Hopes for the greediness of investors

To illustrate the current situation in the European real estate markets, in particular the Russian market, Brian Kilkelly, Vice President Global Development, Urban Land Institute, cited the words of one business partner - "If the market was a horse, it would have to be shot." Indeed, the slogan of the Emerging Trends in the European Real Estate Market 2010 was "the long, slow haul" (last year the slogan was "the situation getting increasingly difficult").

As the study showed, Moscow "fell back" from the 6th place to the 24th place in investment prospects, and from 4th place to the 23rd place in the new acquisitions dynamics. Munich, Hamburg, Paris and London occupy the first places in the rating. Optimism is expected in the Moscow market in the end, especially among the local investors, who believe that the long-term commodity prices will return to their pre-crisis levels and this will lead to an economic recovery and a return of the tenants. According to one of the participants of the study, the office real estate sector in Russia, in principle, seems promising, but has largely exhausted its potential, as the vacancy rate is extremely high.

The mood regarding the development market outlook is more positive, the rating of Moscow dropped only four positions i.e. from 4th place last year to 8th place this year.

Moscow, according to the participants of the conference, was at the peak of success, while the oil prices were high and there was a possibility of attracting cheap loans. However, Russia always depends on the oil market. According to Alexey Blanin, CEO at Development Solutions, "we depend on the oil prices – if they go up, it will give incentive to growth of development in Russia.”

However, oil is not everything. Alexey Blanin believes that success will come when the developers will make an effort, "Today there are less tenants leasing premises and there are lees properties being sold, because the developers have not thought through their activities. Moscow is an example of this. In the future the developers must build projects that they can afford to lease.”

Brian Kilkelly says that in Russia, the banks do not want to give out credits, and it is unlikely that sales will happen in the near future. Traditional sources of capital are not available today. Traditional investors are looking for a gold vein, and the Russia of today does not seem like that to them. In addition, government funds are large, and they need time to adjust to the new landscape.

"The most urgent problem today is the lack of foreign financing. Borrowing money is very expensive for everyone. Currently, investors are interested in good projects only, however for the time being there have been no transactions announced. I think as soon as the revival of transactions occurs, there will be more activity in the real estate market. The market needs professionalism and transparency", believes Michel Pascalis, President of MLP. However, the developer is disposed to being very optimistic. "The situation in the Russian real estate market will definitely improve. Maybe not this year, but for sure in the years to come."

Today, many market players are cautiously optimistic. Heiko Davids, a Partner at Knight Frank Russia & CIS, says that "the demand for office space has started to increase, which will further push up rent rates. The consultant forecast the profitability ratios of around 10-12%.

Oleg Myshkin, Managing Partner at Fleming Family & Partners, is convinced that within 12 months, the market will see more transactions taking place and the financing will become more affordable.

According to the conference speakers, despite all the risks, investors will not be able to avoid the Russian market forever. "We should not forget that investors have a short memory, and very often their greediness overcomes their sense of fear," says the Managing Director at Coalco, William McFarren.