Q4 2013 Marketbeat

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<ul><li>1.MARKETBEAT Moscow/RUSSIA A Cushman &amp; Wakefield Research Publication2013</li></ul><p>2. TABLE OF CONTENTS | SUMMARY | MACRO REVIEW | CAPITAL MARKETS | RETAIL | OFFICES | HOSPITALITY | WAREHOUSE | MARKET INDICATORSMARKETBEAT 2013TABLE OF CONTENTS SUMMARY3 MACRO REVIEW5 CAPITAL MARKETS7 RETAIL10 OFFICES18 HOSPITALITY23 ..... WAREHOUSE &amp; INDUSTRIAL26 APPENDIX I: MOSCOW MARKET INDICATORS33 I: ..APPENDIX II: NOTABLE INVESTMENT TRANSACTIONS IN RUSSIA IN 201332 II: 2012 - 2013 2 3. TABLE OF CONTENTS | SUMMARY | MACRO REVIEW | CAPITAL MARKETS | RETAIL | OFFICES | HOSPITALITY | WAREHOUSE | MARKET INDICATORSSUMMARY 2013 was a year of vanished hopes. Almost all indicators did not reach the anticipated ones. The year started with a bright outlook for GDP growth at over 4%, but it was several times downgraded resulting in a modest 1.5% actual figure.MARKETBEAT 20132013 . . 4%, , 1,5%Retail trade and consumer market were performing significantly better 4-5% Y-o-Y growth in a real term. Inflation remains under control of the Central Bank at 6.5%, but no one already can talk about the significant decline in inflation. It is in fact stagflation high inflation in the conditions of lagging economy development. 2014 outlook is also rather dull: economy growth will unlikely exceed 2%, inflation will remain at the level of 6-7%. There is a lot of uncertainty around consumer market. While it still remains rather strong there are indications of a potential slowdown. Consumer credit growth decelerated significantly. On the one hand it will obviously help to lower consumer debt crisis risk but may negatively affect retail sales as significant means will be spent on the amortization of the current debts and payment of high interest rates. In spite of the economy slowdown, in 2013 real estate market faced a rising real estate cycle, connected with the specialties of the developer cycle in Russia. That is why we saw record construction levels. Strong consumer market supported retail and warehouse sector with solid demand, but office sector was weak and new supply was almost doubled against net absorption. In 2014 we again expect high construction levels driven by the development cycle with further deceleration in 2015-2016. In the office market excessive supply will create pressure on the average market rent rates. In retail and warehouse rents will remain rates on the current levels. . 4-5% . , 6,5%, . .. . 2014 : 2%, 6-7%. . , , . . , , , , . , 2013 . , . . , : , .3 4. TABLE OF CONTENTS | SUMMARY | MACRO REVIEW | CAPITAL MARKETS | RETAIL | OFFICES | HOSPITALITY | WAREHOUSE | MARKET INDICATORSSUMMARY Increase of property taxes retail premises will also force owners of vacant buildings to make concessions for attracting tenants and pay off tax payments. Weakening Ruble will also create pressure on the USD-nominated rents.MARKETBEAT 2013 2014 , . 2015-2016 . , .Investment market will keep its volumes at US$7-8 bn and Moscow will remain #3 investment market in Europe. On the positive side after Sochi Olympic games the government may introduce stimulus package or/and make changes to the cabinet of Ministers to stimulate economy growth. , . . , . .4 5. MACRO REVIEIW Moscow, Russia2013A Cushman &amp; Wakefield Research PublicationKEY EXPECTATIONSGDP AND YOY CPI IN 2013GDP FORECAST 2013 | 20131.4-1.5%CPI 2013 | 20137.0%INDUSTRIAL PRODUCTION 2013 | 20130.1% YoY15%FIXED INVESTMENTS 2013 | 2013-1.4% YoY10%UNEMPLOYMENT 2013 | 20136.0%ments from 6.6% in 2012 to 0.2% in 2013. Retail turnover growth which stimulated economy growth in 2012, also slowed down in the second half of 2013. But nevertheless it became one of the main economy drivers from January to September 2013. Its increase was caused by significantly raised salaries of government officials and growing volume of bank loans. Mining and extraction as well as paid services sectors made a considerable input into economy in 2013. , 2012 , 2013 , , 2013 , . , 20132010201120122013 F2014 F2015-5%-10% GDP growth, %CPI YoY, %Source: Ministry for Economic DevelopmentGDP MAIN DRIVERS IN 2013 2013 . 8%6%4%2%0%-2%ENERGY, GAS AND WATERproduction growth to about zero and reduction of fixed invest-2009PROCESSINGsome internal processes the dramatic drop of industrial2008CONSUMER GOODS AND OTHER SERVICESresources and slowing-down of Eurozone economies, but also by , 0 6,6% 2012 0,2% 2013 .2007CARGO TRANSPORTATIONSStagnation was caused not only by a decreasing demand on energy2006FIXED INVESTMENTSgrowth was amounted to 1.2% from January to September 2013).2005MINING AND EXTRACTIONin 2013 will be not more than 1.4-1.5%. (According to Rosstat GPD2004PAID SERVICESlater in August. In November it was obvious, that economy growth0%RETAIL SALESyear the forecast was reviewed and dropped to 2.5% and to 1.8% 2013 . 2013 3,4%, 2,5%, 1,8%, , 2013 1,4-1,5%. ( 2013 1,2%).AGRICULTURAL PRODUCTIONthe GPD growth in 2013 should be about 3.4%. In the middle of the INDUSTRIAL PRODUCTION2013. According to the Ministry of Economic Development forecast5%TOTAL GDPRussian economy slowed down considerably in the second half ofREDUCTIONYoY changeSUMMARY , 2013 .Source: Rosstat 6. MARKETBEAT 2013TABLE OF CONTENTS | SUMMARY | MACRO REVIEW | CAPITAL MARKETS | RETAIL | OFFICES | HOSPITALITY | WAREHOUSE | MARKET INDICATORSWith rather high export prices for crude oil, industrial production in 2013 stacked on the level of the previous year. Investments into industrial production can help to avoid further expansion of oil and gas oriented economy. However the government is not interested . , 2013 . . , , , .EXCHANGE RATE FORECAST, END OF 2014 , 2014INVESTMENT BANKEXCHANGE FORECAST /RURCiti34.548.4HSBC35.445.3Morgan Stanley35.043.4UBS36.545.735.047.3VTB Capital35.046.2Otkrytie Capital32.345.0Renaissance Capital35.545.4Uralsibthat could stimulate the investment activity in this sphere.$/RURAlfa bankin development of the industrial sector and the necessity of reforms34.045.0RUSSIAS MACRO PERFORMANCE ROSSTATS ACTUAL 20122013MINISTRY OF ECONOMIC DEVELOPMENT 201320142015URALSIB CAPITAL 201320142015RENAISSANCE CAPITAL 201320142015GDP, %3.41.2*1.82.52.81.72.43.51.63.3-CPI, %6.67.06.06.24.96.54.24.76.85.5-Industrial production, %2.60.10.72.22.30.42.32.60.04.2-Retail Trade turnover, %5.43.94.23.54.43.63.94.36.46.2-Fixed investments, %6.6-1.42.53.95.60.24.05.8-0.23.8-Disposable income, %4.23.6*3.43.13.03.94.04.1---* January-SeptemberSource: Ministry for Economic Development , Rosstat, Uralsib Capital, Renaissance Capital6 7. CAPITAL MARKETS Moscow, Russia2013A Cushman &amp; Wakefield Research PublicationTOTAL INVESTMENTS | , 2013, US$7.45 bnKEY EXPECTATIONSTOTAL INVESTMENTS BY SECTOR PRIME CAPITALIZATION RATES | 8,0 0,368.5%7,01,101,34SHOPPING CENTERS | 9.0%6,01,080,66WAREHOUSES | 11.0%0,17 0,08 0,462,042,592,643,273,322,853,062010201120122013OfficeRetailIndustrialOther Source: Cushman &amp; WakefieldINVESTMENTS YOY % CHANGE AND SHARE OF OFFICE AND RETAIL SEGMENTS % 100%4,090%3,580%3,070%2,560% 50%2,040%1,530%1,020%0,510% 0%20052006Total investments20072008Office % of total2009Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q10,0Q4, , , , . 2013 70% .1,400,0Q3Traditionally, the deals were closed in the most developed cities if the commercial real estate is concerned. Moscow is an absolute leader by the amount of investments and remains the investment center of Russia. In 2013 about 70% of total volume of investments were attracted to Moscow.3,0 1,0 2013 7,45 . , 2012 . 2014 . 2012 . 7%, 2%. 2013 . 2012 2 .4,0Q2Investors were interested in various segments of commercial real estate as they had been in 2012. The volume of investments into the office segment grew up by 7%, in retail segment the growth was by 2%. In warehouse segment in 2013 we saw the record increase of investment activity. In comparison with 2012 the volume of deals in warehouse and industrial segment more than doubled.5,02,0 Q1Total investments into commercial real estate in 2013 made up $7.45 billion which is similar to the volume of investments in 2012. Many transaction were in the process of finalization at the end of 2013 and they are expected to be closed in the first quarter of 2014.STABILITYbillion USDSUMMARYbillion USDOFFICES | 2010Retail % of totalSource: Cushman &amp; Wakefield 8. MARKETBEAT 2013TABLE OF CONTENTS | SUMMARY | MACRO REVIEW | CAPITAL MARKETS | RETAIL | OFFICES | HOSPITALITY | WAREHOUSE | MARKET INDICATORSIndustrial and warehouse segment hit the record last year by the volume of investments. In 2013 total investments were about $1.4 billion, doubled since 2012. The largest deals were the purchase of MLP portfolio by Bin Group that amounted to about US$700 million and the purchase of Eurasia Logistics portfolio by IQ Property Management for about US$500 million.CAPITALIZATION RATESThe current yields for Prime commercial real estate projects in Moscow in 2013 were 8.5% for offices, 9.0% for retail and 11.0% for warehouse and industrial projects. In 2014 we expect that capitalization rates for the best properties will not be corrected significantly, however, we assume the fluctuation in the range of 25-50 bps during the year.2013 . 2% , 2,64 . . , Morgan Stanley, . . 1,4 . 2013 , 2 , 2012. , - , Bin group (700 . ) Eurasia Logistics IQ Property Management (500 . ). 2013 8,5% , 9,0% 11,0% . 2014 , , 25-50 . 2013 BY SEGMENT8,00Other 0,367,00Industrial 1,405% 19% 41%35%6,00 Office5,00BY REGION2013 was a record year by investment volumes in retail segment. Compared to the previous year the growth was about 2% and the volume amounted to US$2.64 billion. One of the main deals on the market was the purchase of Metropolis shopping center by Morgan Stanley fund as well as the purchase of shopping and entertainment center Aura one of the most high-quality trade centers in Novosibirsk. 2013 (41%) . 3,06 . . White Square, O1 Properties 1 . . White Gardens 740 . Millhouse Capital. 2013 Nagatino i-Land.RUSSIAN INVESTMENT MARKET 2013Retail 2,644,00RetailIndustrialOther22% 6% 72%3,00Moscow2,00BY ORIGINOffice segment registered most of the deals in 2013 and its share was more than 41%. The volume of investments in offices was $3.06 billion. The largest deal in the office segment was White Square office center sale to O1 Properties company for US$1 billion. The second largest one is Millhouse Capital investment into White Gardens business center that amounted to US$740 million. And the third largest deal in 2013 was Nagatino i-Land deal which was bought by AFK Sistema company. billion USDMAIN DEVELOPMENTSOffice 3,06S. PeterburgOther31%69%1,00domesticforegin0,00Source: Cushman &amp; Wakefield2013MOSCOW PRIME CAPITALIZATION RATES 16% 14%11.00%12%9.00%10% 8%8.50%6% 4% 2% 0%20042005CBR refinancing rate200620072008Office PRIME200920102011Shopping center PRIME20122013 W&amp;I PRIMESource: Cushman &amp; Wakefield8 9. TABLE OF CONTENTS | SUMMARY | MACRO REVIEW | CAPITAL MARKETS | RETAIL | OFFICES | HOSPITALITY | WAREHOUSE | MARKET INDICATORSMARKETBEAT 2013INTERACTIVE CHARTS I RUSSIAN PROPERTY INVESTMENT MARKET I 9 10. RETAIL Moscow, Russia2013A Cushman &amp; Wakefield Research PublicationUS$ 4,0005% 2014F2013201220112010Retail trade turnover growth, %Real personal disposable income growth, % Source: RosstatCONSUMER CONFIDENCE INDEX, % , %2006200720082009201020112012Q3Q1Q3Q1Q3Q1Q35% 0% -5% -10% -15% -20% -25% -30% -35% -40% Q1 ( , ), , 2013 . 1,5% 2012 ., - 2013 . 3,6% . 2013 . 30 670 11,6% 2012 . 3,9% ( ).-10%Q30% -5% 2009 . 2013 . 40 63 . 20122013 . 2014 . . , 2013 . . 2013 ., 2012 ., .Q1According to Rosstat, real disposable income (income minus obligatory payments, corrected in accordance with the consumer prices index) of the Russian population in November 2013 grew up by 1.5%, comparing to November 2012. Moreover, it increased by 3.6% in January-November 2013 relatively to the same period of time last year. The average monthly salary was 30,670 rubles in August 2013 and increased by 11.6% comparing to August 2012. The retail volume in Russia in January-November increased by 3,9% comparing to the last year.10%Q3CONSUMERS15%Q1In whole the volume of new construction of retail space in Russia is high. In 2013 63 new retail complexes have been constructed and delivered in 40 Russian cities. A reduction in the construction of new quality retail premises in Moscow for 2012-2013 is going to be compensated by large-scale and expected projects in 2014. Retailers are expanding and are interested in new space both in Moscow and in Russia. Despite the growing negative consumer expectations retail turnover growth in 2013 is positive and most of retailers reported the income growth. During the 2013 rental rents remained stable, as it was in 2012.STABILITY2008BRIEF SUMMARY20%Q316.22 mn sq m 553 quality projects , 2007TOTAL QUALITY STOCK IN RUSSIA RETAIL TRADE TURNOVER AND REAL DISPOSABLE INCOME, RUSSIA, YOYQ1PRIME RENTAL RATE INDICATOR | (Prime shopping center retail gallery, Moscow) | ( , )KEY EXPECTATIONSQ31.1 %Q1VACANCY RATE | (Prime shopping centers, Moscow) | ( , )2013Consumer confidence index, % Source: Rosstat 11. MARKETBEAT 2013TABLE OF CONTENTS | SUMMARY | MACRO REVIEW | CAPITAL MARKETS | RETAIL | OFFICES | HOSPITALITY | WAREHOUSE | MARKET INDICATORSRETAILERSRetailer demand has remained relatively strong in Russia. Retailers continue experimenting with new format and consumer service types. Several brands started operating directly (Montcler, Tommy Hilfiger), others are expanding through franchising (McDonalds Starbucks, Disney Store). There were a number of monobrand flagship openings for popular in Russia brands, such as Reima, Ticcurila, Chicco, Harman, The North Face and some others. Vacancy rates in prime shopping centres in Moscow are at extremely low levels, with occupiers now transferring interest to the high street. Those brands already present in Russia are actively looking to expand into the regions.NEW GLOBAL RETAILERS IN 2013 . . 2013 (Montcler, Tommy Hilfiger), (, , Disney Store). Reima, Ticcurila, Chicco, Harman, The North Face . 2013Mos...</p>