The price of autonomy is rising

The number of stand-alone buildings listed for sale on the post-crisis market of commercial real estate is gradually growing. Buyers still dictate the rules and deals are not closed very often.

After the release of a large number of problematic objects that happened in 2009, the market of stand-alone buildings (SAB) gradually became stable.  “In St Petersburg, unlike Moscow, there were few deals with so called distressed assets,” – says Sergey Igonin, the managing partner of the holding company “IB Group”.  – “A lot of objects were put up for sale at prices by far exceeding those that the buyers were prepared to pay. Further still, their owners did not bring the prices down but preferred to keep the real estate property, especially if it brought a stable income”.

Very few owners decided to allow a considerable discount, among them the city. In realization of objects that required considerable investments and did not bring any profit it proved more cost-efficient to agree to considerable discounts.

A good example is a group of buildings with the total area of 5220.1 sq.m. on Sytninskaya ul., 5/7, lit. A, 11, lit.A and Kronverkskaya ul., 4, lit.D, that were sold by auction.  In June 2011, when the lot was listed for sale for 290 million rubles, there was nobody willing to buy it. In 2012 the price of the buildings was cut down to 150 million (by 48%). And for this money they were realized in October.

Another typical example is the building of the malt-house of the beer factory “Novaya Bavaria” (an object of cultural heritage) with the total area of 1684.2 sq.m. which was discounted twice since July 2011. By the end of 2011 the price went down from 130 million to 78 million rubles (by 40%). But the buyers still waited. In the end it passed into private property for 64 million rubles, and the new owner – the company Leontievsky Mys – admitted that they were interested in buying the object from the start but were waiting for the discount.

 “What we have here is a case of overstated expectations of the owners who are unwilling to forget the pre-crisis prices while since August 2008 profitability in different segments went down on average by 25 %. The owners are hoping that big companies and banks, looking for a building for their head office, will get interested in their assets. But, firstly, the number of such companies is very limited, and, secondly, they too, like everybody else, learnt to spend their money very carefully during the crisis,” comments Irina Olshannikova, assistant general manager of AHR for strategic and regional development.

 — As a result, both sides are reluctant to compromise. Owners often cannot bring the price down because of their liabilities to creditors who financed the project, and buyers are looking for money and are also in no hurry to accept the stipulated conditions.

 

Prices rise without asking

Buyers of stand-alone buildings were reserved during the whole of the last year, however, according to the observations of the experts of “Best. Commercial real estate”, the offer prices on average rose by 12.5%. With the highest rise in the segment of office buildings – 14%. And the lowest in the segment of industrial objects – by 3.7 %.

According to the AHR information, major plant assets considerably went down in value. If we compare current situation with the beginning of 2012, some SAB fell down in price by 30 %.

The market conditions naturally depend on the location as well. AHR states that the greatest rise in prices of buildings was noted in the Primorsky and Petrogradsky districts where stand-alone objects rose in price by 8–13%.

The demand last year depended greatly on the segment in which the object was positioned. “Everybody expected that development companies and investment funds will come to the city to buy objects in order to develop or resell them,” Sergey Igonin comments on the situation. “But it didn’t happen. Transactions for the sale of small facilities in business centers to final customers prevail in the office segment. In fact, major transactions are also connected with final customers (for example, with Gazprom structures). The demand for storage and production premises was the last to “defrost”.  

 “The majority of buyers in the storage sector are companies looking for premises for themselves,” the director of the department of investment sales NAI Becar in St Petersburg, Andrey Boikov says. “On the contrary, in the office and trading segments the main buyers are investors.”

Investors went shopping

All experts agree that the most attractive from the point of view of investments remains the steadily growing and quick to pay back trading segment.  

Among the biggest transactions of the last two years one can mention the purchase of the shopping center “Galereya” for the record for the Russian real estate market $ 1.1billion by the investment fund Morgan Stanley, the purchase of the general store “Passage” and the shopping center “SuperSiva” in Primorsky district by the company Jensen Group, the passing of the business center “Aeroplaza” into the property of GC “PAN”, and also the purchase of the building of the former general store “Frunzensky” by the holding company Imperia (the “Senator” chain of business centers). The passing of the Macromir company’s assets to GC Fort Group was also a notable event.

London Real Invest  experts reckon among interesting transactions with the participation of Russian firms the reacquisition by GC “Gals-Development” of 50% in the shopping center “Leto” on Pulkovskoye Shosse from their French partner Apsys Group; the purchase by NAI Becar (together with a partner) of the building of the business center “Smile” in Nevsky district for 0.51 billion rubles.

Practically in all the cases mentioned above the purchase was a purchase of a ready-made business. “Investors are interested in quality operating objects with high occupancy,” - Ekaterina Markovets, the director for investment and consulting of London Real Invest says. “They place heavy demands on the location of the center, its technical condition, and operating data”.

“There are a lot of offers for historical buildings in the city center with beautiful locations, but at the moment they are not in demand,” Ms. Olshannikova says. “For these kind of objects to start yielding income, it is necessary to spend considerable money on reconstruction (and the project will have to be agreed with the Committee on State Control, Use and Protection of Historical and Cultural Landmarks), and also some time for the performance of work. In the post-crisis period investors are less inclined to show off and more interested in new construction from scratch. Or in reconstruction with the minimum amount of expenses”.

 “The choice of objects, occupied for 100% and generating a good money flow, is limited in St Petersburg,” Sergey Igonin notes. “As a rule, assets without leaseholders are placed on the market now. The sale of the business center “Aeroplaza” occupied only for about 10% is more of an exception. An interesting offer in the sphere of trading real estate is the shopping center “Nevsky” that “Stockmann” is willing to sell”.

 “In the last two years the number of quality objects on the market has decreased considerably, - Georgy Rykov, the general director of Best. Commercial real estate confirms. “The most stable is the demand for administrative-office buildings with an area of up to 3000 sq.m. located in the most attractive places of the historical center. There is also great interest in objects for grocery retail on the periphery, although such offers are extremely rare. As well as unfinished objects or buildings for development, if it is not the case of housing construction”.

Primary dynamics

A considerable portion of the stand-alone building market is made up of objects realized by auctions. Experts, however, say that the primary and the secondary markets exist separately at the moment. On the primary market they often realize nonliquid assets in a bad condition. The buildings in their original state not only do not bring any profit but also require considerable time and money injections in order to make them operational. Objects comparable with “Galereya”or “Nevsky center” practically do not exist. The only exception of the last year is Gostiny Dvor in Pushkin with an area of about 10 000 sq.m. In October it was bought out by one of the leaseholders for 246 million rubles.

According to the calculations done by the specialists of the evaluating company Iola, in 2010-2012 the number of objects sold by auction grew by 15-17% every year. In 2012 around 130 buildings were realized. 

However, the volume of income went down. Thus, in 2012 the total cost of the realized stand-alone buildings went down to 1175 million rubles - by 36%, if compared to 2011. It is happening because objects with larger areas are put up for sale less often. Since 2010 the average size of realized buildings decreased from 787 to 399 sq.m., i.e. virtually by fifty percent. At the same time, the average cost of a square meter is also decreasing: in 2012 it was by 37% more modest than in 2011 (22 304 rubles).

According to Iola’s data, last year the biggest portion of the buildings sold by the city (both by their number and total area) was located in Kurortny district. The buildings with an area of up to 100 sq.m. located in this area also turned out to be the most expensive in terms of the price of a square meter. 

Quite a few objects were realized in Pushkinsky, Petrogradsky and Krasnoselsky districts. Primorsky district was leading in terms of the cost of a square meter. The average price of a square meter here exceeded 38 000 rubles. Petrogradsky and Kurortny districts remain expensive.

Структура рынка предложения ОСЗ по районам СПб в январе 2013 г., %

Структура рынка ОСЗ, реализуемых на торгах, по районам СПб в 2012 г., %

Ценовые характеристики рынка предложения ОСЗ
 

Район Цена 1 кв.м, руб.
минимальная максимальная средняя
Адмиралтейский 36 496 141 818 100 149
Василеостровский 13 021 149 912 96 077
Выборгский 102 253 192 500 139 202
Кировский 19 250 97 879 49 513
Калининский 43 544 120 000 61 904
Красногвардейский 27 239 78 838 59 867
Красносельский 35 000 110 375 71 747
Московский 59 761 171 867 86 159
Невский 17 460 119 005 29 747
Петроградский 55 285 407 268 93 329
Приморский 55 000 92 784 63 694
Фрунзенский 40 598 84 918 43 874
Центральный 96 154 750 000 155 268
Пушкинский 20 687 78 000 65 154

Динамика рынка отдельно стоящих зданий, реализуемых на торгах

Динамика выручки от реализации ОСЗ на торгах

Динамика показателей рынка ОСЗ, реализуемых на торгах

Показатель 2010 2011 2012
Площадь ОСЗ, кв.м
минимальная 22,0 18,5 18,7
максимальная 28 438,3 6628,1 2774,1
средняя 787,0 454,0 399,0
Стоимость 1 кв.м ОСЗ, руб.
минимальная 1930 2017 2407
максимальная 193 966 146 288 170 697
средняя 24 422 35 571 22 304

По данным компании «Иола»

Natalia Antropov
"Real estate and construction of Petersburg"