November 2009 REAL ESTATE MARKET MONITORING

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1 November 2009 REAL ESTATE MARKET MONITORING

2 November 2009 Content 1. Residential real estate market Office market Retail market Hotels market Countryside real estate market All rights reserved. This report has been prepared for information purposes only. The data and information contained herein are the exclusive property of Blackwood Real Estate company. Reproduction of the report in total or in part is allowed only with a prior written permission of the Blackwood real estate company. Quoting is allowed with reference to the source. Copyright 2009 Blackwood

3 RESIDENTIAL REAL ESTATE MARKET November 2009 Map 1.1. Moscow. CAD*. High-budget residential real estate. Volumes and pattern In November 2009, approx 173,3 thous. sq. m. of residential space, or 1033 apartments, were available in the elite primary market. Active sales were underway in 37 residential complexes. It should be said that demand for new apartments increased by the end of 2009, and apartments with the best price/quality ratio in the buildings under active construction commissioned by reputable and creditable developers were quickly sold out. The most striking example is the Four Suns residential complex (B. Tatarskaya 13, Legion Development) in which approx 130 apartments were sold in less than a year. The delivery of new apartment blocks which, theoretically, could expand supply volume in the elite residential market is postponed. For instance, Moscow authorities decided against financing the famous Golden Island project giving the owners of land plots a possibility to take their projects into their own hands. On the one hand, it may prove extremely difficult considering the financial crisis. On the other hand, the implementation of this largescale project which could dominate the city center becomes impossible. Another major project is the reconstruction of the Shopping Arcades in Red Square. Initially, it was planned to construct hotels and suites but currently the investment contract is terminated, and residential development plans are abandoned. * - Central Administrative District 3

4 RESIDENTIAL REAL ESTATE MARKET November 2009 Map 1.2. Moscow. CAD. High-budget residential real estate. Prices $ thos. rub Dec. 07 Dec. 08 Jan. 09 Fev.09 Mar.09 Apr.09 May 09 Jun. 09 Jul. 09 Aug. 09 $ $ ,9 thous. rub. 492,6 thous. rub. Sept. 09 Oct 09 Nov primary market, $ per sq.m primary market, rub. per sq.m secondary market, $ per sq.m secondary market, rub. per sq.m In November 2009, the average dollars prices for elite new residential buildings reached $ per sq. m. and the average rubles prices - 492,6 thous. rubles per sq. m. Thus, as of the end of November, the average dollars prices rose 0,6% and the average rubles prices declined by 0,4%. Since the beginning of the year, the dollars prices for elite residential properties declined by 15,3% and those in rubles by 12,5%. The average dollars prices of elite secondary apartments reached $ per sq. m. (monthly increase is less than 1%) and the rubles prices reached 647,9 thous. rubles per sq. m. (again, monthly increase is less than 1%). 4

5 OFFICE MARKET November 2009 Map 2.1. Moscow. CAD. Supply volume and pattern The office real estate market didn t see any dramatic changes in early autumn The market showed stability as rental rates remained at the same level reached by the end of summer. The main crisis trends (rescheduling of delivery of new office centers and cancellation of new construction plans) continued to develop. In November, the construction of two major multifunctional complexes was postponed: Implementation of Park Pobedy in Vasilisy Kozhinoy Street (136 thous. sq. m.. investors are Rubin Moscow Television Factory and Sozdanie Investment Group) is rescheduled from 2010 to 2015; The delivery of the multifunctional complex in Lublino, at the intersection of Porechnaya and Bratislavskaya Streets (135 thous. sq. m., investor is Malab Enterprises Limited) is postponed for 2 more years, now it s expected to open in December 2011 (initially, it was planned to commission the complex in 2006). The decision on construction of the business complex in the Big City area in Shmitovsky proezd which was supposed to accommodate the office of TV Stolitsa Television Company was cancelled. Another project in the Moscow City IBC, the City Palace Tower building adjacent to the Mall of Russia retail center, was put on hold. 5

6 OFFICE MARKET November 2009 Map 2.2. Moscow. Rental rates *. Commissioned objects. Announced projects Still, the market offers some good news: one of the biggest and most breathtaking projects, the White Square Office Center (over 100 thous. sq. m.) in Lesnaya Street opened its doors in November. All the space was leased long before the office center was commissioned. Besides, Horus Capital sold more than half of all its assets to Bin Group. We saw some positive dynamics of demand as two major transactions for A class properties were signed in November: Evroset Company leased 1 thous. sq. m. in Northern Tower in the Moscow City IBC and Halliburton International Inc. became a new tenant in the Dvintsev business center leasing 2600 sq. m. in its C building. * * - exclude VAT and operational expenses 6

7 RETAIL MARKET November 2009 Map 3.1. Russia. Retail spaces In November, Zolotoy Vavilon Rostokino, the biggest retail center (overall area is 241 thous. sq. m., Patero Development) was launched. Therefore, the overall supply of professional retail centers in Moscow amounted to 4,6 mln. sq. m. (overall area) and 2,5 mln. sq. m. of retail space. As in other shopping centers commissioned in late 2008 early 2009 in Moscow, only some of the anchor tenants opened their stores and the biggest part of the retail gallery was not operating yet when the retail center welcomed its first visitors. We can expect that retailers will aim at finishing fit-out works and launching their stores in December, before the New Year sales. As far as brands are concerned, the retail center houses a Lindex store (clothing for women and children) which belongs to the Stockman Group. Today its stores also operate in Rostov-on-Don, Nizhny Novgorod, Krasnodar and St. Petersburg. The anchor tenant is the first hypermarket of the OK St. Petersburg chain. In November, Uniqlo, Japan's leading clothing retail chain, announced its plans to open a flagship store in the Atrium shopping center. The shop will span 1500 sq. m. on the second floor of the complex. Its opening is planned for H Before the end of the year, Burger King, the world's second biggest hamburger chain and the main competitor of McDonald s, plans to open its first restaurant in Moscow. Thus, considering the previously opened shops, more than ten new brands were launched in the Moscow market in

8 RETAIL MARKET November 2009 Map 3.2. Moscow. Rental rates for retail premises with breakdown by administrative districts of Moscow As far as the street retail segment is concerned, the upper prices in the main retail corridors continued to grow, the biggest growth as opposed to the previous month was observed in Tverskaya and Petrovka streets and the Garden Ring. We should also mention the decreasing number of premises offered in the open market. All these factors show that demand has been intensifying since September 2009 and, therefore, landlords opt for raising rental rates. The number of street retail premises will remain the same in the short term, that s why the rental rates depend upon the demand dynamics. The rental rates in the street retail segment will see stabilization before the end of the year. However, we don t expect any sharp growth until the national economy fully recovers from the recession. 8

9 HOTEL MARKET November 2009 Map 4.1. Moscow. Supply volume and pattern Over the last years, capsule hotels have been gaining popularity all around the world. The capsule hotels originated in Japan in 1979, these are small low-budget hotels located in the most popular places, such as airports or central streets. They consist of capsules measuring 2-3 sq. m., equipped with a bed and a television. Today the capsule hotels can be found in many European, Asian and American cities. They offer rooms measuring 5-20 sq. m. provided with all the necessary equipment for a comfortable stay plus a separate bathroom. The first capsule 66-room hotel called Air Express was opened in November 2009 at Sheremetyevo airport. Another landmark event was the soft opening of the Aquamarine business hotel on November 15 (160 rooms, AFI Development). The official opening is scheduled for December 15. In November, the sale of the Sheremetyevo hotel complex to Norway-based Wenaasgrupen Group (Norway) was announced. The company already owns 4 hotels in St. Petersburg. It s planned to finalize the transaction in February

10 HOTEL MARKET November 2009 Map 4.2. Moscow. Announced hotel projects The delivery dates of two hotel projects were changed in November: It s planned to finish the design works in the framework of the hotel and business complex construction project in the vicinity of Yugo-Zapadnaya metro station; The delivery of the Park Pobedy multifunctional complex spanning over 130 thous. sq. m. is rescheduled for The complex will include a 250-room hotel. The following new projects were announced in November: The first AZIMUT Hotel in Moscow will be opened in May 2010 (the 144-room hotel will be located in Danilov Manufacture business district); It s planned to develop a 160-room hotel complex near Kursky railway station; The town-planning council made a decision to build a four-star 300-room hotel above Mayakovskaya metro station; It s planned to open a family leisure center with a hotel in Yuzhnoe Butovo. The center with a total area of 43 thous. sq. m. is expected in

11 COUNTRYSIDE REAL ESTATE MARKET November 2009 Map 5.1. Moscow Region. Cottage villages. Supply The countryside residential real estate market saw price stagnation in November We also observed a decrease in the discount amount and deceleration of price decline, especially for properties close to completion. In some cases, developers even raised prices. Yet, it s too early to say that the crisis situation in the countryside residential real estate market radically changed. The influence of crisis trends is still strong, potential buyers still aim at buying distressed homes. Not only settlements with land plots without labor contract but also new quality projects come into the market increasing the supply volume. For instance, StroyArsenal Company delivered the Zarechny project offering cottages for sale. HONKA Company plans to commission the Dachi HONKA countryside project in Istrinsky district of Moscow Region in the nearest future. 19 land plots with labor contracts will be put for sale. 11

12 COUNTRYSIDE REAL ESTATE MARKET November 2009 Map 5.2. Moscow Region. Countryside projects entering the market in 2009 new cottage villages Dynamics of countryside projects entering the market in 2009, % 600% 500% 400% 300% 200% 100% 0% villages offering land plots without labor contract Jan.09 Feb.09 Mar.09 Apr.09 May.09 Jun.09 Jul.09 Aug.09 Sept.09 Oct.09 Nov.09 In November 2009, sales began in two countryside settlements: Zagorodny Project Company announced about sales in its Chernichnye Polya settlement (20 km, the Kievskoe highway) where land plots without labor contracts are offered for sale as has become traditional in crisis times. Land plots span 6-17 sotkas. Their total number is 127. The second project which came into the countryside residential real estate market is called Zarechny (38 km, the Novorizhskoe highway). It was developed by Stroyarsenal Company. Cottages and several land plots without labor contracts are offered for sale. The area of adjacent land plots varies between 15 and 40 sotkas, the area of cottages between 150 and 500 sq. m. 12

13 COUNTRYSIDE REAL ESTATE MARKET November 2009 Map 5.3. Moscow Region. Cottage villages. Prices In November, the average price level in cottage settlements of Moscow Region remained virtually unchanged, though we saw price increase in some settlements. For instance, the prices for some cottages in Promenade settlement (12 km, the Kievskoe highway) raised 10% on average. Minor correction of the average prices is possible in the short-term perspective. The press release issued by Villagio Estate Company says it plans to increase prices by 10% on average in January The prices will be raised in its Millennium Park and Monteville elite settlements (the Novorizhskoe highway). The developer took this decision seeing stable demand growth from potential buyers. 13