement standard for fences, umbrellas and furniture. Already we can note that the number of outdoor cafes has increased by about 25% compared to last year. Vacancy rate changes in the central Moscow retail corridors, Q2 216 NOVY ARBAT ST Also an important announcement in Q2 216 was the news announced by the mayor of Moscow, about the upcoming demolition of 17 buildings that were recognised as being illegal, most of them being located in the city centre. This list is comparable to the list of 14 objects that were demolished in February of this year. The vacancy rate in the central retail corridors of Moscow remained stable, reaching 1% value, which is comparable to Q Meanwhile, the vacancy rate on the Boulevard Ring was registered at the level of 16%, on the Garden Ring 9%, on the main central streets 1%, on the central walking streets 9%, on the Patriarch's ponds 5%. On the main shopping streets such as Dmitrov highway, Leninskiy, Leningradsky and Kutuzovsky avenues, the vacancy rate is about 9%. Demand Among the profiles located in the central retail corridors, the leading position is taken by catering (4% of total leasable area), while shoes and clothing stores occupy the second place (11%). Banks and financial services and grocery stores form 9% and 5% of total occupiers respectively. As before, the activity of grocery stores can be observed in street retail; however, the vector has changed from active expansion last year towards the optimisation of rental expenses by the reducing or fixing rental rates, the exception of indexation and closing inefficient and unprofitable stores. In turn, this process may lead to other retailers occupying the vacated space. For example, it is projected that new competitors will open stores in locations closed as a result of Growth of the vacancy Vacancy rate with no changes Name Vacancy rate Q1 216 Vacancy rate Q2 216 Stoleshnikov Per. 25% 29% Tverskaya St. 9% 11% Kuznetsky Most 2% 12% Petrovka St. 15% 18% Myasnitskaya St. 4% 4% Nikolskaya St. 2% 18% Arbat St. 3% 3% Novy Arbat St. 5% 6% Garden Ring 1% 9% Reduction of the vacancy Vacancy rate on the main shopping corridors 3 H1 216 Russia Colliers International

31 the optimisation of X5 Retail Group company stores (involving about 2 stores). Russian and international fashion operators continued their active expansion in street retail. New stores were not opened on mass; however, the market was filled by new original concepts and well-known international companies. For example, clothing and accessory stores were opened by Russian designers Ordynka17 and Plohoi Concept Store, and in H1 216 flagship boutiques were opened by Bulgari on the Petrovka street and Fendi on the Stoleshnikov lane. The multi-brand sneaker store Drop opened on Kuznetsky Most street and the St. Petersburg store of English clothes and accessories Pure Britannic opened on the Znamenka street. Among the other openings, a grocery store by Perekrestok-Express was opened on the Tverskaya street, the concept salon Brow&beauty bar opened on Bolshaya Bronnaya, and a Nespresso store opened on Bolshaya Dmitrovka. Expansion of catering The most active players in the street retail market remain catering operators. In H1 216 on the Moscow central retail corridors the number of cafes, bars and restaurants increased, which was caused by factors including the expansion and initiatives of individual catering projects, offering places with new formats and unique concepts: national cuisines, wine bars and gastrobars. Also, accessible rental rates for some premises allowed restaurateurs to open new and interesting concepts. For comparison: in H1 216 in the centre 87 places of various formats were opened, whereas in H1 215 in the centre 53 conceptual cafes and restaurants were opened not taking into account major fast food chains. The average area of newly opened café is about 1 sq m, while for restaurants it is about 3 sq m. In Q2 216, new catering outlets can be noted: the restaurant Meatless on the Pyatnitskaya street, the meat restaurant Brisket BBQ a collaboration between Arkady Novikov and the owners of the burger chain Ferma Burger, the first restaurant-market in Moscow by the St. Petersburg chain Marketplace on Myasnitskaya street, Rynok and obschepit a new project of by the owners of Bratya Karavaevi. The burger restaurant #Farsh on Gruzinskiy Val and the restaurant Voronezh on Bolshaya Dmitrovka expanded by opening second venues. Chain operators Double B, Vai Me, Ms.Donair and others are continuing to expand. Commercial terms In Q2 216 on the Moscow central retail corridors multidirectional rental rate trends were observed. Rouble rental rates for premises decreased on the such streets as Stoleshnikov lane, Myasnitskaya, Arbat, and increased on the streets Tverskaya, Petrovka and New Arbat. The observed decrease is primarily caused by the long exposure of premises and it is not a general market trend. Moreover, in connection with the process of improvements and landscaping of streets, some owners of retail premises were forced to reduce rental rents for a time, and some tenants Distribution of space by retail category in Q2 216, % of total number The dynamics of opening catering places in the centre of Moscow % Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Cafes Restaurants Burger restaurants Average vacancy rate in Moscow on the key retail corridors, % 14% 12% 1% 8% 6% 4% 2% % 3% 5% 8% H1 21 1% 9% H % 6% H % 4% H % 3% H1 212 H % 4% H1 213 Catering Clothing and shoes Banks and financial services Groceries Accessories Other shops Other services Bars and pubs Coffee shops Other places H % 4% H % H % H1 215 H % 1% H Street Retail H1 216 Moscow Colliers International

32 decided to close their venues, for example, while street repairs were being carried out the restaurants Zodiac and Luciano located on Smolenskaya square were closed. Forecast The further development of catering, grocery stores and fashion operators is expected. For example, the owners of Burger Heroes announced the opening of a steak restaurant Steak Heroes in September of this year, and the well-known brand Christian Louboutin is planning to open a boutique on Bolshaya Dmitrovka. In the bank segment, the release of premises is expected due to the ongoing optimisation of existing chains and the predicted withdrawal of licenses from 1% of banks that may affect about 75 banks. This will lead to the appearance of a new quality supply on the market, which will be interesting for tenants operating in other sectors. In addition, the upcoming demolition of illegal buildings will result an increased demand for retail premises in the locations of the demolitions. The city authorities have promised to assist tenants in finding new retail space. According to our forecasts, some chain tenants will move to shopping malls, and some impulse demand stores will look for similar ground floor built-in premises located along heavy pedestrian traffic streets. Rental rates on the key retail corridors of Moscow in Q2 216, RUB/sq m/year* STREET MIN RATE MAX RATE Stoleshnikov Per. 1, 25, Tverskaya St. 5, 155, Kuznetsky Most 5, 195, Petrovka St. 6, 12, Myasnitskaya St. 46, 96, Nikolskaya St. 55, 125, Arbat St. 51, 12, Novy Arbat St. 5, 1, 32 H1 216 Russia Colliers International

33 thousand, sq m Research & Forecast Report Retail market Supply The total stock of quality retail space in St. Petersburg remained at the level of 215 amounting to 2.68 million sq m at the end of Q In a half-year period there were no newly-opened shopping centres on a market. Thus, retail space provision is equal to 512 sq m per 1, inhabitants. Two quality shopping malls are planned to be completed within the next six months Port Nakhodka, Phase II, (GLA 1,86 sq m) developed by FORTGROUP company and superregional SEC Okhta Mall (GBA 148, sq m, GLA 78, sq m) developed by SRV Group. Upcoming construction plans of shopping cenrtes to be completed in remain extremely limited. The largest among recently announced projects is the SC Hollywood by Evroinvest company (GBA 115, sq m). Bearing in mind a low number of shopping centres under construction, developers retain certain plans to supply new regional shopping centres in new areas of massive residential construction. Despite low developer activity in a segment of classical shopping centres, food retail chains and DIY hypermarkets are on a path of expansion. In the first half year of 216 three new objects were opened: a hypermarket in micro district Kudrovo that became the 21 st in a chain of retail operator Lenta and two hypermarkets in Krasnoselskiy district, O KEY and Leroy Merlin, located in the same building. The Kesko company, which develops food retail chain K-Ruoka, is currently constructing three hypermarkets in St. Petersburg area. It is worth noting that the development of specialized furniture SC is taking place on the market. Specialized Furniture & Interior SC Myagkoff on the Fuchika street is being under development; hypermarket Maxidom in Krasnogvardeyskiy district is near completion. The opening of St. Petersburg s first furniture hypermarket Hoff (GLA 1, sq m) on the Pulkovskoe Hwy is slated for the beginning of the next year. Key market indicators, H1 216 INDEX Modern retail facilities stock, million sq m (GLA), including: VALUE shopping centres, million sq m hypermarkets, thousand sq m 51 - specialized SC (DIY), thousand sq m specialized SC, thousand sq m 238 Vacancy rate, % 8. Shopping centres provision, sq m (GLA) per 1, capita Total stock and completions, GLA Total stock at the beginning of the year 512 Completions 33 H1 216 Russia Colliers International