Many Canadians may be surprised to learn that Moscow has become a hotbed of international commercial real estate investment and development.
A widely reported incident in 2004 where one of the oldest Canadian-owned business in Russia, Moscow’s Aerostar Hotel was seized forcibly by a junior Russian partner may have left many thinking investing in Moscow was to be avoided. Contrary to this impression, international business has been jumping to grasp Moscow's rising star.
Russia and Moscow have just wrapped up a year with an extra ordinary oil driven economic and real estate boom. The Moscow Times reported in December that an estimated $4 billion USD of Russian, and foreign capital, was invested in Russian commercial real estate in 2006 and foreign investment accounted for about 62% of the total. According to Jones, Lang, LaSalle this is a 1,000% increase over the same period in 2005.
Moscow, Europe’s most populous city with 11-million people, has seen real estate prices more than doubled in the last two years amid growing demand for modern offices and apartments. It now ranks in the top five most-expensive cities in the world for office space. In 2006 the first business-parks to meet international standards for class A and B office space were built there.
A CBRE third quarter report for Moscow shows modern shopping centre stock has grown exponentially from about 250,000 sq. m. in 2002 to 1.5 million sq. m. in 2006 and is projected to be 3 million sq. m. by 2009. IKEA is opening three locations in 2006 and has plans to open an additional three in 2007. Starbucks is opening its first Russian location in Moscow where ‘a double decaf latte’ will be more of a novelty than the norm.
A Dubai-based developer, Limitless is planning to build a new Russian city on 18,000 hectares about 30 kilometers south of the downtown Moscow called The Great Domodedovo. The project’s first 3,000-hectare phase representing an $11 billion investment, will be made in partnership with Coalco. Coalco is a prominent Russian investment and development company with offices in Moscow, Zurich and New York.
There are several real estate companies familiar to Canadians in Russia. Colliers International started in Moscow as HIB Ltd., in 1994 in anticipation of the subsequent, rapid development of the professional retail sector in Russia’s real estate market. It now provides a full range of real estate services and has become a leader in the retail sector.
Cushman & Wakefield Stiles & Riabokoblyko (C&W/S&R) , Jones, Lang, LaSalle and CBRE have Moscow offices. In April 2006, CBRE acquired Noble Gibbons in Moscow after working in association with the brokerage for 11 years.
The most prominent, and growing Canadian presence in the Moscow development industry is Giffels, an integrated consulting, design-build and asset management firm based in Toronto.
According to Michael LeGresley, CEO of Giffels Design-Build, “Giffels goal is to become the largest logistics & industrial space developer in the Moscow Region.”
LeGresley explained that while the Greater Moscow Region, has four times the population (20 million) of the Greater Toronto Area (5 million), it has 1/50th (1.4 million sq. m.) the light industrial and logistics space of the GTA (70 million sq. m.). This is a supply difference of 200 to 1 per capita.
Commenting in the Giffels decision to enter the Russian market, LeGresley said, “There is political risk (developing in Russia) but the daily operating risk I believe is vastly overstated in the media. Russia shares the upside of all developing areas; Mexico, Brazil, India, China, Eastern Block.”
Giffels has a Moscow office and since 2005 has supplied logistics and industrial design to active developers (MLP & Eurasia) as well as Coalco’s site in The Demodevdovo. Giffels is planning to continue doing partnerships with Coalco, who has acquired 30,000 hectares of land in the Moscow region, as well as other Russian landowners.
Recently, Gifflels has partnered with Coalco to develop a speculative $400-$500m USD distribution warehouse with 540,000 sq. meters called the South Gate Industrial Park also in The Domodedovo. Giffels acquired 100 hectares of land for the industrial park from Coalco and Coalco is providing electrical, gas, and site access infrastructure. South Park is being financed through Grove International Partners, a global real estate fund focused on international markets.
The footings for South Gates first 700,000 sq. ft. are in the ground now (see pictures) and occupancy is planned for September 2007. The next 700,000 sq. ft. building is to commence mid-2007 following the successful leasing of the first building. The entire industrial park is scheduled for completion by 2009.
At the 2006, Global Property Market several Canadian real estate companies identified Moscow as a promising emerging market. Given the booming real estate market forcast for Moscow in 2007, there will likely be more Russian news at this years' forum.