The wave of sanctions imposed by the US and the EU against Russia, according to JLL experts, will have a significant impact on the Russian commercial real estate market. Of all the sanctions, the most worrisome is the restriction of access by state banks to the US and EU debt markets. While the level of risk in the Russian market is still perceived as high, the closure of European markets for IPOs and SPOs will affect Russian companies, as well as the general deterioration of the country's macroeconomic situation.
The longer the sanctions remain valid, the higher the risks for the commercial real estate market and the economy as a whole. The current macroeconomic situation puts pressure on the level of vacant space in all segments, and also begins to affect rental rates. At the same time, the Russian real estate market continues to maintain strong fundamental indicators due to the size of the country, the volume of trade and the lack of supply of quality space in comparison with Europe. The current sanctions will inevitably cause some destabilization, but, given that they can be short-term, experts expect an increase in investment already in the 2015 year, easing pressure on consumer demand, and, ultimately, as Russia’s risk perception improves, it will again the opening of the European IPO market.
State-owned banks will become more selective with their borrowers. Experts believe that the state cannot completely stop financing existing high-quality commercial real estate or projects at the development stage. To maintain business activity in the market, state-owned banks are likely to continue cooperation on the highest quality commercial real estate projects.
Another component of the sanctions is their effect on demand. The increase in the cost of consumer loans will affect retail sales. Additional pressure on retail sales may be exerted by a sales tax of up to 3%, which may allow regions from 2015 to introduce to cover the budget deficit resulting from the sanctions. As a result, the forecast for retail sales growth in 3,5% for 2015 already looks optimistic now.
In such circumstances, only commercially successful projects will be able to afford the increased cost of risk, and owners of projects that already have debt obligations will raise rates and prices. Analysts do not exclude the possibility that for developers with financial resources, this period will be characterized by replenishment of portfolios of objects.
As the domestic debt market shrinks, consumer lending will inevitably become more expensive, putting additional pressure on the market. The company believes that retail sales will decline, creating an even more competitive environment for retail property owners.
The forecast of vacancy rate in 15% may be revised upwards.
The ruble exchange rate against foreign currencies will also have an impact on the market. The Russian currency may be under the same pressure as in the first quarter of this year, depending on how strong the economy will be and how much the government can rely on gold and foreign exchange reserves. During this period, many tenants tried to revise the terms of lease agreements, fixing a fixed currency corridor, or switching to ruble contracts. This trend weakened in the second quarter, as the ruble stabilized, however, a similar scenario can be repeated in the second half of the year.