The Russian economy is growing once again, largely but not exclusively on the back of its oil and gas sector, which is now operating at near full capacity. On the other hand, private consumption continues to lag the wider economic recovery and we are now seeing increasing signs that the anticipated pick-up in household spending could fail to take off in the second half of 2011.
What this means for the construction and real estate sectors is that the infrastructure segment will generate increased demand, while demand from other segments, in particular, housing may remain weak. We are seeing wide ranges in the rents and yields being produced across the market. The implication is that there is a wide disparity between high-end and low-end real estate within each of the sub-sectors (office, retail and industrial). Any net absorption of new real estate will likely be centred on brand new (and typically high-end) developments.
Some of the key opportunities currently in the real estate market are: ?? Economic growth will generate demand from those sectors experiencing the strongest performance.
?? The World Cup in 2018 will begin to produce activity in the construction sector shortly and this level of activity will pick up through the forecast period.
Some key risks to the current real estate market are:
?? Although not our core scenario, we cannot rule out that inflation will continue to accelerate in the coming months, provoking a more heavy-handed response from the CBR. A more aggressive tightening of monetary policy than anticipated would seriously impact already over leveraged property developers.
For most protagonists in Russia’s commercial real estate sector, 2010 was the year in which rents stopped falling. Our interviews with in-country sources in 2010 confirmed that the brutal correction that took place during 2009 was finally over.
Nevertheless, the global financial crisis has left a major legacy in the form of new property which has become available over the last year or so. The implication is that vacancy rates in most of the Russian commercial real estate sector are, and are likely to remain, high. Aside from the retail sub-sector in Moscow, vacancy rates across all of the 12 sub-sectors surveyed (ie office, retail and industrial property in Moscow, Samara, St Petersburg and Ekaterinburg) were well into double digits by the end of 2010. Looking forward, our in-country sources envisage that 2012 will be a good year for the office sub-sector, with rental rates rising by around one-fifth in each of the four cities. However, much more modest increases in rental rates are expected for the retail and industrial sub-sectors.
Relative to most of the countries whose real estate sectors BMI surveys, our in-country sources cited the disparity being less for the industrial sub-sectors than for the retail and office sub-sectors. Anticipated yields for low-end property in the office and retail sectors are around 20% and 27% respectively, in all cities. The implication is that some protagonists expect that capital values can fall sharply for such property.
In general, though, yields are broadly expected to track sideways over the next two years or so. The implication is that – if only for newer and more upmarket premises – rents and capital values are likely to move in line with each other.

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Executive Summary 5
SWOT Analysis 7
Russia Real Estate/Construction SWOT 7
Russia Economic SWOT 8
Russia Business Environment SWOT 8
Real Estate Market Overview 9
Table: Russia’s Real Estate Market – Historic Rents, 2009 And 2010 (m2/month, EUR) 10
Table: Russia’s Real Estate Market – Net Yield, 2010 And 2011 (%) 11
Table: Russia’s Real Estate Market – Terms Of Rental Contract/Lease, Mid-2010 12
Table: Russia’s Real Estate Market – Available (m2) And Vacant Space (%), Mid-2010 13
Real Estate Market Analysis 14
Industry Forecast Scenario 15
Real Estate Outlook 15
Table: Russia’s Real Estate Market – Rentals, 2010-2012 (m²/month, EUR) 16
Table: Russia’s Real Estate Market – Forecast Net Yield, 2008-2015 (%) 17
Construction And Infrastructure Outlook 18
Table: Russia Construction And Infrastructure Industry Data 18
Table: Russia Construction And Infrastructure Industry Data 19
Russia’s Macroeconomic Outlook 23
Table: Russia - Economic Activity, 2008-2015 25
Business Environment 26
Real Estate/Construction Business Environment Rating 26
Table: Europe Real Estate/Construction Business Environment Rating 26
Russia’s RECBER 27
Project Finance Ratings: Outlook For Central And Eastern Europe 28
Table: Design And Construction Rating 30
Table: Commissioning And Operating Rating 31
Table: Overall Project Finance Rating 33
Russia’s Business Environment 34
Table: BMI Business And Operation Risk Ratings 35
Table: BMI Legal Framework Rating 36
Table: Labour Force Quality 40
Table: Emerging Europe - Annual FDI Inflows 42
Table: Trade And Investment Ratings 44
Table: Top Export Destinations 45
Competitive Landscape 47
Company Profiles 48
Jensen Group 48
LSR Group 49
Mirax Group 50
Peresvet-Group 51
RODEX GROUP 53
SU-155 Group 54
BMI Methodology 55
How We Generate Our Industry Forecasts 55
Construction Industry 56
Bank Lending 57
Real Estate/Construction Business Environment Rating 57
Table: Weighting Of Indicators 58
Project Finance Ratings Indicators 60
Table: Design And Construction Phase 60
Table: Commissioning And Operating Phase – Commercial Construction 61
Table: Commissioning And Operating Phase – Energy And Utilities 62
Table: Commissioning And Operating Phase – Transport 64
Sources 65
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