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Russia – market of the future.
The Russian economy is one of the fastest-growing in the world, and demand for attractive properties is growing all the time. Investments in offices yielded a rate of return of 12.8% last year, so it is not surprising that more and more international investors are getting into the market. As of October 2005, Eurohypo AG is also present, with its own office in Moscow.
Spiralling demand meets persistently short supply.
Gas and oil prices drive the economy of Russia as an exporter of raw materials. Growth in this sector is drawing other areas along with it, generating increasing demand for prime office space.
Rising incomes are causing a boom in retail sales, and international chains such as IKEA , Metro, Walmart and Co are expanding rapidly. This means they need not just good retail premises but also modern logistics capacities. At the same time good hotels in Moscow are operating with occupancy rates frequently exceeding 80% - and with room rates as high as any in western metropolises.
Offices, shopping, logistics, hotels: the market is booming.
Supply can barely keep pace with rising demand. According to a survey by estate agents Cushman & Wakefield, Stiles & Riabokobylko (C&W), in 2004 more office space was let in Moscow than new space was built, and the vacancy rate fell to just over 4%.
Prime office buildings are generally fully let while they are still being built. Experts estimate that there should be little change in the situation in the near future, because follow-on demand is enormous: for every 1,000 inhabitants, Moscow currently only has about a quarter of the office space of Prague, and in London the ratio is about 1:10.
Diversity as a driver for success.
The projects of Eurohypo’s new representative are not confined to office buildings. The bank is also getting involved in retail properties and shopping centres, which are not just of interest to investors in Moscow. In 2005 the Douglas perfumery chain alone opened twenty-six new branches in the Russian capital, to be followed by thirty more in 2006. With an average retail surface area of only 19.6% per 1,000 inhabitants – compared with about 225.6% in England – there is enormous latent potential here.
The growth curve in the logistics sector is equally dynamic: western chains which are currently handling their supplies of goods primarily in buildings dating from the Soviet era will be needing modern solutions in the medium and long term. All the space in the Pushkino Logistics Centre, for example, has already been let, even though it is still only a shell.
No market for opportunistic players.
In the start-up phase, the projects run by Eurohypo’s Moscow representative office will remain within an investment volume of 20 to 30 million dollars. For example, an agreement will shortly be concluded on the funding of a seven-storey office building on the edge of the historic town centre. In the medium term, the focus will be on financing transactions averaging 30 to 50 million euros, and large-volume projects are also planned.
Projects of this order of magnitude can only be carried out where there is legal stability: in defiance of any preconceptions, Moscow currently has a “mature property market”, with a solid economic and legal background which, as Bernd Knobloch, the Chairman of Eurohypo stresses, “offers adequate security for long-term investments”.
The legal environment for property deals in Russia has steadily improved over the past few years. As a result, foreigners are no longer subject to any restrictions whatsoever when buying property or plots of land. The country has an established mortgage law and a functioning land registry system. At the same time, collateralisation in property financing is possible using normal international instruments such as mortgages, pledging of company shares and accounts, and assignment of rents.
If you want to get involved here, you need a special profile. And a lot of staying power.
Eurohypo’s underwriting capacity and its position as a globally active specialist bank for property are the key factors that make it stand out from the Russian banks. Compared with the international competitors which became active in Russia at the same time, our presence on the ground is a major point in our favour. This is because the Russian property market still has a number of special features of which accurate knowledge is needed. Here, our close cooperation with international partners on the spot, such as management consultants Ernst &Young or estate agents C&W in Moscow, has also proved its worth.
And in Vadim Ulchenko, Eurohypo has gained a Moscow representative with outstanding expertise. This 33 year old banker was born in Moscow and studied in Moscow and Boston. His last post was as head of the Real Estate Finance Division of the International Moscow Bank (IMB). Now he is out and about in the Russian capital almost every day, meeting potential business partners or inspecting properties. And after more then twelve years with IMB in Moscow, he knows the local market better than almost anyone.
Well-founded optimism.
It is only natural that the commitment to the market in Russia which Eurohypo demonstrated by opening its representative office was also one of the main reasons why Vadim Ulchenko took up this new challenge. At the opening of the representative office, he went to the heart of the matter: “As a financier, when providing support to international investors on the Russian market, Eurohypo brings with it everything you need to be successful: considerable flexibility, innovation, a precise knowledge of the market, and a comprehensive range of financial instruments in normal international use, which can of course also be used here.”
