Regional commercial real estate markets began to experience a decline in investment inflows

Regional commercial real estate markets began to experience a reduction in investment inflows. The reason is the completion of a large cycle of sales of their Russian assets by foreign owners who left the Russian market, as well as the high cost of lending due to the increase in the key rate of the Central Bank. Regional markets are perceived as riskier and there are fewer promising objects here, consultants explain.

The total volume of investments in commercial real estate in Russia in the first quarter of 2024 amounted to 108.7 billion rubles, decreasing by 18% year-on-year, according to NF Group. The main decline occurred in regional markets, whose share in the investment structure decreased in January-March of this year to 3% (RUB 3.3 billion) from 22% (RUB 29 billion) in the first quarter of 2023. The share of St. Petersburg also diluted over the year from 27% (RUB 35.6 billion) to 8% (RUB 8.7 billion). At the same time, the Moscow indicator increased by 51% (67.32 billion rubles) to 89% (96.7 billion rubles). In the future, the share of regions in the structure of investments, according to forecasts of NF Group partner Stanislav Bibik, will increase, but is unlikely to exceed 10%.

A similar trend was noticed by Irina Ushakova, head of the investment and capital markets department at CORE.XP. According to her, the total volume of investments in commercial real estate in January-March 2024 decreased by 38% year-on-year, to 84 billion rubles, and the share of regions decreased by 26 percentage points, to 9%. The head of the capital markets and investment department at IBC Real Estate, Mikael Kazaryan, believes that the share of the regions has eroded from 20% in the first quarter of last year to 6-10%.

The expert recalls that almost half of the total volume of investments in regional real estate last year was formed by transactions for the sale of assets of foreign investors, in particular, Mega shopping centers. But now the cycle of selling these assets has ended. According to Stanislav Bibik, in the first quarter of this year such transactions accounted for only 1.5% of the total investment. “Risks in the regions are higher, which is why investments are decreasing there first,” notes Irina Ushakova.

Mr. Kazaryan considers the high key rate of the Central Bank to be a deterrent for any investment in commercial real estate, which leads to an increase in the cost of debt financing. “This contributes to a slight increase in the share of sales of objects in installments, but such a scheme carries risks for the parties,” says expert Marina Tolstosheeva. General Director of Stroysintez Group of Companies Viktor Lukin adds that commercial real estate is now, in principle, expensive and its owners are rarely inclined to reduce prices. In addition, he adds, there are fewer and fewer attractive properties on the market.

Mikael Kazaryan, however, believes that the current level of investment still remains noticeably higher than in 2000–2021. According to Marina Tolstosheeva, capital repatriation makes it possible to keep the indicator at relatively high levels. Transactions are indeed concluded only by Russian investors, as stated by NF Group. Director of the Brokerage Department at RRG Svetlana Yarova also sees the growing activity of small investors investing in commercial space on the ground floors of residential buildings.

NF Group analysts calculated that the bulk of investments in the first quarter in Russia were formed by sites for development (53% of investments), offices (28%), warehouses (10%) and retail facilities (5%). The last three segments, according to Ms. Ushakova, now show profitability in the range of 10–12%, which is approximately comparable to the indicators in the first quarter of 2023. Although investors themselves, according to Ms. Tolstosheeva’s observations, are more often aimed at properties with a yield of 15–16%.

Svetlana Yarova believes that buyers are also trying to concentrate on assets whose value may increase in the future. As an example, the expert cites assets sold by banks. In the case of certain improvements or high-quality management, such objects can bring a profitability of 20–30%, notes Ms. Yarova. According to her, in the regions, logo parks and shopping centers remain primarily attractive for investment. An additional point of attraction, according to Mr. Bibik, can be hotel and resort facilities. However, according to expert forecasts, the total volume of investments in commercial real estate in Russia at the end of 2024 will amount to 300–400 billion rubles. against 902 billion rubles. a year earlier. Ms. Ushakova expects the figure to reach 500–600 billion rubles, which is a third less year-on-year.

Alexandra Mertsalova