Falling oil prices and the weak rouble pushed Russian real estate investment volumes down to the lowest level in a decade in the third quarter of 2015.
Falling oil prices and the weak rouble pushed Russian real estate investment volumes down to the lowest level in a decade in the third quarter of 2015.
JLL's Q3 market report shows $641 mln (€597 mln) was invested in Russian property from July to end-September, a decrease of 38% compared to the same period last year.
Year-to-date, investment volumes stand at $1.72 bn, which is 35% below the same period last year and almost 15% below the same period in 2009 - the peak of the global financial crisis. JLL is maintaining its full-year target of $3 bn but acknowledges that there are some downside risks to this already conservative figure.
'As the ruble started to stabilise through the second quarter there was growing confidence that risk appetite would improve through the third quarter which would feed into an improvement in investment volumes,' said Tom Mundy, head of research for Russia and CIS at JLL. 'The third quarter is typically a quiet one, nonetheless, a falling oil price, question marks over Chinese growth and a shift in central bank policy to allow for a weakening ruble, pushed volumes down to levels that are the lowest in a decade.'
Mundy said that the final quarter of the year is typically the strongest. 'We do see a pipeline of deals that can support our full-year target of $3 bn, however, we acknowledge that there are downside risks to this forecast.'
Stable yields
Though overall volumes are weak, the assets that are transacting are generally of high quality, and in good demand. This has kept yields unchanged against the previous quarter. In Q3 2015, JLL experts estimate that prime yields in Moscow remained at 10.5% and 10.75% for offices and shopping centres respectively, at 12% for warehouses.
JLL noted that the yields are only indicative given the limited number of transactions.
Moscow
In keeping with the norm, the vast majority of the deals were seen in Moscow, or in close proximity to Moscow, with only 12% of deals done in St Petersburg, and the remainder in the capital. Interestingly, there was strong interest from international investors, who accounted for some 44% of total deals in the third quarter, across the office and industrial sectors.