Russian investors abandoned European real estate

Political risks and the growing attractiveness of real estate investments in Russia forced investors to temporarily abandon the purchase of assets in Europe.
According to the results of three quarters of 2019, for the first time in seven years, not a single major public transaction with Russian capital took place on European markets. At the same time, the volume of investments within the country grew by almost a third.

Large Russian investors have ceased to invest in European real estate: in the first three quarters of 2019, not a single significant transaction involving domestic capital has been recorded, according to the CBRE report. This situation, according to the company, has developed for the first time in seven years. Although consultants do not exclude that Russian investors could enter into non-public transactions in the market in which the origin of the capital was not confirmed. This is also evidenced by a Kommersant source on the real estate market, according to which almost all agreements in Europe on the part of Russians now go through offshore structures. The CBRE estimate does not include transactions worth up to € 150 thousand and purchases for own needs, for example, housing.

According to CBRE, the maximum amount of funds - € 1 billion, the Russians invested in European assets in 2012. Fixed assets were then invested in Germany, the UK and Eastern Europe. In 2013 and 2014, the figure was at the level of € 0.9 billion. Subsequently, the volume of investments began to decline. In 2016, it reached € 0.3 billion, a year later - € 0.1 billion, and in 2018 slightly increased to € 0.16 billion. Colliers International's managing partner, Nikolai Kazansky, calls political risks one of the factors behind the decline in interest in Europe: “Due to the fact that the investor is from Russia, the consequences can be unpredictable.”

In addition, activity in the domestic market has increased - the return on investment in commercial real estate in Russia is higher, and the entry threshold is lower than in European countries, he adds. ILM Managing Partner Andrei Lukashev clarifies that due to the increase in rental rates, the segments of office and warehouse real estate are most in demand. In addition, competition in the Russian market is low due to the weak interest of foreign investors in it, adds Mr. Kazansky.

Investment activity inside Russia is really growing. According to CBRE, for the three quarters of 2019, total investment increased by 30%, to 161 billion rubles. (€ 2.29 billion) year on year. Consultants expect that by the end of the year the figure will reach 250 billion rubles. (€ 3.55 billion). Russian investors accounted for 83% of investments, 17% - for foreign ones. At the same time, according to Knight Frank, in 2018, foreign investors accounted for 24% of investments.

Meanwhile, overall activity in European markets is declining. According to CBRE, investment in real estate in all European countries, including Russia, in January-September 2019 decreased by 14%, to € 192 billion year-on-year. Investments in UK assets fell by 33% amid uncertainty about Brexit, and by 11% in Germany due to the small supply volume and unattractive prices. Significant growth - by 16% - was shown by France due to large transactions and the activity of Asian investors. So, in the summer of 2019, the South Korean Mirae Asset Daewoo, in partnership with the French Amundi Real Estate, bought a Tour Majunga skyscraper in Paris with an area of ​​67 thousand square meters. m for € 850 million.

Despite the negative dynamics, CBRE CEO in Russia Vladimir Pinaev suggests that in the future Russian investors will return to European countries. “For Russian capital, quality assets remain interesting, another question is that the market is opaque and money loves silence, especially in unstable conditions,” he argues. Marina Shalaeva, Director of Foreign Real Estate and Private Investment at Knight Frank, notes the high interest of Russians in assets in Greece, where in some cases the yield may exceed 30%. Irina Mosheva, Managing Director of Moscow Sotheby’s International Realty, connects interest in the country, as well as in the markets of Portugal, Spain and Cyprus, with investment citizenship programs. According to her, commercial real estate in Germany and Austria is also in demand.