COMMERCIAL REAL ESTATE RUSSIA # MARKETBEAT. Cushman & Wakefield Research Q3 2015

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1 COMMERCIAL REAL ESTATE RUSSIA # MARKETBEAT Cushman & Wakefield Research Q3 2015

2 CONTENTS SECTION 1 OUTLOOK SECTION 2 ANALYTICS SECTION 3 APPENDIX SECTION 4 OUR TEAM Major economic trends of current period, market review and forecast Macroeconomic and analytic review of various commercial real estate market sectors Major indicators of Moscow commercial real estate market, standard commercial lease terms Information about Cushman & Wakefield in Russia, Research department contact details 04 Macroreview 09 Capital markets 18 Retail 27 Office 45 Market Indicators 47 Lease terms 36 Warehouse & industrial #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 2

3 OUTLOOK OUTLOOK In Q we expect the decline in business activity in b2b sector. Consumers will try to compensate salaries cuts by consumer credits, however Christmas sale may be disappointing. In Q we may see first signs of recovery across sectors. COMMERCIAL REAL ESTATE MARKET IS TESTING THE BOTTOM After massive re-pricing rental rates had stabilized, but business activity diminishes. There are two factors affecting commercial real estate sectors today: devaluation of RUB and excessive supply of square meters. While construction dynamics is are still high, shrinking demand creates a pressure on the rental rates. In Q4 market will test its bottom. We expect that major indicators will show the lowest values in Q After that we will see some improvements both in leasing activity and rents. There is an increasing interest from foreign investors to into real estate in Russia. Assets became much cheaper, however in the coming months investors will have to develop approach in investing into Ruble nominated Ruble nominated assets. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 3

4 MACRO CAPITAL MARKETS OFFICES RETAIL WAREHOUSE MACRO FORECAST (MINISTRY OF ECONOMIC DEVELOPMENT AS OF AUGUST 2015 ( - change from May forecast) OIL PRICE (USD PER BARREL) * 50* 52* 55* RUR/USD EXCHANGE RATE MACRO * * * * RETAIL TRADE TURNOVER GROWTH (REAL TERMS) #MARKETBEAT Q Ministry of economics had downgraded base case scenario. Economy will grow much slower than expected in , however recovery of consumer market will be slower than expected before. GDP GROWTH % 0,7%* 2.3% 2.4% * Interim revision as of % 1.9% 3.2% 3.9% CPI %* 6.4%* 6.0% 5.1% SALARY GROWTH (REAL TERMS) % 1.2% 3.5% 3.6% CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 4 Forecast Review colors Downgraded Upgraded Unchanged Arrow direction indicates +/- change

5 MACRO CAPITAL MARKETS OFFICES RETAIL WAREHOUSE SUMMARY CONSUMER MARKET CORPORATE SUMMARY STRUCTURAL CHANGES IN RUSSIAN ECONOMY WILL TRANSFORM REAL ESTATE MARKET 13% August 2015 Y-on-Y B2B INFLATION Russia will demonstrate modest growth rates until It is still unclear will we see positive growth in 2016 or recession will last for 2 years. For real estate market it means transition from large scale projects to fine tuning of existing schemes and fight for efficiency. GDP FORECAST In major task will not be to create a new product, but to come up with investment ideas that will accommodate de-dollarization and change on the supply-demand ratio. Among possible drivers for real estate we can point out state infrastructure projects and small scale retail formats. INFLATION 15% August 2015 Y-on-Y CONSUMER PRICE INDEX 8,2% 8,5% 5,2% GDP growth, % Base Case forecast Conservative forecast -7,8% 4,5% 4,3% 3,4% 1,3% 0,6% -3,3% 2,3% 2,4% 2,20% 0,7% 1,40% ,90% -3,70% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% CPI EOY Base case Conservative #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 5

6 -7,8% -5,1% F2015 F2016 F2017 F2018 3,9% 2,5% 1,9% 3,2% 3,9% 6,5% 7,1% 6,3% 13,3% 12,8% 14,1% 16,1% 13,7% MACRO CAPITAL MARKETS OFFICES RETAIL WAREHOUSE SUMMARY CONSUMER MARKET CORPORATE CONSUMER MARKET SHIFT FROM CONSUMER DRIVEN ECONOMY MODEL Mining and processing industries will play greater role in country s economy. Consumers will become more conservative as wages go down and confidence decreases. 4Years WILL BE NEEDED FOR CONSUMER MARKET TO RETURN TO 2014 MARKS 267 USD MONTHLY PER CAPITA RETAIL SPENDING CONSUMER MARKET 15% 10% 5% 0% -5% -10% Disposable income / Раcполагаемые доходы Retail trade / Оборот розничной торговли In Q3 consumers were selling their foreign currency reserves in order to compensate decrease in wages. As the result consumer demand was relatively stable and government had improved outlook for consumer segment. However this resource will be exhausted by winter and we may see second wave of consumer market slowdown. RUB devaluation will affects consumer market throughout Expensive imports will be replaced by cheaper imported goods and domestically made products. Decline on consumer market will lead to job cuts in FMCG and retail and decrease in salaries in this sector. Source: Ministry of Economic Development #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 6

7 MACRO CAPITAL MARKETS OFFICES RETAIL WAREHOUSE SUMMARY CONSUMER MARKET CORPORATE CONSUMER MARKET HOUSEHOLD DEBT RECOVERING After 8 months of debt contraction, consumer debt started growing in September. We expect consumers to increase indebtedness in winter months. 15.8% Average interest rate FOR LOANS OVER 1 YEAR 2700 US$ AVERAGE HOUSEHOLD DEBT Household debt decreases since January As of August debt had stabilized at $2700 per household. We expect that in Q indebtedness will start rising again because people will try to finance New Year holidays and compensate from decreasing income. Overdue debt is rising however this is natural for the period when good debts are being paid off. HOSEHOLD DEBTS AND SAVINGS Savings are still growing, but at a slower rate than before. Significant share of savings is nominated in USD, so RUR appreciation at the end of Q3 pushed savings down a little. So far household debts and savings look healthy, however it is important to understand that while larger cities are enjoying higher savings, in smaller cities debts are much more common among general public. Household Debt Debt vs. savings % of overdue debt 3.0% % 2.0% 1.0% 0.0% % Total Debt, bn RUB / Задолженность, млрд. руб #MARKETBEAT Q % Growth rate / % роста Source: Central Bank CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 7 0 Personal savings, bn RUR / Накопления, млрд. руб. Total Debt, bn RUB / Задолженность, млрд. руб. 8% 7% 6% 5% 4% 3%

8 MACRO CAPITAL MARKETS OFFICES RETAIL WAREHOUSE SUMMARY CONSUMER MARKET CORPORATE 80% Of GDP is generated by top 500 corporations HIGHLY CONCENTRATED ECONOMY Source: RBC ( #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 8

9 EXPECTED TOTAL INVESTMENTS CAPITAL MARKETS INVESTMENT VOLUME 2015 Q1 Q3 2.0 US$ bn 2015 forecast 2.5 US$ bn 2016 forecast 2.0 US$ bn US$ bn ACTUAL INVESTMENT VOLUMES US$ bn 2016 US$ bn PRIME CAPITALIZATION RATES OFFICES Q Q SHOPPING CENTERS Q Q WAREHOUSES % 11% 11% 13% Q Q % 11% #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 9

10 INVESTMENT VOLUME CAPITALIZATION RATES INVESTMENT STRUCTURE OFFICES RETAIL WAREHOUSES THE BIGGEST DEALS INVESTMENT VOLUME THE INVESTMENT ACTIVITY STABILIZES The expected total volume in 2015 remains the same US$ 2.5 bn. US$ 2.0 bn is the forecast for ,000 US$ mn 2016 FORECAST 2,030 US$ mn ACTUAL TOTAL VOLUME IN 2015 INVESTED VOLUMES BY SEGMENT, US$ MN F2016 OFFICE RETAIL INDUSTRIAL OTHER FORECAST The total volume invested in commercial real estate in Russia was US$ 2.0 bn in Q1-Q3 2015, which is similar to the same period of We keep our forecast unchanged expecting US$ 2.5 bn of investments by the end of the year. We forecast the further deceleration of fall of investment activity in 2016, expecting US$ 2.0 bn by the end of 2016, that is comparable to 2009 s number. We may see new players from different countries attracted to assets that keep getting cheaper. As a result a revival of Russian real estate market may occur at the end of 2016 the beginning of #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 10

11 INVESTMENT VOLUME CAPITALIZATION RATES INVESTMENT STRUCTURE OFFICES RETAIL WAREHOUSES THE BIGGEST DEALS CAPITALIZATION RATES THE CAPITALIZATION RATES STAY AT THE SAME LEVEL 11% THE CAPITALIZATION RATE FOR OFFICES For the third time we kept capitalization rates at the same level 11.00% for offices, 11.00% for prime retail, 13.00% for warehouse objects. Those capitalization rates are applicable to the prime objects with dollar cash-flow. At the same time fewer and fewer objects stay in dollar zone under pressure of tenants. The Central Bank of Russian Federation decided to maintain the key rate at 11.00%, due to the higher inflation risks amid persistent risks of considerable economy cooling. The previous change took place in August 2015 the key rate was decreased from 11.50% to 11.00%. CAPITALIZATION RATES, % CBR KEY RATE, CBR REFINANCING RATE, % 16% 14% 11% THE CBR KEY RATE 12% 10% 8% 6% 4% 2% 0% Q1 Q2 Q OFFICES SHOPPING CENTERS WAREHOUSES 11,00% 11,50% 14,00% 17,00% 8,25% 8,25% 8,00% 7,75% 8,75% 13,00% 10,00% 11,00% Q CBR REFINANCING RATE CBR KEY RATE #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 11

12 INVESTMENT VOLUME CAPITALIZATION RATES INVESTMENT STRUCTURE OFFICES RETAIL WAREHOUSES THE BIGGEST DEALS INVESTMENT STRUCTURE BY SEGMENT THE WAREHOUSE SEGMENT DEMONSTRATED THE HIGHEST STABILITY About half a total volume was spent in office segment. INVESTED VOLUMES BY SEGMENT, US$ MN 2015 OUTER DOUGHNUT INNER DOUGHNUT 913 US$ mn INVESTED IN OFFICE SEGMENT % % % % 57 3% % % The total volume invested in commercial real estate in Russia was US$ 2.0 bn in Q1 Q As usual almost half of a total volume (US$ 913 mn, 45%) was invested in office segment. The warehouse segment attracted US$ 574 mn an amount comparable to the average for the last five years. Its share increased from 11% to 28% due to dramatic fall of the total volume and a runoff of funds from hospitality and leisure, that managed to attract just US$ 57 mn % OFFICE RETAIL INDUSTRIAL OTHER #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 12

13 INVESTMENT VOLUME CAPITALIZATION RATES INVESTMENT STRUCTURE OFFICES RETAIL WAREHOUSES THE BIGGEST DEALS INVESTMENT STRUCTURE BY ORIGIN SIGNIFICANT SHARE OF FOREIGN INVESTMENTS US$ 1182 mn and US$ 848 mn were invested by domestic and foreign companies in Q1 Q3 2015, respectively. INVESTED VOLUMES BY ORIGIN, US$ MN 42% SHARE OF FOREIGN INVESTMENTS % 70% 60% 50% 40% 30% 20% 10% 0% Based on nine month results of 2015 the share of foreign investments is still high 42%. Foreign companies share was larger during the period. The European investors were the most active during the first three quarters of They spent US$ 644 mn, that is much more than their average share in the past quinquennium. The American companies excluding Hines followed their wait-and-see strategy. The Asian investors kept confirming their potential interest to the Russian real estate. Open sources reported about deals to be closed by Asian companies in the nearest future. But in fact, their share was minor with just US$ 24 mn of investments. RUSSIA ASIA EUROPE NORTH AMERICA SHARE OF FOREIGN INVESTMENT #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 13

14 INVESTMENT VOLUME CAPITALIZATION RATES INVESTMENT STRUCTURE OFFICES RETAIL WAREHOUSES THE BIGGEST DEALS OFFICES THE SHARE OF EUROPEAN AND AMERICAN INVESTMENTS IN THE OFFICE SEGMENT IS MORE THAN 60% US$ 913 mn were invested in office segment in Q1 Q US$ mn DOMESTIC INVESTMENT VOLUME 561 US$ mn FOREIGN INVESTMENT VOLUME INVESTED VOLUMES BY ORIGIN, US$ MN 2015 OUTER DOUGHNUT INNER DOUGHNUT % % % % % US$ 913 mn was invested in office segment in Q1 Q The high quality office buildings permanently attracts up to the half of the total investment volume. The trend was confirmed in 2015 (45% of the total volume in 2015). It is remarkable that more than three fifths of that amount was spent by foreign investors whose average share during the last five years was less than 15%. RUSSIA ASIA EUROPE NORTH AMERICA #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 14

15 INVESTMENT VOLUME CAPITALIZATION RATES INVESTMENT STRUCTURE OFFICES RETAIL WAREHOUSES THE BIGGEST DEALS RETAIL LIMITED INTEREST OF FOREIGN INVESTORS TO RETAIL REAL ESTATE US$ 486 mn were invested in retail segment in Q1 Q US$ mn DOMESTIC INVESTMENT VOLUME 30 US$ mn FOREIGN INVESTMENT VOLUME INVESTED VOLUMES BY ORIGIN, US$ MN 2015 OUTER DOUGHNUT INNER DOUGHNUT % % 724 9% % 30 6% The retail segment attracted US$ 486 mn (24% of total investment volume) in Q1 Q The segment shows the most significant fall comparing to the last quinquennium among all the segments of Russian real estate. The high vacancy rate and the continuing unstable economic situation requiring from a shopper a responsible approach to spending money convert shopping centers into a financially unpredictable asset. Under the circumstances the investors prefer to be prudent and wait. The here and now shows almost lost interest by foreign investors to retail segment. RUSSIA ASIA EUROPE NORTH AMERICA #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 15

16 INVESTMENT VOLUME CAPITALIZATION RATES INVESTMENT STRUCTURE OFFICES RETAIL WAREHOUSES THE BIGGEST DEALS WAREHOUSES 52% OF TOTAL VOLUME WERE INVESTED BY RETAILERS US$ 574 mn were invested in warehouse segment in Q1 Q US$ mn DOMESTIC INVESTMENT VOLUME 233 US$ mn FOREIGN INVESTMENT VOLUME INVESTED VOLUMES BY ORIGIN, US$ MN 2015 OUTER DOUGHNUT INNER DOUGHNUT % % % % RUSSIA ASIA EUROPE NORTH AMERICA The warehouse real estate segment is the only segment of Russian real estate expected to attract by the end of the year an amount not less than the average for the last five years. US$ 574 mn (28% of the total amount) were already invested in warehouses in Q1 Q This amount includes the deal expected to be the biggest in the segment the PNK-Chekhov complex was sold for more than US$ 200 mn. Experts believe the prices reached the bottom. The expected growth of price make the current moment ideal for long-term investments. A significant share of the volume invested in the segment was spent by domestic and foreign retailers. During the year they bought the warehouse objects for both owner occupation and investment purposes. Two fifths of the volume were spent by European companies while their Asian and American colleagues abstained from investment activities. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 16

17 INVESTMENT VOLUME CAPITALIZATION RATES INVESTMENT STRUCTURE OFFICES RETAIL WAREHOUSES THE BIGGEST DEALS THE BIGGEST DEALS 56% OF TOTAL INVESTMENT VOLUME ARE CONCENTRATED IN MORE THAN US$ 100 MN DEALS THE BIGGEST DEALS, US$ MN QUARTER SEGMENT PROPERTY INVESTOR AMOUNT Q1 OFFICES HERMITAGE PLAZA EASTERN PROPERTY HOLDINGS 195 Q3 OFFICES METROPOLIS C PPF GROUP / HINES US$ mn THE BIGGEST DEAL Q1 OFFICES METROPOLIS A PPF GROUP / HINES 170 Q2 OFFICES MERCEDES-BENZ PLAZA REGION GK 85 Q3 RETAIL MODNYY SEZON KOMPLEKSNYE INVESTITSII 250 Q2 RETAIL OLIMP MAJOR 40 Q2 RETAIL L-153 AUCHAN 30 Q2 WAREHOUSE PNK CHEKHOV GRUPPA BIN > 200 Q1 WAREHOUSE SOUTH GATE LEROY MERLIN 110 Q3 WAREHOUSE PNK CHEKHOV 2 ADIDAS 95 Q1 WAREHOUSE PNK BEKASOVO DETSKIY MIR 71 #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 17

18 SHARE OF VACANT OFFICE SPACES OFFICES mn sq m TOTAL STOCK 3 mn sq m VACANT OFFICES 19.1 VACANCY RATE Office market continues to suffer from negative economic factors. Slight growth of demand for additional office premises observed in Q was not enough to drive any significant positive changes in major market indicators. NEW CONSTRUCTION ,000 RENTAL RATES CLASS А CLASS В CLASSES A&B $580 $298 $382 ABSORPTION -127,000 TAKE-UP 900,000 SQ M SQ M SQ M #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 18

19 Thousands MACROREVIEW CAPITAL MARKETS OFFICES RETAIL WAREHOUSE SUMMARY ABSORPTION DEMAND NEW SUPPLY AVAILABILITY RENTAL RATES ABSORPTION POSITIVE ABSORPTION VOLUME IN Q Despite this fact the total absorption figure for Q is still in negative zone sq m NET ABSORPTION IN Q sq m NET ABSORPTION IN Q1-Q ABSORPTION & NEW CONSTRUCTION, SQ M Q1-Q New Supply Absorption After absorption volume being negative for three quarters in a row, Q showed positive value. The remarkable fact is that quarterly absorption figures in class A offices always remained positive and varied from 4,000 sq m in Q up to 101, 000 sq m in Q Class B absorption is still in negative zone, but the absolute value of the figure has already decreased significantly: from -178,000 sq m to -11,000 sq m. We expect year-end volume in 2015 to be close to zero and the figure to go positive in * Net absorption represents the change in the occupied stock within a market during the period. Calculation: X Y = Net Absorption. X = Current stock current vacancy Y = Previous stock (same quarter, previous year) previous vacancy (same quarter, previous year) #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 19

20 SUMMARY ABSORPTION DEMAND NEW SUPPLY AVAILABILITY RENTAL RATES DEMAND THE MAJOR PART OF THE MARKET ACTIVITY IS RENEGOTIATIONS AND RENEWALS OF THE EXISTING LEASES 1,325 new lease deals AVERAGE LEASE VOLUME COMPRISED 639 SQ M 900 IN 000 sq m 2015 TAKE-UP VOLUME IS LOWER THAN THE PREVIOUS FIVE YEARS AVERAGE, BUT HIGHER THAN IT WAS CRITICAL 2009 DEMAND ALLOCATION MAJOR NEW DEALS IN Q1-Q COMPANY AREA PROPERTY CLASS / SUBMARKET Downtown 20% Central 42% OTA 38% Megafon 49,300 sq m Oruzheyny A / Central Government of Moscow Region 31,860 sq m Orbita B+/ OTA Adidas 20,045 sq m Krylatsky Hills A / OTA Yamal SPG 16,417 sq m Algoritm B+ / OTA BASF 10,200 sq m Arcus III A / Central Mars 8,635 sq m Alcon A / Central #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 20

21 Thousands MACROREVIEW CAPITAL MARKETS OFFICES RETAIL WAREHOUSE SUMMARY ABSORPTION DEMAND NEW SUPPLY AVAILABILITY RENTAL RATES NEW SUPPLY 2015 SHOWED SIGNIFICANT DECREASE OF NEW CONSTRUCTION VOLUME And is expected to remain low in mid-term prospective. NEW CONSTRUCTION BY CLASSES, SQ M Q1-Q Class A Class B (B+&B-) f 464,292 sq m of high quality office premises were commissioned by the end of Q It is more than twice lower than it was in Q1-Q will show one of the lowest volumes of new construction in the latest 10 years. It is expected that completion volume for the whole of 2015 will comprise 640,000 sq m of quality offices. And as it was in 2014, the volume of class A new construction will exceed that of class B. Total volume of new construction will be much lower than it was expected before due to decrease in construction activity and delays in completion. The majority of the projects that are expected for commissioning in 2016 and 2017 originally were planed to be completed in Due to uncertainty about office leasing, some developers reconsider concepts of the future projects. Several office projects are announced to be redesigned into residential properties with required infrastructure. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 21

22 Thousands MACROREVIEW CAPITAL MARKETS OFFICES RETAIL WAREHOUSE SUMMARY ABSORPTION DEMAND NEW SUPPLY AVAILABILITY RENTAL RATES AVAILABILITY VACANCY RATE IN CLASS A IS STABLE, IT IS GROWING BY 1 PP QUARTERLY IN CLASS B 19.1% VACANCY RATE IN Q Recent growth of vacancy rate in class A offices is mostly attributed to completion of several unoccupied largescale schemes. Vacancy level in class B office premises started to increase in Q and made 7 pp since then, having shown circa 1 pp of quarterly growth. Exposition periods of vacant premises have increased. VACANCY RATES If current trends continue, vacancy rate for quality offices may reach 20% with the rise by 3.5 pp to 2014 year-end value. Increase of vacancy rate in class B will be the main driver for the rise in average vacancy rate. Completion of several large-scale schemes is expected in 2016, but it won t cause sharp growth of vacancy rate due to some sufficient ongoing occupier processes. VOLUME VACANT PREMISES, SQ M 3 mn sq m EXISTING AVAILABILITY 35% 30% 25% 20% 15% 10% 5% 31,12% 14,43% % Q1-Q Class A Class B (B+&B-) 2015f Q1-Q3 Class A Class B (B+&B-) f #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 22

23 SUMMARY ABSORPTION DEMAND NEW SUPPLY AVAILABILITY RENTAL RATES RENTAL RATES RENTAL RATES IN US DOLLARS EQUIVALENT ARE AT HISTORICALLY LOW LEVEL The main reason for this is the shift of almost the whole of class B to Rouble rates while Rouble is soft. 90% class B SHARE OF RUSSIAN ROUBLE DEALS 70% class A SHARE OF US DOLLARS DEALS In Q US dollar values of rental rates were historically low. Around 90% of class B leases in 2015 were contracted in Russian roubles with average rental rate of around 15,500 RUB.* The majority of class A deals are still executed in US Dollars. The share of such deals in class A was 70% with average rent of $687. In vacancies volume the situation is quite the same: 90% of class B unoccupied premises as well as 40% of those in class A are offered for Russian roubles. RENTAL RATES IN US DOLLARS VALUES $1 200 $1 000 $800 $600 $400 $200 $ rub. $ rub. While in class B rouble rents are set for the whole lease term, the majority of class A agreements set either US dollar exchange rate on affixed level or currency corridor. Moreover, such incentives are relevant for the first 1-2 years of the lease term. These agreements outline shift back to US Dollars at the exchange rate set by the Russian central bank after expiration of such periods. RENTAL RATES IN RUSSIAN ROUBLES VALUES #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 23 $ Q1-Q3 2015f 2015 Class A Class B (B+&B-) rub rub rub rub rub rub. * hereinafter asking base rental rate per sq m per annum, net of OpEx and VAT are indicated -rub rub rub Q1-Q3 2015f 2015 Class A Class B (B+&B-)

24 SUMMARY ABSORPTION DEMAND NEW SUPPLY AVAILABILITY RENTAL RATES RENTAL RATES DEDOLARIZATION #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 24

25 #MARKETBEAT Q MACROREVIEW CAPITAL MARKETS OFFICES RETAIL WAREHOUSE SUMMARY ABSORPTION DEMAND NEW SUPPLY AVAILABILITY RENTAL RATES BIG DATA Rental rate, USD/sq m $2 000 $ DEALS Moscow office lease deals by rent and transaction date bubble size reflects deal size ( = sq m) Class B Class A Weighted average A class rent А Weighted average B class rent B $1 600 $1 400 $1 200 $1 000 $800 $600 $400 $200 $ Deal date ОТДЕЛ ИССЛЕДОВАНИЙ CUSHMAN & WAKEFIELD 25

26 $100 $300 CBD 0 Quality premium $500 $700 $ MKAD MOSCOW CITY $900 Rental rate USD/sq.m (3 year average) SUMMARY ABSORPTION DEMAND NEW SUPPLY AVAILABILITY RENTAL RATES BIG DATA MACROREVIEW CAPITAL MARKETS OFFICES RETAIL WAREHOUSE #MARKETBEAT Q $1 300 MOSCOW OFFICE MARKET LOCATION AND QUALITY PREMIUMS CLASS A CLASS B+ CLASS B- and C Log. (CLASS A) Log. (CLASS B+) Log. (CLASS B- and C) Distance from city center, km ОТДЕЛ ИССЛЕДОВАНИЙ CUSHMAN & WAKEFIELD 26

27 2.4 % VACANCY RATE (selected shopping centers *, Moscow) RETAIL Retail indicators (vacancy rate, foot flow, rental rates, conversion rate) were stable in Q The shopping centre development pipeline remains high, but the majority of new openings, especially those outside of Moscow are expected to have soft openings, with only the anchor tenant and/or part of the retail gallery opening. New shopping malls are smaller than in previous years. Demand is stable, but retailers growth plans are conservative. 2,800 PRIME RENTAL RATE INDICATOR (prime shopping center retail gallery, Moscow) 17.4 TOTAL QUALITY STOCK, RUSSIA (quality shopping malls, mixed-use buildings, outlets, and retail parks) 4,5 US$ mn sq m mn sq m TOTAL QUALITY STOCK, MOSCOW (quality shopping malls, mixed-use buildings, outlets, and retail parks) * Cushman&Wakefield Research quarterly monitoring of 9 quality shopping centers (total GLA mn sq m #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 27

28 SUMMARY RETAILERS SHOPPING CENTERS COMMERCIAL TERMS SUMMARY THE RETAIL MARKET CONTINUES TO FACE CHALLENGING CONDITIONS Since late 2014 the retail market being under pressure of economic and political changes started the structural transformation. The market is struggling for balance. Construction activity is high The existing shopping malls performance remains relatively stable Market transformation continues In 2015 consumer activity is lower than before, there is no perspective for income and consumer spending growth. Russia s consumer confidence is low. Moscow shopping malls foot fall is the lowest since 2011 and by 10% lower than 4-years quarterly average. Renegotiations are the key in landlords-tenants relationships in Landlords and retailers succeeded to retain high occupancy of shopping malls: for selected Moscow shopping malls* at the level of 2,35% (+0.18 pp in Q3); for all Moscow shopping at the level of 6.5 % (no changes in Q3, Watcom data). In Q rental rates were relatively stable (comparing with Q2 2015). In new shopping malls (delivered since late 2014) turnover rates dominate against fixed rental rates. After massive renegotiations and rental rates corrections at the end of 2014, this year did not reveal noticeable changes. Discounts to basic agreements tend to be renewed. However the majority of retailers are still in the process of adaptation to the new economic environment and the situation still remains tough. Optimizations, reorganization, cost-cutting are main drivers in occupational market. There are few new retailers on the market, but there is a number of new projects or brands of existing retailers. Less retailers announced that they leave Russian market or that they stop expansion. Moreover, the main retail chains announced their expansion plans for The outlook remains fragile. The market is not forecast to improve markedly before the middle of 2016 the earliest. * Cushman & Wakefield quarterly monitoring of 9 established shopping centers (total GLA mn sq m). #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 28

29 SUMMARY RETAILERS SHOPPING CENTERS COMMERCIAL TERMS RETAILERS RETAIL OPERATORS: BUSINESS OPTIMIZATION AND CONSERVATIVE EXPANSION PROGRAMS We see moderate activity on the market. Retailers are very cautious about new openings while considering advantageous opportunities. NEW ENTRANTS NEW OPENINGS Retail operators are sensible to the current market situation. They are conservative in planning expansion, but are ready to open new stores as soon as the market is stabilized. Retailers continue optimization of stores portfolios changing formats, closing inefficient shops and using advantageous opportunities to open new ones (i.e.,melon Fashion Group has opened befree flagman store in St. Petersburg, Deri&Mod is opened in Afimall shopping center, Forever 21 flagman store is now operating in Metropolis, United Color of Benetton - in Yaroslavl). Discounters experience sales growth and keep noticeable activity in opening new stores (i.e., Dixi, Pyaterochka, Magnit). In Q while existing market players announced new openings we ve seen some new retailers entering the market (Rookie, Smartory). New discounter chain Euroshop has announced entrance to the market up to the end of Retailers use franchising schemes trying to minimize risks (McDonalds, Wokker, Sbarro) or develop new formats. Lenta plans expansion in supermarket format in St. Petersburg. We will probably see development of entertainment operators in terms of new shopping mall re-concept trying to fill in vacant space. Local entertainment chains Fantasy Grad and Khlop-Top have signed lease agreements in St. Petersburg and Moscow shopping malls correspondingly. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 29

30 SUMMARY RETAILERS SHOPPING CENTERS COMMERCIAL TERMS SHOPPING CENTRES SHOPPING CENTERS, RUSSIA Vacancy rate in existing shopping centers in Moscow remains relatively stable. New shopping centers gallery occupancy rate is not more than 30% mn sq m QUALITY RETAIL SPACE IN SHOPPING CENTRES 483 SHOPPING CENTRES NEW CONSTRUCTION, 000 SQ M 25 shopping centers, with total GLA of 749,700 sq m were opened in Russia in Q1-Q shopping centers (including new phases of existing malls), with total GLA of 202,000 sq m were delivered to the market in the Russian regions in Q3. Average size of a shopping center is much smaller than before: it is 22,700 sq m in 2015 (in ,900 sq m). As a result, the quantity of the shopping centers in 2015 corresponds to the last years average, however the total amount of new retail space in square meters decreased by 35%. We expect new construction almost to double in Q The majority of shopping centers had soft openings, around 30% of retail gallery was occupied with tenants. The majority of shopping centers opened in Q3 have small size. Large-scale projects are expected to be delivered to the market in Q All of them are on the final stage of construction and the probability of the opening (soft opening) is high. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 30

31 SUMMARY RETAILERS SHOPPING CENTERS COMMERCIAL TERMS SHOPPING CENTRES RUSSIA, 2015 New shopping malls delivered in 2015 in Russia*. The table includes all quality projects completed in 2015 and the largest (GLA 40,000 + sq. m ) projects announced for delivery by the end of LOCATION PROPERTY NAME RETAIL GLA, SQ M DELIVERY Murmansk Mall, Murmansk(GLA 45,000 sq m) Nebo, Nizhny Novgorod (GLA 69,650 sq m ) * Excluding Moscow and Moscow region projects, which are presented on another slide. Perm SpeshiLove 43,700 Q1 Izhevsk Italmas 40,000 Q1 Tumen Ostrov 30,000 Q1 Murmansk Murmansk-Mall 45,000 Q2 Ekaterinburg Maksidom 28,000 Q2 Magnitogorsk Tetris 22,000 Q2 Barnaul Volna 18,000 Q2 Ozersk Festival 15,000 Q2 Saratov Tau Gallery 44,000 Q3 Orel MegaGrinn (phase 3) 37,000 Q3 Tver RIO 20,000 Q3 Vladikavkaz Alaniya Mall 20,000 Q3 Smolensk Galaktika (phase 2) 15,800 Q3 Saint Petersburg Au Ponte Rouge 11,200 Q3 Krasnoyarsk Galereya Enisey (phase 1) 9,000 Q3 Chita Novocity (phase 1) 8,500 Q3 Rostov-on-Don Megacenter Gorizont (phase 2) 5,000 Q3 Ulan-Ude Pioner (phase 2) 3,500 Q3 Chelyabinsk Almaz 85,000 Q4 plan Tula Maxi 85,000 Q4 plan Nizhniy Novgorod Zhar-Ptitsa 75,000 Q4 plan Nizhniy Novgorod Nebo 69,650 Q4 plan Irkutsk Silver Mall 53,000 Q4 plan Vladivostok Sedanka-City 45,000 Q4 plan Bryansk Aero Park City (phase 2) 40,000 Q4 plan TOTAL GLA RUSSIA (without Moscow) 1,717,613 #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 31

32 SUMMARY RETAILERS SHOPPING CENTERS COMMERCIAL TERMS SHOPPING CENTRES SHOPPING CENTRES, MOSCOW Vacancy rate in existing shopping centres in Moscow remains relatively stable. New shopping centres are opening with a low occupancy rate. 4.6 mn sq m QUALITY RETAIL SPACE IN SHOPPING CENTRES 125 SHOPPING CENTRES NEW CONSTRUCTION, 000 SQ M 5 shopping centres, with total GLA of 306,000 sq m were opened in Moscow in Q1-Q3. New construction volume is lower than in a record year of 2014, but significantly higher than the average in Construction activity in Moscow remains high. No new shopping center was opened in Q Openings planned for Q were moved to the end of 2015 beginning of Two shopping centres of Tashir Group are planned for opening in Q Avenue South West (GLA 40,000 sq m) and retail gallery in RIO shopping center on Kievskoe highway (GLA 45,000), earlier anchor tenant hypermarket Lenta was opened in September. New projects are opening far from the city center. The largest of them is Zelenopark shopping center (GLA 110,000 sq m, Moscow region) which is expected to be delivered by the end of the year #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 32

33 SUMMARY RETAILERS SHOPPING CENTERS COMMERCIAL TERMS SHOPPING CENTRES MOSCOW AND MOSCOW REGION, 2015 New shopping malls delivered in 2015 in Moscow and Moscow region. The table includes all quality projects completed in 2015 and selected projects planned for delivery by the end of LOCATION PROPERTY NAME RETAIL GLA, SQ M DELIVERY Moscow Columbus 136,000 Q1 Moscow Kuntsevo Plaza 65,000 Q1 Moscow Centralny Detskiy Magazin 34,000 Q1 Moscow Mari 50,000 Q2 Moscow Klen 21,000 Q2 Moscow RIO Kievskoe highway 45,000 Q4 plan Moscow Avenue South-West 40,000 Q4 plan Moscow Kalita 22,000 Q4 plan Total GLA Moscow ,000 Columbus (GLA 136,000 sq m) Krasnogorsk June (Phase 2) 13,000 Q3 Odintsovo Atlas 15,000 Q3 Balashikha Vostochniy Veter 10,000 Q4 plan Zelenograd Zelenopark 110,000 Q4 plan Lyubertsy Vykhodnoy 27,177 Q4 plan Total GLA Moscow Region ,177 Zelenopark (GLA 110,000 sq m) #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 33

34 SUMMARY RETAILERS SHOPPING CENTERS COMMERCIAL TERMS MARKET INDICATORS SHOPPING CENTRES OCCUPANCY IS RESPECTIVELY STABLE, THE VACANCY GROWTH IS POSSIBLE 2.4 % SELECTED MOSCOW SHOPPINS MALLS * VACANCY 6.5 % MOSCOW SHOPPING MALLS VACANCY, WATCOM DATA (OCTOBER 2015) Moscow shopping malls foot flow is the lowest since 2011 and by 10% lower than 4-years quarterly average and is in accordance with seasonal trends. Established shopping centers in Moscow are maintaining high occupancy levels, average vacancy rate in selected shopping malls* is at the level of 2,35% (+0.18 pp in Q3). FOOT FLOW, SELECTED* MOSCOW SHOPPING MALLS The total Moscow quality retail stock overall vacancy rate is higher at 6.5 % (no changes in Q3). Occupancy of new shopping malls opened since late 2014 reveals positive dynamics there is a demand for new quality retails space in Moscow though it is lower than before. VACANCY RATE, SELECTED* MOSCOW SHOPPING MALLS *Cushman & Wakefield quarterly monitoring of 9 established shopping centers (total GLA mn sq m). #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 34

35 SUMMARY RETAILERS SHOPPING CENTERS COMMERCIAL TERMS RENTAL RATES THERE IS SOME STABILIZATION BUT THE BALANCE IS LOOSE Discounts to basic agreements, achieved in the late 2014, tend to be renewed. Tenants demand for turnover rents, especially in new shopping malls. 2,800 PRIME SHOPPING MALL INDICATOR*, MOSCOW 3,800 PRIME HIGH STREET INDICATOR*, MOSCOW * US dollar, per sq m per annum, base rent In Q3 and during the whole 2015 rental rates were relatively stable. Currently the rental rates in the majority of lease contracts are nominated in rubles for a short-term period (on average 6 months) with a renegotiation option. Supplementary agreements (fixed in rubles) to basic agreements in USD have a conversion corridor of rubles per USD. Lease agreements in dollars are being executed only in prime shopping centers in Moscow. At the end of 2014 beginning of 2015 the majority of the retailers have already got maximum possible temporary discounts, which most likely will be valid until Rental payment as percentage of turnover is becoming more popular. Especially, this type of payment is common in new shopping centers. Comparing established and newly opened shopping malls, rental rate spread has increased. Average indicator of rental rent is hard to identify. To define sustainable rent it is worth analyzing retail turnover of a shopping mall in general and retailer s turnover in particular. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 35

36 WAREHOUSE & INDUSTRIAL Rental rates stabilization New construction volume decrease Vacancy rate has stopped growing Realization of pent-up demand by food retail chains. FORECAST MN SQ M NEW CONSTRUCTION 1.1 MN SQ M TAKE UP 75,000 sq m NEW CONSTRUCTION, MOSCOW, Q % VACANCY RATE, CLASS A k BASE RENT PER SQ M PER YEAR, CLASS A #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 36

37 TRENDS DEMAND NEW CONSTRUCTION RENTAL RATES REGIONS TRENDS VACANCY RATE AND RENTS HAVE STABILIZED Food retail activity supported warehouse market in Q We expect a slight vacancy rate decrease by the end of the year. 9.5% VACANCY RATE, Q % VACANCY RATE BY THE END OF 2015 VACANCY RATE, CLASS A 14% 12% 10% 8% 6% 4% 2% 0% 2.0% 13.5% 3.9% 1.0%1.0% 1.5% 7.0% 9.5% Q % 6.5% 2015F 2016F We forecast a vacancy rate decrease by the end of Most likely there will be a lack of speculative warehouse space in the Moscow region in the beginning of This will bring more activity into built-to-suit segment. In 2016 the new construction volume will depend on demand. Rental rates during 2016 will remain stable. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 37

38 TRENDS DEMAND NEW CONSTRUCTION RENTAL RATES REGIONS MOSCOW REGION DEMAND TAKE UP IS HIGHER THAN THE LAST YEAR Take up in Q is 75% higher than the average for the period in Demand is based on food retail chains sq m TAKE UP, Q1-Q sq m TAKE UP FORECAST FOR 2015 TAKE UP, CLASS A The total take up in Q reached 520,000 sq m, which is 2.3 times higher than the average for the period in New construction volume decrease and stabilization of asking rent at the lowest level since 2007 have motivated large retail chains to develop logistics network. We forecast the total volume of transactions in 2015 to be around 1.1 mn sq m which is 25-30% higher than in In 2016 the take up will be lower than in 2015 due to low growth of the Russian economy and a lack of pent-up demand for warehouse projects. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 38

39 TRENDS DEMAND NEW CONSTRUCTION RENTAL RATES REGIONS MOSCOW REGION NEW CONSTRUCTION NEW CONSTRUCTION DYNAMICS IN MOSCOW REGION DECREASES After a peak of development activity in 2014, the new construction in 2015 is half of the volume delivered in We expect further decline in sq m NEW CONSTRUCTION, Q1-Q sq m NEW CONSTRUCTION FORECAST FOR 2015 NEW CONSTRUCTION, CLASSES A AND B 75,000 sq m of quality warehouse space was delivered to the market in Q Vacancy rate has not changed and is now 9.5%. Developers are finishing the construction started last year, there have been no new projects announced. Delivery of some projects is postponed. We expect around 800,000 sq m of quality warehouse space to be delivered to the market in Developers rarely deal with speculative construction. The majority of new projects in 2016 will be realized according to the client contracts signed in , ,000 sq m of quality warehouse space will be delivered to the market in 2016 according to our forecast. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 39

40 TRENDS DEMAND NEW CONSTRUCTION RENTAL RATES REGIONS MOSCOW REGION NEW CONSTRUCTION THE BIGGEST WAREHOUSE PROJECTS IN THE MOSCOW REGION IN % of the new construction in the Moscow region are large-scale projects sq m NEW CONSTRUCTION FORECAST FOR sq m NEW CONSTRUCTION FORECAST FOR 2016 NEW CONSTRUCTION, CLASS A PROJECT HIGHWAY DISTANCE FROM MKAD, KM TOTAL AREA, 000 SQ M DELIVERY Kievskoye 22 Logopark Kievskoe 22 92,6 Q1 Sofyino Logopark Novoryazanskoe 32 91,0 Q1 Logopark Sever 2 Leningradskoe 30 49,2 Q1, Q3 PNK - Chekhov III Simferopolskoe ,2 Q2 PNK - Bekasovo Kievskoe 48 91,6 Q2, Q3 Kholmogory Yaroslavskoe 30 91,5 Q2 Kozhukhovo Nosovikhinskoye 5 47,6 Q4 Mikhaylovskaya Sloboda Novoryazanskoe 20 64,5 Q4. Sherrizon - Nord Leningradskoe 16 62,2 Q4 PNK - Severnoe Sheremetyevo Rogachevskoe 27 75,0 Q4 #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 40

41 TRENDS DEMAND NEW CONSTRUCTION RENTAL RATES REGIONS MOSCOW REGION RENTAL RATES RENTAL RATES IN Q3 REMAINED STABLE Almost all rental rates in the warehouse real estate market are nominated in Rubles now. Rental rate has stabilized in 2015 and is now 3,800 4,500 RUB RUB / sq m / year CURRENT RENTAL RATE, EXCLUDING OPERATIONAL EXPENCES, UTILITY COSTS AND VAT All the vacant warehouse space in the Moscow region is offered for rent in Rubles. In Q the rental rate reached 3,800 4,500 Rubles per sq m per year, excluding operational expenses, utility costs and VAT. NET RENTAL RATE IN RUBLES (RUB/ SQ M / YEAR) 4 500р р р р р р р р р. Operational expenses are 1,000 1,300 Rubles per sq m per year depending on the project. We expect a slight rental rate increase in Q NET RENTAL RATE IN US DOLLARS (USD / SQ M / YEAR)* $ 140 $ 120 $ 100 $ 130 $ 140 $ 105 $ 130 $ 110 $ 135 $ 135 $ р р р р р р. $ 80 $ 60 $ р. $ F F *Rental Rate is calculated according to average RUB/USD exchange rate as of Q #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 41

42 TRENDS DEMAND NEW CONSTRUCTION RENTAL RATES REGIONS REGIONS HIGH CONSTRUCTION VOLUMES AND RENTAL RATE DECLINE More than 50% of warehouse space in the regions in Q was rented or purchased by food retail chains sq m NEW CONSTRUCTION, Q1-Q sq m NEW CONSTRUCTION FORECAST, 2015 TAKE UP, CLASSES A AND B, 000 SQ M 122,000 sq m of quality warehouse space was delivered to the market in the regions in Q3 2015, half of them was delivered in Rostov-on-Don (33,000 sq m) and Samara (29,000 sq m). We expect 800,000 sq m of quality warehouse space to be delivered to the market in the regions in The total take up volume in Q reached 170,000 sq m, which is higher than the average in Rental rate in Q slightly decreased in A class. Now it is 3,500-4,000 Rubles per sq m per year, excluding operational expenses, utility costs and VAT. We forecast the take up to be 450,000 sq m in the regions in #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 42

43 TRENDS DEMAND NEW CONSTRUCTION RENTAL RATES REGIONS REGIONS. NEW CONSTRUCTION THE BIGGEST WAREHOUSE PROJECTS IN THE REGIONS Projects delivered to the market in the period of January-September 2015 and planned for the delivery in Q NEW CONSTRUCTION, CLASSES A AND B sq m NEW CONSTRUCTION FORECAST FOR 2015 PROJECT REGION TOTAL AREA, 000 SQ M Logocentr-Kuban Krasnodar 20,0 Q1 PNK - Togliatti Samara 26,0 Q1 TLK Yuzhnouralsky Chelyabinsk 82,3 Q2 Direct Logistics Voronezh 39,5 Q2 Yankovskiy Vladivostok 26,3 Q2 A2logistic Rostov-on-Don Rostov-on-Don 33,0 Q3 SamaraTransAvto Samara 28,62 Q3 A Plus Park Shushary St. Petersburg 128,7 Q4 Logocentr-Kuban Krasnodar 20,0 Q4 PNK - Kosulino Ekaterinburg 29,7 Q4 DELIVERY #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 43

44 Moscow real estate market indicators Standard commercial lease terms Interactive services APPENDIX Cushman & Wakefield Research Department provides the clients with the most detailed information on the market indicators, including average rental and vacancy rates splitted by metro stations, administrative districts and submarkets in Moscow, as well as data on planned projects and projects under construction in Russia. If you need more detailed information please contact the Research Department. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 44

45 APPENDIX MOSCOW REAL ESTATE MARKET INDICATORS STANDARD COMMERCIAL LEASE TERMS INTERACTIVE SERVICES MOSCOW REAL ESTATE MARKET INDICATORS (1) OFFICES AND SHOPPING CENTRES Compared to our previous forecast, we expect office rental rates decrease and slight increase in retail rental rates. New construction forecast remains unchanged. MOSCOW REAL ESTATE MARKET INDICATORS FORECAST/ПРОГНОЗ Previous forecast review Q1 Q2 Q3 EoY +/- Prev. % change MOSCOW OFFICES Stock class A, EOP '000 sq m ,00% Stock class B (B+ and B-), EOP '000 sq m ,00% New construction, A, '000 sq m ,02% New construction, B (B+ and B-), '000 sq m ,03% Vacancy rate class A 2,6% 1,7% 3,9% 4,8% 12,8% 23,6% 22,5% 16,8% 14,6% 17,6% 23,8% 31,2% 31,4% 30,9% 30,0% -3,0pp -1000,00% Vacancy rate class B (B+ and B-) 1,9% 3,9% 2,7% 4,1% 6,1% 11,1% 10,4% 8,9% 9,1% 9,8% 10,8% 13,5% 14,7% 15,4% 16,5% 0,5pp 303,03% Take up class A, '000 sq m ,67% Take up class B (B+ and B-), '000 sq m ,01% Rental rates class A, USD/sq m pa $557 $603 $714 $934 $1 092 $729 $645 $733 $790 $867 $772 $611 $645 $528 $600 -$30-5,00% Rental rates class B (B+ and B-), USD/sq m pa $454 $472 $528 $645 $814 $508 $417 $455 $471 $534 $484 $285 $281 $298 $280 -$20-7,14% Prime capitalization rate 13,50% 12,50% 8,25% 7,25% 12,00% 13,00% 9,00% 8,50% 8,75% 8,50% 11,00% 11,00% 11,00% 11,00% MOSCOW QUALITY SHOPPING CENTERS Total stock, EOP, '000 sq m ,00% New construction, '000 sq m ,01% Vacancy rate 1,3% 0,7% 0,7% 1,0% 3,0% 5,0% 2,1% 0,4% 0,5% 1,2% 1,5% 2,0% 2,2% 2,4% 2,2% -1,8pp -8181,82% Prime rental rate indicator * $3 000 $3 125 $3 750 $2 500 $2 600 $2 700 $3 800 $3 900 $3 500 $3 200 $3 200 $2 800 $ $500-17,86% Prime capitalization rate 13,50% 12,00% 9,50% 9,00% 12,00% 13,00% 10,00% 9,25% 9,50% 9,00% 11,00% 11,00% 11,00% 11,00% #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 45

46 APPENDIX MOSCOW REAL ESTATE MARKET INDICATORS STANDARD COMMERCIAL LEASE TERMS INTERACTIVE SERVICES MOSCOW REAL ESTATE MARKET INDICATORS (2) WAREHOUSE AND INDUSTRIAL, INVESTMENTS Warehouse and investment forecast for 2015 remains unchanged. MOSCOW REAL ESTATE MARKET INDICATORS FORECAST/ПРОГНОЗ Previous forecast review Q1 Q2 Q3 EoY +/- Prev. % change WAREHOUSES, MOSCOW REGION Stock, class A, EOP '000 sq m ,00% Stock, class B, EOP '000 sq m ,00% New construction, class A, '000 sq m ,00% New construction, class B, '000 sq m ,00% Vacancy rate class A 2,0% 2,0% 2,0% 2,0% 2,0% 10,5% 8,0% 1,0% 1,0% 1,5% 7,0% 9,5% 9,5% 9,5% 7,0% 0,0pp 0,00% Vacancy rate class B 2,0% 2,0% 2,0% 2,0% 2,0% 5,9% 6,1% 1,5% 1,5% 2,0% 5,0% 6,0% 7,0% 7,0% 5,0% 0,0pp 0,00% Net Absorption Class A, '000 sq m ,00% Net Absorption Class B, '000 sq m ,00% Rental rates class A $137 $128 $136 $130 $140 $105 $110 $135 $135 $135 $100 $7 1 $7 5 $66 $7 0 $4 5,7 1 % Rental rates class B $124 $123 $121 $117 $125 $90 $92 $130 $130 $130 $90 $65 $65 $65 $65 $0 0,00% Prime capitalization rate 16,00% 14,00% 10,50% 9,25% 13,00% 14,00% 10,50% 10,50% 11,50% 11,00% 13,00% 13,00% 13,00% 13,00% INVESTMENTS TOTAL, MN US$ ,00% Office, mn US$ Retail mn US$ Warehouse mn US$ Other mn US$ * Base rental rate for sq m unit on the ground floor of retail gallery of prime shopping mall for fashion retailer #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 46

47 APPENDIX MOSCOW REAL ESTATE MARKET INDICATORS STANDARD COMMERCIAL LEASE TERMS INTERACTIVE SERVICES STANDARD COMMERCIAL LEASE TERMS LEASE TERMS DURATION OF LEASE Office: 5 years Industrial: either short-term (1-3 years) or long-term (5+ years) Retail: 3-5 years, anchor tenants years. BREAK OPTIONS Offices: Possible after 3 years with deposit withdrawal as penalty. After crises has become very popular. Notice period is 6-9 months. When there is an option to review the rent after the third year, contract can be terminated from both sides. Retail: Break option is not common in the market. If break option is presupposed there are strict penalties for pre-term break. RENTAL PAYMENTS RENT PAYMENT AND FREQUENCY Offices and retail: RUR or US$ per square meter per year, payable due monthly or quarterly in advance. Industrial: Rubles. RENT DEPOSIT Offices: 1-3 months rent equivalent (bank guarantee optional, very seldom however). Retail: 1-2 months rent equivalent (bank guarantee optional). Industrial: 1-3 months rent equivalent (bank guarantee optional, very seldom however as landlords as landlords prefer the deposit RENT REVIEWS After crises have become more popular, negotiable. INDEXATION Offices: 7-10% for RUR agreements; 3-5% or at the level of USA / EU CPI. Retail: if rents in US$ US CPI or 5%; if rents are in RUR Russia CPI or 8-9%. Industrial: 8-10% ENTRANCE FEE It is possible to pay extra-fee to enter the project applicable only for prime projects. Turnover rents (only in Retail): Compound rental rates (fixed rent and a percentage of turnover) are almost always used in shopping centers. Normally, the percentage of turnover varies between 10 %- 15% (fashion), 2-5% for anchors. DISPOSAL OF LEASES ASSIGNMENT AND SUB-LETTING Offices & Industrial: Usually possible, but subject to negotiation. Retail: Not common. SERVICE CHARGES, REPAIRS & INSURANCE REPAIRS Tenant: Internal repairs and maintenance. Landlord: Structural repairs, common areas. INSURANCE Tenant: Contents insurance. Landlord: Building insurance which is normally charged back to tenant via the service charge. SERVICE CHARGES Service charge is payable by the tenant at either an open book basis or as a fixed cost. UTILITY EXPENSES Often included to service charges, but depends on landlord and different types of projects. TAXATION REAL ESTATE TAX Tenant: None. Landlord: For office and industrial the amount of tax depends on the region. In Moscow: 1.2% of cadastral value in 2015, 1.5% in 2016, 1.8% in 2017 and 2.0% in VAT: 18% MEASUREMENT PRACTICE Space is measured generally on the BOMA system. Some Landlords have apply BTI (Bureau of Technical Inventory) measurements. #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 47

48 APPENDIX MOSCOW REAL ESTATE MARKET INDICATORS STANDARD COMMERCIAL LEASE TERMS INTERACTIVE SERVICES CUSHMAN & WAKEFIELD IN RUSSIA CUSHMAN & WAKEFIELD MOBILE APPS CUSHMAN AND WAKEFIELD The only commercial real estate app in Russia C&W INTERACTIVE MAPS Commercial real estate and infrastructure interactive maps Moscow offices Shopping centers in Russia Warehouses Hotels Infrastructure development #MARKETBEAT Q CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT 48