2016 Q2 MarketBeat - EN

COMMERCIAL REAL ESTATE | RUSSIA
# MARKETBEAT
Cushman & Wakefield Research
Q2 2016
CONTENTS
03
15
49
44
SECTION 2
SECTION 1 COMMERCIAL REAL SECTION 3 SECTION 4
OUTLOOK ESTATE APPENDIX OUR TEAM
Major economic trends of Macroeconomic and analytic Major indicators of Moscow Information about Cushman &
current period, market review review of various commercial commercial real estate market, Wakefield in Russia, Research
and forecast real estate market sectors standard commercial lease department contact details
terms
03 | Outlook 15 | Office 45 | Market Indicators

04 | Macroreview 25 | Retail 47 | Lease Terms
09 | Capital Markets 35 | Warehouse & Industrial
#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT | 2

INFLATION WILL CREATE
PRESSURE ON THE REAL
ESTATE PRICES
OUTLOOK
RUSSIAN STATE, BUSINESS AND
POPULATION IS NOW FEELING THE SOLID
GROUND. HOWEVER STIMULUS WILL BE
REQUIRED FOR ECONOMY TO RECOVER.
In summer 2016 Russian real estate market has hit

the bottom. Although we may see in coming months Inflation and real rents/prices is now a major issue for
real estate market and property owners. Ruble rents will
consolidation of rents towards the lower levels, remain stable while exchange rate will be volatile and
inflation will be between 6-8%. So managing the
fundamental trend had changed. property value will be a tricky exercise.
On the good side, devaluation of the real rents will
This does not mean prompt recovery and change of stimulate operational business and retail in particular.
the cycle. Most likely market will remain flat until In spite of the on-going decline in consumer market
lower rents and shifts in consumption patterns will
2017 or maybe even 2018. create new niches in the consumer sector.
Real estate market will remain under pressure for a few
years, but new realm had been already shaped.

#MARKETBEAT | Q2 2016
MACROREVIEW | CAPITAL MARKETS | OFFICES | RETAIL | WAREHOUSES
MACRO FORECAST
BUDGET DEFICIT (% of GDP)

2016 2017 2018 2019
-4.5% -4.3% -2.6% -1/3%
RUB/USD EXCHANGE RATE
2016 2017 2018 2019
MACROREVIEW 70.34 69.01

HOUSEHOLD CONSUMPTION
67.88 66.85
2016 2017 2018 2019
-5.0% -0.1% 2.4% 3.5%
CPI
2016 2017 2018 2019
Forecast of the macro indicators for 2016 was improved, 7.6% 5.7% 5.2% 4.6%
suggesting that economy is now close to its lowest.
However there was a slight downgrade of 2016 INTEREST RATE
household consumption forecast. 2016 2017 2018 2019
GDP GROWTH 11.6% 8.55% 6.68% 6.3%
2016 2017 2018 2019 Source: Oxford Economics (05/2016)

-1.5% 1.1% 1.8% 1.8%
SUMMARY | CONSUMER MARKET | CORPORATE| CURRENCY
MACRO SUMMARY
RUSSIAN ECONOMY IS STABILISING, BUT THERE ARE NO

SIGNS OF RECOVERY YET.
For the first time in recent years economists upgraded In Q1 major industries were suffering from recession.
their forecasts within recent review cycle. Oxford Only financial sector and mining were growing more
economics pushed GDP up by 0.9pp, while Ministry of than 1%. Education lost over 4%. Processing and trade
-1.5%
Economics symbolically improved by 0.1pp. are also in the red zone.
This means that consensus view on Russian economy Hopefully in Q2 we will see better picture.
becomes more positive. However no one expects swift
recovery.
GDP growth outlook
for 2016 GDP GROWTH OUTLOOK GDP STRUCTURE
According to Oxford
5,2%
4,5% 4,3%
Economics 3,4%
2,2%
-0.2%
1,8%
1,3%
0,6% 0,8% 1,8% 1,8%
1,1%
-0,2%
-1,5%
GDP growth outlook

for 2016 -3,7%
According to the GDP Growth | Рост ВВП, %

Ministry of Economics
Base case forecast | Базовый прогноз, (04/2016)
-7,8%
Oxford Economics (05/2016)
2008 2009 2010 2011 2012 2013 2014 2015 F2016 F2017 F2018 F2019
Source: Rosstat, the Ministry of Economics, Oxford Economics
CONSUMER MARKET
CONSUMER MARKET IS ON THE EDGE

Major decrease in sales is registered in bigger cities. Urban culture was the one that suffers most.
It is possible that in the second half of the year Russian Regions will lead the decline.
CONSUMER DEMAND
-17,2%
10% Unlike 2009 when bigger cities were more
resilient to the consumption drop, this time
6,5%
7,1% consumer market in mega cities collapsed,
5% 6,3%
while smaller cities and rural areas were more
In 2015 3,9%
3,3% stable.
2,7% 2,6%
1,1% One of the reasons of such vulnerability of
Retail lost in Moscow 0%
bigger Russian cities is the higher mortgage
-2,7%
penetration. Significant shares (sometimes over
-5,1% Disposable income |
-5% Раcполагаемые доходы 60%) of household budgets are locked in
-10%
mortgage payments. As the result even slight
Moscow retail trade | Оборот -10,0%
decrease in household income leads to severe
-10% розничной торговли по drop in consumption.
Москве Mortgage is growing and this means that even
Total retail trade | Оборот in case of growing income, people will prefer to
In 2015 -15% розничной торговли по РФ
invest in apartments rather than increase
Retail lost in Russia discretionary consumption.
-20%
2009 2010 2011 2012 2013 2014 2015 F2016 F2017 F2018 F2019

CREDIT MARKET
CONSUMER CREDIT SLOWS DOWN. MORTGAGE GROWS

In 2016 overall indebtedness of households is diminishing. However while consumer credit
market is shrinking, mortgage demonstrates 14% annual growth.
39%
Non-bank loans are booming. While banks became more Decrease of the housing prices along with state mortgage
careful with risky borrowers, non bank loans are growing support program improved the affordability of dwellings.
at over 30% a year and reached 69 bn Rub in 2015 . Citizens view current situation as window of
opportunities to improve their living conditions.
Share of mortgage
On the other hand increase of the volumes of the long
In total debt term liabilities will create pressure on the consumer
spending and retail sector.
CONSUMER CREDITS IN RUSSIA
Household debt m-o-m change Total debt Share of overdue debt
189
Consumer debt growth | Рост потребительского 25 000 9%
5,0% кредитования
Mortgage growth | Рост ипотечного 20 000
4,0% кредитования 8%
15 000
3,0% 7%
10 000
‘000 RUB 2,0% 5 000 6%
AVERAGE HOUSEHOLD 1,0% 0 5%
11-14
05-16
01-14
03-14
05-14
07-14
09-14
01-15
03-15
05-15
07-15
09-15
11-15
01-16
03-16
DEBT 0,0%
-5 000
4%
-10 000
03-15
06-13
09-13
12-13
03-14
06-14
09-14
12-14
06-15
09-15
12-15
03-16
-1,0% 3%
-15 000 Personal savings, bn RUR | Накопления,
05-14
07-15
01-14
03-14
07-14
09-14
11-14
01-15
03-15
05-15
09-15
11-15
01-16
03-16
05-16
млрд. руб.
-2,0%
Total Debt, bn RUB | Задолженность, млрд.
руб.
-3,0%
Source: The Central Bank of the Russian Federation

CREDITS
DEBT IS SHRINKING
Corporate debt is diminishing since beginning of 2016. Construction sector is still suffering from bad
This mainly happens because of the decrease of the ruble debts. The share of the overdue debts in
value in foreign currency loans. construction had stabilized at 18%, still about 3
-3.2%
However decrease of the Central Bank key rate by 0.5 pp times higher than across economy in general.
in June may help facilitate credit market.
Decrease of debt CORPORATE DEBT OVERDUE DEBT

In January-may 2016 31 000 35% 25%
29 000
30%
20%
27 000
26%
25%
25 000
15%
23 000 20%
21 000 10%
15%
Of all corporate debt 19 000

10% 5%
17 000
IS ISSUED IN FOREIGN 15 000 5%

CURRENCY 0%
03.01.14
01.01.16
01.01.14
05.01.14
07.01.14
09.01.14
11.01.14
01.01.15
03.01.15
05.01.15
07.01.15
09.01.15
11.01.15
03.01.16
05.01.16
Jul-14
Sep-14
Nov-14
Jul-15
Sep-15
Nov-15
May-14
May-15
May-16
Jan-14
Jan-15
Mar-15
Jan-16
Mar-14
Mar-16
FX Corporate debt (bn RUR) | Валютные кредиты, млрд.руб
RUB Corporate debt (bn RUR) | Рублевые кредиты, млрд.руб % of overdue debt | Общая доля просроченных кредитов, %
Overdue debt in construction | Просроченные кредиты на строительство
Share of FX debt | Доля валютных кредитов
ACTUAL INVESTMENT VOLUMES
2015 2016
2.8 2.5
US$ bn US$ bn
EXPECTED TOTAL INVESTMENTS
CAPITAL 2016
3.5
MARKETS
US$ bn
PRIME CAPITALIZATION RATES
OFFICES
Q1 2016 Q2 2016
10.50% 10.50%
In H1 2016, the total volume invested in the Russian
SHOPPING CENTERS
commercial real estate was US$ 2.5 bn. We expect US$
3.5 bn of investments by the end of 2016. Q1 2016 Q2 2016
11.00% 11.00%
WAREHOUSES
Q1 2016 Q2 2016
12.75% 12.75%
Source: Cushman & Wakefield

CAPITALIZATION RATES | INVESTMENT VOLUMES | INVESTMENT STRUCTURE | BIGGEST DEALS| RUSSIA VS EUROPE
CAPITALIZATION RATES
CAPITALIZATION RATES REMAIN UNCHANGED

The capitalization rates applicable to the real estate In June 2016, the Central Bank of the Russian
objects with dollar cash-flow become less indicative Federation made a decision to decrease the key rate by
because of the increasing share of agreements with the 0.50 pp to 10.50% per annum based on the positive
rental rate nominated in Rubles – both new and trends of inflation dynamics. The regulatory authority
renegotiated. Nevertheless they are required to allow keeps investigating the possibility of further decrease of
10.5%
institutional investors to compare real estate markets the key rate, taking into consideration the inflation risks.
across the world. Our estimation of the capitalization
rates is kept at the same level during two quarters.
CAPITALIZATION RATE
CAPITALIZATION RATES CBR KEY RATE, CBR REFINANCING RATE
FOR OFFICES
16% 18%
14% 16%
10.5%
12% 14%
12%
10%
10%
8%
8%
6%
CBR KEY RATE 6%
4% 4%
11,00%
10,00%
13,00%
17,00%
11,00%
11,00%
10,50%
2% 2%
8,75%
7,75%
8,00%
8,25%
8,25%
0% 0%
Q1 Q2 Q1 Q2
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
OFFICES SHOPPING CENTERS WAREHOUSES CBR REFINANCING RATE CBR KEY RATE

CAPITALIZATION RATES | INVESTMENT VOLUMES | INVESTMENT STRUCTURE | BIGGEST DEALS | RUSSIA VS EUROPE
INVESTMENT VOLUMES
THE MARKET IS PAUSED
In Q2 2016, there were almost no investments in the commercial real estate.
INVESTED VOLUMES, US$ MN

9000 In Q2 2016, the total volume invested in the Russian
3.5
8000 commercial real estate was just US$ 173 mn. The
amount became an eleven year anti-record. At the
7000 same time, US$ 2.5 bn were invested in H1 2016.
6000 Regardless the investment fail of the past quarter we
believe big on-going deals to be closed in 2016 and
5000
US$ bn do not revise our 2016 forecast expecting US$ 3.5 bn
4000 by the end of the year.
2016 FORECAST
3000
2000
1000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
OFFICE RETAIL INDUSTRIAL OTHER FORECAST

INVESTMENT STRUCTURE
SPORADIC FOREIGN INVESTMENTS IN H1 2016
The share of foreign investments in the Russian commercial real estate in H1 2016 was just 5%.
CASH FLOWS
1672 In H1 2016, the total amount of foreign investments

INVESTOR SEGMENT VENDOR
was US$ 120 mn (87 – in Q1 and 33 – in Q2). Almost

two thirds of the amount – US$ 77 mn – were
attracted by warehouse segment. The share of
foreign investment fell to 5% in H1 2016. Welcome
US$ mn
but modest entering the market by Mubadala of UAE
INVESTED IN OFFICE OFFICE is to be mentioned specially – the company invested
SEGMENT US$ 50 mn in warehouses in the Moscow region.
RUSSIA The purchases of office premises by domestic
43
RUSSIA
companies made the lion share of all the
investments– US$ 1.66 bn ( US$ 1.31 bn – for their
own needs). The potential increase of vacancy rate in
shopping centers affects the investment
HOTEL
attractiveness of retail objects . As a result there were
US$ mn almost no investments in retail segment in H1 2016.
INVESTED IN RETAIL UAE INDUSTRIAL
SEGMENT SWITZERLAND
USA
AUSTRIA
NORWAY
RETAIL
FINLAND

THE BIGGEST DEALS
THE THREE TOP DEALS OF H1 2016 – US$ 1.76 BN
AMOUNT, US$
SEGMENT QUARTER PROPERTY INVESTOR
MN
960 OFFICES
OFFICES
Q1
Q1
EVOLUTION
EURASIA
TRANSNEFT
VTB
960
300
OFFICES Q1 AVRORA BUSINESS PARK O1 PROPERTIES 250

US$ mn
TORGOVYY KVARTAL
RETAIL Q2 ITD PROPERTIES 20
THE BIGGEST DEAL (DOMODEDOVO)
RETAIL Q1 METRIKA (ST. PETERSBURG) KESKO 10
PNK - CHEKHOV 3 RDIF

WAREHOUSES Q1 100
PNK - SEVERNOYE SHEREMETYEVO MUBADALA
WAREHOUSES Q1 BIN GROUP NIKOLSKOYE LOGOPARK (DMITROV) 50
НОТЕLS Q1 KURORT PLUS KRASNAYA POLYANA (SOCHI) 500
НОТЕLS APART GROUP NOVY ARBAT 15 35

CENTRAL AND EASTERN EUROPE
TWO-DIGIT DIFFERENCE BETWEEN MAXIMUM AND

MINIMUM INVESTMENT VOLUMES
INVESTMENTS IN COMMERCIAL REAL ESTATE (OFFICE, RETAIL, WAREHOUSE), 2015,
US$ MN
4.0
TURKEY
SLOVAKIA
SERBIA
RUSSIA
US$ bn
INVESTED IN THE ROMANIA
COMMERCIAL REAL
ESTATE OF POLAND POLAND
IN 2015 (OFFICE,
RETAIL, WAREHOUSE) HUNGARY
CZECHIA
BULGARIA
0 500 1000 1500 2000 2500 3000 3500 4000

OFFICE RETAIL INDUSTRIAL

SHARE OF VACANT OFFICE SPACES
16.12
mn sq m
3
TOTAL STOCK
mn sq m
OFFICES
VACANT
OFFICES
18.7 %
VACANCY
RATE
CONSTRUCTION
Second quarter figures indicate stabilization and the 175,000 SQ M

beginning of positive changes. However, the market is
NET ABSORPTION
still far from reaching equilibrium.
215,000 SQ M
RENTAL RATES TAKE-UP
CLASS A CLASS B CLASS A&B 660,000 SQ M
$454 $213 $268 Source: Cushman & Wakefield

SUMMARY | ABSORPTION | DEMAND | NEW SUPPLY | AVAILABILITY | EXPOSITION | RENTAL RATES
Absorption
DEMAND FOR OFFICES EXCEEDED NEW SUPPLY IN H1 2016
215 175
ABSORPTION IN H1 2016 VOLUME OF NEW SUPPLY
IN Q1 2015
‘000 sq m ‘000 sq m
ABSORPTION AND NEW CONSTRUCTION QUARTERLY ABSORPTION BY CLASSES
2008 - Q1
2008 - Q2
2008 - Q3
2008 - Q4
2009 - Q1
2009 - Q2
2009 - Q3
2009 - Q4
2010 - Q1
2010 - Q2
2010 - Q3
2010 - Q4
2011 - Q1
2011 - Q2
2011 - Q3
2011 - Q4
2012 - Q1
2012 - Q2
2012 - Q3
2012 - Q4
2013 - Q1
2013 - Q2
2013 - Q3
2013 - Q4
2014 - Q1
2014 - Q2
2014 - Q3
2014 - Q4
2015 - Q1
2015 - Q2
2015 - Q3
2015 - Q4
2016 - Q1
2016 - Q2
2 500
Thousands sq m
Thousands sq m
2 000
600
500
1 500 400
300
200
1 000
100
0
500 -100
-200
-300
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 Class A Class B
New Supply Absorption 2016

DEMAND
TAKE-UP REMAINS STABLE
980 660
WERE EXECUTED IN H1 2016 TAKE-UP VOLUME IN H1 2016
New deals ‘000 sq m
MAJOR DEALS IN H1 2016 The total volume of leased and owner-purchased office
premises remains high. During the first half of the year 980
COMPANY AREA BUILDING CLASS / SUBMARKET deals were completed with the overall volume of around
658,000 sq m.
VTB 93,878 sq m Eurasia A / Central Approximately 30% of the demand attributes to acquisitions
Moscow 31,860 sq m OKO А / Central of entire properties and blocks in business centres.
Government For the first half of the year absorption totaled 215,000 sq m.
Servier 5,982 sq m White Gardens А / Downtown Revitalization of business activity had positive effect on
absorption as companies sought upgrades in quality and
Philip Morris 4,784 sq m Kuntsevo Plaza A / OTA efficiency via attractive rental terms.
Gazprom Inform 4,155 sq m 9 Acres В+ / OTA Limited new construction as well as stable demand resulted in
optimistic indicators of Q2 2016.
QIWI 3,871 sq m Avinyon II А / OTA
Louis Vuitton 3,456 sq m Citydel B+ / Central
Rusatom 3,010 sq m Simonov Plaza B+ / OTA

Overseas Source: Cushman & Wakefield

NEW SUPPLY
SIGNIFICANT DECREASE IN CONSTRUCTION ACTIVITY

New construction volume will remain low for upcoming two or three years.
NEW CONSTRUCTION BY CLASSES

In the first half of 2016 175,000 sq m of quality office premises
2 500 were put into operation.
Thousands sq m
As it was expected at the beginning of 2016, majority of

2 000 projects under construction shifted delivery dates. Many of
them are expected to be completed in 2017 and beyond. Some
projects were converted from offices to residential.
1 500 There is still a lot of office space (around one million sq m)
under construction. However construction activity is stalling
1 768 so we expect this delivery to be spread over a number of years.
1 000 693
1 212 By the end of 2016, annual new construction volume is
881
expected to reach 300,000 sq m. The most significant
623 674 394 contribution to this volume is the delivery of the Federation
500 765 386
348 714 Tower East.
331 403 327 150
275 292 297 219 225 145
131 30 150
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016f
2016
Class A Class B (B+&B-)

AVAILABILITY
A SIGNIFICANT AMOUNT OF OFFICES IS STILL VACANT
Vacancy rates showed slight decrease in Q2 2016, after two While demand for offices is stable and construction activity is
years of growth. low, vacancy level is expected to decrease organically in
By the end of Q2 2016, average vacancy rate stood at 18.4%, upcoming two or three years.
analogous to that of Q2 2015. Still there are almost 3 million sq
18.7
m of vacant spaces in both class A and B properties .
% VACANCY RATES VACANT PREMISES

VACANCY RATE 35% 3 500
Thousands sq m
IN H1 2016
30% 3 000
3
25% 27,69% 2 500
20% 2 000
15% 1 500
mn sq m 15,87%
EXISTING 10% 1 000
AVAILABILITY 5% 500
0% 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1
2016 2016
Class A Class B (B+&B-) Class A Class B (B+&B-)
EXPOSITION
SOME PREMISES HAVE BEEN VACANT FOR 3 YEARS AND MORE

900 20%
18,5%
800 780 18%
700 16%
600 13,09% 13,14% 14%

12,48%
500 11,29% 12%
10,36% 10,14%
400 10%
317
300 7,00% 275 273 8%
192 210
200 173 168 6%
4,17%
3,68%
100 2,81% 4%
1,95% 13
0 2%
-20
-39 -40 -50
-100 0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Vacancies
Exposition period, days Vacancy rate, % Source: Cushman & Wakefield

RENTAL RATES
DEDOLLARIZATION
Triple net US CPI

USD
OpEx+VAT indexation
All inclusive Russian CPI ~ 12.5%
Lease RUB
USD at fixed rate
Discount
Splits risk between

Corridor
landlord and tenant
Exchange risk
management
RUB rate reverted to Splits risk over time
USD after fixed period

RENTAL RATES
RENTAL RATES* IN RUSSIAN RUBLES EQUIVALENT HAVE BEEN STABLE FOR

THREE YEARS IN A ROW
In H1 2016 average rental rate in dollar equivalent was lower than in 2015. However, in Q2 2016 following healthy demand
for offices and stable exchange rate of Russian ruble, indicator showed slight improvement.
Moreover, ruble equivalents have been stable for three quarters already and also show some summer increase.
We expect that relatively constant currency exchange rate will keep rental rates at the same level in mid-term prospective.
93
Lease agreements with rents nominated in rubles or with special provisions for payment of dollar-nominated rates will be
trending in the upcoming years.
% RENTAL RATES IN US DOLLARS VALUE RENTAL RATES IN RUSSIAN RUBLES VALUE

SHARE OF RUSSIAN
RUBLE DEALS IN H1 $1 200 40 000 rub.
2016 35 000 rub. 31 971 rub.
$1 000
30 000 rub.
$800 25 000 rub.
$600 $454 20 000 rub.
15 000 rub.
$400
10 000 rub. 14 999 rub.
$200 5 000 rub.
$213
$- - rub.
*hereinafter all rental rates are net

of OPEX and VAT
Class A Class B (B+&B-) Class A Class B (B+&B-)

RUBLES VS DOLLARS
RUBLE STRENGTHENED
454 14 723
DOLLAR EQUIVALENT RUBLE EQUIVALENT
ALL A CLASS DEALS ALL DEALS IN B CLASS
IN H1 2016 IN H1 2016
US Dollars per sq m per annum Rubles per sq m per annum
RUBLE DEALS VS DOLLAR DEALS DEMAND AND RATES
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 H1 Class Deal Deals Volume, Rate

2014 2014 2014 2014 2015 2015 2015 2015 2016 Currency sq m
700
Thousands sq m
А USD 41,182 $595

600
RUB 203,617 27,663 rubles
500
400
300 BB USD 6,088 $491
200
RUB 407,678 14,549 rubles
100
0
RUB Deals USD Deals

$2 000
37 000
Class B / Класс B
DEALS
СДЕЛОК Class A / Класс А
$1 800 Moscow office lease deals by rent and transaction date Weighted average A class rent / Среднее взвешенное значение за год, Класс А
bubble size reflects deal size
Сделки аренды на московском рынке по дате заключения Weighted average B class rent / Среднее взвешенное значение за год, класс B
и арендной ставке.
размер точки соответствует площади сделки
$1 600 ( = 10 000 sq m)
$1 400
$1 200
Rental rate, USD/sq m / Арендная ставка, долл. за кв.м.
$1 000
$800
$600
$400
$200
$0 Source: Cushman & Wakefield

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Deal date / Дата сделки
Source: Cushman & Wakefield Research
12 %
VACANCY RATE
(all shopping centers, Moscow)
145
RETAIL
‘000 RUB
PRIME RENTAL RATE INDICATOR
117 QUALITY PROJECTS

TOTAL QUALITY STOCK, MOSCOW
(Quality shopping malls, mixed-use buildings, outlets,
and retail parks)
In 2016 the market keeps balanced, B2B sector has conformed
4.6
to the new market reality. Main indicators – prime rental rate
and vacancy rate are stable.
Single projects are being completed and delivered to the MN SQ M
market. Developers are more focused on the existing schemes’ TOTAL QUALITY STOCK, MOSCOW
concept optimization including area extension, new design and (Quality shopping malls, mixed-use buildings, outlets,
tenant mix. and retail parks)

CONSUMER MARKET | RETAILERS | SHOPPING CENTRES | COMMERCIAL TERMS
CONSUMER MARKET
POSITIVE TRENDS IN FOOTFALL

In Q2 2016 footfall in Moscow shopping centers is still lower than the same period of the last
year, but spread between them is smaller than in Q1 2016.
-1.7%
FOOTFALL CHANGE BY SHOPPING CENTRE SIZE
In comparison to Q1 2016 the situation has
improved. In Q2 2016 the lowest indicators in all
5-20 000 20-40 000 40-80 000 >80 000 shopping centre categories started to shrink the
Q2 2016 spread with the same period of the previous year
2% (e.g., from -7% to -4% in small shopping centers,
AVERAGE FOOTFALL
1% from -9% to -0,4% in mid-scale projects, etc.)
IN MOSCOW SHOPPING
CENTERS* As a result, average footfall in Moscow in Q1 2016 is
3.6% lower compared to the same period of the last
-3.6%
-0,4%
-2%
year, in Q2 2016 – 1.7% lower than in Q2 2015.
-3%
-4% As for shopping centres in St. Petersburg, in Q2 2016
the footfall is higher by 1.6% than in the same period
Q1 2016 of the last year, while in Q1 2016 the spread was -
-7%
2.5%.
-9%
AVERAGE FOOTFALL
IN MOSCOW SHOPPING Q1 2016 Q2 2016
CENTERS*
*compared to the same Source: Watcom, Cushman & Wakefield calculation
period of the last year

SUMMARY | RETAILERS | SHOPPING CENTRES | COMMERCIAL TERMS
RETAILERS
FAST-FOOD, LIQUOR STORES AND ENTERTAINMENT ARE

THE MOST ACTIVELY DEVELOPING CHAINS
Economy segment chains in different product categories and entertainment operators continue
leading in expansion activity.
NEW RETAILERS
Liquor stores are among the most actively growing We can also expect to see new names in this segment.
market players. By the end of 2015 Bristol liquor store New entertainment parks such as KidzMondo and Funky
chain became the market leader by sales growth - the World may enter the market in the near future.
chain opened 900 new shops in 2015. Another chain in While demand is shrinking, retail operators try to attract
the segment Krasnoe i Beloe took the 14th place in the the loyal audience experimenting with formats.
ranking (InfoLine data). Technosila announced sales increase in the shops of new
Fast-food segment also keeps growing. Yum! announced format (average check increased by 15%), KFC plans to
the plans to increase the market share significantly – open small mobile trolleys at trains station, Okey
100 new restaurants per year. Ginza project is opening a opened a hypermarket in a new format in St. Petersburg
new budget-friendly Georgian burger restaurant Moko (there are changes in zoning, navigation and design of
EXPANSION Burger. the sales area, non-food goods zone is organized in shop-
Existing entertainment chains continue the trend of in-shop format).
extending of entertainment areas in shopping centres More affordable lease terms in Moscow and regional
(for instance, trampoline centre Nevesomost’ plans at shopping centres allows regional operators to enter the
least 5 new openings in 2016). Moscow market and markets of other regions.

SHOPPING CENTRES. MOSCOW
AVERAGE VACANCY RATE IS STABLE
MARKET STRUCTURE AND VACANCY RATE, Q2 2016
12%
Vacancy rate* by shopping center type:
Prime: 2-3%
Sustainable: 7-8%
Average market
vacancy rate
Opened in 2014-2016: 25-30%
AVERAGE VACANCY Announced to be opened in 2016: 35-40%

RATE KEEPS STABLE (C&W estimation)
IN Q1-2 2016.
AFTER NEW Size of a bubble is a size of each shopping center.
OPENINGS WITH HIGH
SHARE OF VACANT
PREMISES THE
INDICATOR IS
EXPECTED TO GROW
UP TO 13-14% BY THE
END OF THE YEAR.

SHOPPING CENTRES. MOSCOW
25% OF TOTAL MOSCOW RETAIL SPACE WAS

CONSTRUCTED OVER THE PAST TWO YEARS
Vacancy rate in sustainable shopping centres Projects constructed over the past two years that
(opened more than 2 years ago, with loyal target had high vacancy rate at the opening, are slowly
65%
audience and balanced tenant mix) hasn’t changed decreasing the vacancy level. Retailers activity dropped
significantly during past year. noticeably and exposition period increased. Preferences
Prime shopping centres (successful projects in prime that tenants receive for opening and for the initial lease
locations) show high occupancy rate consistently, period is an important driver to decrease the vacancy
though the rotation of tenants is registered. rate.
SHARE OF COLUMBUS, MARCH 2015 COLUMBUS, MARCH 2016

SUSTAINABLE
SHOPPING CENTRES
25%
OF TOTAL RETAIL
SPACE WAS
CONSTRUCTED IN
2014-2016

SHOPPING CENTRES. MOSCOW AND REGIONS
9 SHOPPING CENTRES WERE OPENED IN H1 IN RUSSIA

Construction volumes continue to decrease. 5shopping centres with total GLA of 226,481 sq m
were opened in Russia in Q2 2016.
465
NEW CONSTRUCTION IN RUSSIA, ‘000 SQ M 226,481 Opening of the largest quality shopping centre in
Vladivostok Sedanka-City (GLA 45,000 sq m) was a
significant event on the regional real estate market.
M.Video opened the first store in the region and Kidburg
QUALITY SHOPPING children edutainment centre is planning to be located in
CENTRES IN RUSSIA the shopping center.
Shopping centres keep opening with low occupancy of
retail gallery. In Pioner SC (Barnaul) only one floor out of
four was launched with Lenta as anchor tenant. The
18.7
second floor is planned to be opened in Q3.
Developers are focusing on concept optimization – design
update, space expansion rather than new developments.
For instance, IKEA plans to increase the area of existing
mn sq m shopping centers in Moscow and regions. In St.
Petersburg, Mega Park is planned to be added to MEGA
EXISTING QUALITY Dybenko– project of improvement and landscaping of the
RETAIL SPACE IN area adjacent to the mall. ADG Group is going to carry
SHOPPING CENTRES out a redevelopment project of 39 old cinemas into
community centres in Moscow.

SHOPPING CENTRES. MOSCOW AND MOSCOW REGION
ONE SHOPPING CENTRE WAS OPENED IN MOSCOW

IN H1 2016
MOSCOW: NEW CONSTRUCTION IN MOSCOW AND MOSCOW

REGION, ‘000 SQ M Riviera SC (GLA 100,000 sq m) was opened in Moscow in
117
Q2 2016 – it is the largest project among announced to be
delivered in 2016. Entertainment part is widely presented in
the shopping center, including Skazkin Dom, the first
children interactive museum in Moscow, ART-Korobka
exhibition area, cinema and other facilities.
QUALITY SHOPPING
CENTRES Significant retail space delivery is expected in Q3 2016 –
such large-scale projects as Metropolis (2 phase), Okeania,
4.6
Horosho! and Kosino Park are planned for opening. These
projects will comprise half of the retail space planned for
delivery to the market in 2016 (189 000 sq m out of 360 000
sq m of space expected for opening).
In the Moscow region one of the largest shopping centres in
mn sq m the region Riga Mall (GLA 80,000 sq m ) is planned for
QUALITY RETAIL delivery to the market. OBI hypermarket has already started
SPACE IN SHOPPING operating since June, grand opening of the shopping centre
CENTRES is expected to be in Q3 2016.

SHOPPING CENTRES. MOSCOW AND REGIONS
SHOPPING CENTRES DELIVERED TO THE MARKET IN

H1 2016 AND PIPELINE FOR 2016
LOCATION PROPERTY NAME RETAIL GLA, SQ M DELIVERY RETAIL

LOCATION PROPERTY NAME DELIVERY
GLA, SQ M
Moscow Riviera 100,000 Q2 Kursk MegaGRINN 129,000 Q1

Total GLA Moscow, 2016 100,000 Pskov Aquapolis 34,000 Q1
Moscow Kosino Park 39,000 Q3 Ekaterinburg Akademicheskiy 30,000 Q1
Moscow Okeaniya 60,000 Q3 Balakovo Green House (phase 2) 11,500 Q1
Moscow Horosho! 50,000 Q3 Vladivostok Sedanka-City 45,000 Q2
Moscow Metropolis (phase 2) 40,000 Q3 Barnaul Pioner Mall 37,000 Q2

Kovrov Kovrov Mall 26,481 Q2
Moscow Butovo Mall 57,000 Q4
Stariy Oskol Sputnik 18,000 Q2
Moscow Proletarskiy 14,877 Q4
Moscow Fashion House Outlet (phase 2) 4,500 Q4. Total GLA Moscow and Moscow Region, 2016 304,500
Samara Good'Ok 115,000 Q3
Total GLA Moscow, 2016 (announced plans)
388,763 Saint Petersburg Okhta Mall 78,000 Q3
Krasnogorsk Riga Mall 80,000 Q3 Lipetsk Riviera 61,000 Q3
Mytischi 4Daily 25,000 Q3 Voronezh Chizhov Gallery (phase 3) 60,000 Q3
Zhukovskiy Torgovy Park №1 45,488 Q3 Nizhniy Tagil Retail Park Depo 40,000 Q3
Vidnoe Vidnoe Park 70,000 Q4 Orenburg Armada Capital 67,358 Q4
Tumen Star City Mall 53,000 Q4
Total GLA Moscow Region, 2016 (announced plans)
220,488 Arkhangelsk Maksi 49,243 Q4
Total GLA Moscow and Moscow Region, 2016 Novosibirsk Evropeiskiy 45,000 Q4
(announced plans) 609,251
Total GLA Russia (without Moscow and Moscow
region), announced development plans for 2016 1,625,287
The table includes all major quality projects in Moscow and Moscow The table includes all quality projects completed in H1 2016 and the largest
Region completed in H1 2016 and planned for delivery in 2016. (GLA 40,000+ sq. m ) projects announced for delivery later in 2016.
Riviera
Okeaniya
Horosho!
existing
under construction
Source: http://www.interactivemaps.ru
COMMERCIAL TERMS
IN 2016 PRIME RENTAL RATE INDICATOR KEEPS STABLE

In Q2 2016 there were no significant changes in commercial terms. We expect the situation to
remain the same till the end of the year.
145
Different types of compound rental rate remains to be Due to high vacancy rate in the newly opened shopping
the most common market practice (percentage of centres, developers try different approaches in order to
retailer’s turnover + fixed rental rate). generate consumer loyalty to the new projects and
Another option of rental payment structuring is proving new shopping experience. Among possible
consolidation – on the basis of turnover of one or two approaches there are one-time events (exhibitions,
‘000 RUB / sq m/ year years of rent (when the payment is linked to the discussion sessions etc., such as Bartenev exhibition in
percentage of retailer’s turnover) minimum indexed Kuntsevo Plaza mixed-use complex, Marketing Session
rental rate for the remaining rental period is calculated. of RCSC in Zelenopark shopping centre), and also
permanent exhibition areas and socio-cultural spaces
PRIME SHOPPING Taking into account current situation we expect no
(for example, Art-Korobka exhibition zone in Riviera
MALL INDICATOR*, significant changes in the market till the end of the year.
shopping centre, opening of a cultural and educational
MOSCOW, The market has reached the balance in the new
environment. Now adjustments take place in each single space in Okhta Mall in St. Petersburg which is currently
Q2 2016 under construction).
project individually – rental conditions can change
depending on development stage and occupancy level of Such projects do not increase rental flow because often
the project. they are hold on favorable or free terms, however they
can improve the image, increase awareness and
recognisibility of the project and create comfortable
environment for the costumers.
* Prime shopping mall indicator - base asking rental rate for a 100 sq m
gallery unit on the ground floor of prime shopping centres.

2016 Q1-2
NEW CONSTRUCTION (CLASS A AND B)
RUSSIA MOSCOW REGIONS
556 311 201

‘000 sq m ‘000 sq m ‘000 sq m
TAKE UP (CLASS A AND B)
488 328 160

WAREHOUSE ‘000 sq m ‘000 sq m ‘000 sq m
& INDUSTRIAL FORECAST 2016

NEW CONSTRUCTION (CLASS A AND B)
• In Q2 2016, the average rental rate stabilized.

1.31 0.85 0.46
mn sq m mn sq m mn sq m
• Vacancy rate remains high.
• The demand decreases. TAKE UP (CLASS A AND B)
• Food retailers and logistic companies support
demand. RUSSIA MOSCOW REGIONS
• Tenants are very active in lease terms renegotiation.
1.20 0.80 0.40
mn sq m mn sq m mn sq m

TRENDS | NEW CONSTRUCTION | DEMAND | REGIONS
TRENDS. MOSCOW REGION
IN Q2 2016, THE AVERAGE RENTAL RATE STABILIZED.

TAKE UP IS DECREASING.
The consumer sector of the Russian economy influences the warehouse

segment of commercial real estate.
The market is still under pressure of the large amount of vacant All the factors show a temporary chilldown of the warehouse
premises. We saw no reason for decreasing trend of vacancy rate segment of the Russian real estate market in 2016.
in H1 2016. Nevertheless, the increasing take up will be a possible option for
The average rental rate broke through the 4000 RUB / sq m the market if the food retailers will follow their expansion plans
level in H1 2016 and stabilized at 3800 – 4000 RUB / sq m / in Moscow and regions.
year. Food and household goods retailers compose the main demand
We also notice the extinction of ‘buy’ and ‘rent’ activities. The H1 at the moment.
2016 take up was the lowest since 2010.

TRENDS. MOSCOW REGION
IN Q2 2016, THE AVERAGE RENTAL RATE STABILIZED.

TAKE UP IS DECREASING.
311 4 000
TAKE UP Q1-2 2016 CURRENT NET RENTAL
RATE*
‘000 sq m RUB / sq m / year
VACANCY RATE, CLASS A NET RENTAL RATE* IN RUBLES

(RUB/ SQ M/ YEAR)
4 500
4 500
4 299
4 198
4 250
4 150
4 000
4 000
3 820
3 750
3 480
3 500
3 331
3 250 3 341
3 325
3 000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F
* Rental Rate excluding OPEX, utilities, VAT


NEW CONSTRUCTION. MOSCOW REGION
CONSTRUCTION ACTIVITY REMAINS AT THE LEVEL OF 2015
The decrease of the construction rate and the vacancy rate is expected in 2017 only.
NEW CONSTRUCTION, CLASSES A AND B
311
In Q2 2016, 206,000 sq m of new quality warehouse
space were delivered to the market . According to the
developers, 850,000 sq m of new supply are
1 800
expected by the end of the year 2016, which is similar
1 600
to 2015.
‘000 sq m 1 400
The vacancy rate was unchanged in Q2 2016 at the
NEW CONSTRUCTION, 1 200 level of 10%. At the same time the high developers’
Q2 2016
'000 sq m
1 000 activity and demand being decreased will certainly

push the vacancy rate up by the end of the year.
850
800
600 In 2017, new construction volume will be

400 dramatically lower. We expect not more than
200
300,000 sq m to be delivered. As a result the vacancy
rate will decrease by the end of the year 2017.
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F
‘000 sq m
Actual Construction Forecast
NEW CONSTRUCTION,
2016F

DEMAND. MOSCOW REGION
THE TAKE UP IN H1 2016 WAS THE LOWEST FOR THE LAST

SIX YEARS
TAKE UP, CLASSES A AND B, ‘000 sq m In Q2 2016, the total volume of closed deals in the
328
warehouse segment – both lease and sale – was
110,000 sq m. It is lower than the average amount
during the 2008 – 2015 period.
1 400 In H1 2016, the average size of closed deals was 5%
1 200 lower than in 2015 – 11,000 sq m. And the number of
‘000 sq m deals was 20% lower. The share of sale deals fell by
TAKE UP, H1 2016 1 000 24 pp from 31% in 2015 to just 7% in 2016.
800 The majority of closed deals are featured with an
600 area from 5,000 to 10,000 sq m. The warehouse
800
premises larger than 20,000 sq m get less interest
400
from potential tenants. The interest to smaller
200 premises is of the same level during the last five
0 years.
2009 2010 2011 2012 2013 2014 2015 2016F
‘000 sq m Moscow Forecast
TAKE UP, 2016F

DEMAND. MOSCOW REGION
DEMAND IS SUPPORTED BY RETAIL AND LOGISTIC

COMPANIES
TAKE UP STRUCTURE, CLASSES A AND B Food and household goods retailers supported more
44%
than 40% of the total demand in H1 2016.
Tenants benefit from the current combination of
high vacancy rate and low ruble rental rates. We note
Distributor - 14.0% Distributor - 15.1% the increasing numbers of companies renegotiating
their current lease terms, consolidating their
THE SHARE OF RETAIL Logistic - 18.8% premises and moving to the higher quality ones.
Logistic - 19.5%
CHAINS IN TAKE-UP The low economic indicators of the Russian
(H1 2016)
Other - 0.0%
Other - 5.0% consumer sector will determine the behavior pattern
Producer - 24.5% of potential tenants in 2016. We believe the take up
Producer - 16.1%
will be about 40% lower than in 2015 and will not
exceed 800,000 sq m.
Retailer - 42.7% Retailer - 44.1%
Q1-2 2015 Q1-2 2016

NEW CONSTRUCTION. REGIONS
NEW CONSTRUCTION VOLUME DECREASES

After the peak of development activity in 2014, the volume of construction decreased twice in
2015. Downward trend in activity retains in 2016.
NEW CONSTRUCTION, CLASSES A AND B
201
We identify a reduction of new construction in the
Russian regions, unlike the Moscow region. In 2016,
1 200 461,000 sq m will be delivered – 35% less than in
2015. Almost half of expected space will be delivered
1 000 in Saint Petersburg and Ekaterinburg areas. To
‘000 sq m
minimize their risks regional developers proposes
NEW CONSTRUCTION, 800 the ‘built-to-suit’ approach to potential tenants –
H1 2016 40% of expected space are preleased or presold.
600
Because of this strategy the vacancy rate currently
461
400 does not exceed 10% in A class warehouse segment
in the majority of the Russian regions.
200
0
2009 2010 2011 2012 2013 2014 2015 2016F
‘000 sq m Actual Construction Forecast
NEW CONSTRUCTION,
2016 (FORECAST)

DEMAND. REGIONS
DECLINE IN TAKE UP LEVEL
In H1 2016, the total area – both leased and sold – was In H1 2016, the average deal size was 6,700 sq m. – 13%
160,000 sq m that is 13% less than in H1 2015. Almost less than in H1 2015. We expect 400,000 sq m of the
one third of the area – 31% - was sold. The average deal total take up by the end of the year.
160
size decreases. At the same time the number of the deals
does not.
‘000 sq m TAKE UP STRUCTURE, CLASSES A AND B TAKE UP, CLASSES A AND B, ‘000 sq m
TAKE-UP, Q1-2 2016
Distributor - 5.8% 600
Distributor - 16.0%
Logistic - 25.8% 500
400
Logistic - 23.5%
Other - 1.6% 400

Other - 0.0% Producer - 11.8%
300
Producer - 20.9%
200
‘000 sq m
100
TAKE-UP, 2016 Retailer - 39.6% Retailer - 55.0%
(FORECAST) 0
2009 2010 2011 2012 2013 2014 2015 2016F
Regions Forecast
Q1-2 2015 Q1-2 2016

RENTAL RATES AND VACANCY. MOSCOW AND REGIONS
IN THE MAJORITY OF REGIONS VACANCY RATE IS LESS

THAN 10%
SHARE OF A CLASS
WAREHOUSE NET ASKING RATES,
CITY VACANCY RATE
PREMISES IN TOTAL ‘000 RUB/SQ M/YEAR
STOCK IN RUSSIA
61%
Moscow 61% 3.8 – 4.0 10%
St. Petersburg 15% 3.5 – 4.0 6%
Novosibirsk 4% 3.0 – 4.0 7%
Ekaterinburg 3% 3.0 – 3.6 8%
Rostov-on-Don 2% 4.0 – 4.3 13%
OF A CLASS
Krasnodar 2% 2.9 – 3.4 7%
WAREHOUSES
Kazan 1,5% 2.7 – 3.0 47%
ARE LOCATED IN
THE MOSCOW
REGION
* Rental Rate excluding OPEX, utilities, VAT

NEW CONSTRUCTION, MOSCOW AND REGIONS
THE BIGGEST WAREHOUSE PROJECTS TO BE COMPLETED

IN 2016
DISTANCE TOTAL
PROJECT HIGHWAY REGION FROM AREA, DELIVERY
CITY, KM ‘000 SQ M
1.2
Mihaylovskaya sloboda Novoryazanskaya Moscow 20 70.3 Q1, Q2
Logopark Sever II Leningradskoye Moscow 30 104.9 Q2, Q3
PNK – North 39 106.5
Kashirskoye Moscow Q3, Q4
mn sq m Sheremet’evo
Industrial Park South 30 89.0
Kashirskoye Moscow Q4
NEW Gate
65 57.5
CONSTRUCTION,
Klin logistic park Leningradskoye Moscow Q4
A Plus Shushary Moscovskoye St. Petersburg 20 95.0 Q2
2016 (FORECAST) Fright Village Vorsino Kievskoye Kaluga 67 35.6 Q2
Vladivostok-port 30 28
Aviapolis Yankovskiy Vladivostok Q2
Vostochniy
A Plus Park Perm Zapadniy obhod Perm 19 26.4 Q3
Octavian Toksovskoye St. Petersburg 11 53 Q3, Q4

Market indicators
APPENDIX
Standard lease terms
Interactive services
Cushman & Wakefield Research Department provides clients with the
most detailed information on the market indicators, including average
rental and vacancy rates split by metro stations, administrative districts
and submarkets in Moscow, as well as data on planned projects and
projects under construction in Russia.
If you need more detailed information please contact the Research
Department.
#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD

CUSHMAN RESEARCH
& WAKEFIELD DEPARTMENT
RESEARCH | 45
DEPARTMENT
APPENDIX
INDICATORS | STANDARD COMMERCIAL LEASE TERMS | INTERACTIVE SERVICES
COMMERCIAL REAL ESTATE MARKET INDICATORS (1)
OFFICES AND SHOPPING CENTRES
The forecast is based on the conservative macroeconomic scenario.
MOSCOW REAL ESTATE MARKET INDICATORS FORECAST/ПРОГНОЗ

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016 2016 2017 2018
Q1 Q2
Average annual exchange rate RUB/USD 27,1 25,6 24,9 31,8 30,4 29,4 31,1 31,9 38,6 61,3 74,9 65,9 70,3 69,0 67,9
MOSCOW OFFICES
Stock class A, EOP '000 sq m 720 995 1 326 1 729 2 021 2 318 2 536 2 684 3 416 3 821 3 821 3 851 3 971 4 071 4 171
Stock class B (B+ and B-), EOP '000 sq m 5 297 6 509 8 277 9 158 9 781 10 167 10 515 11 227 11 838 12 132 12 195 12 272 12 282 12 382 12 482
New construction, A, '000 sq m 131 275 331 403 292 297 219 225 714 327 0 30 150 100 100
New construction, B (B+ and B-), '000 sq m 765 1 212 1 768 881 623 386 348 674 693 394 63 82 150 100 100
Vacancy rate class A 3,9% 4,8% 12,8% 23,6% 22,5% 16,8% 14,6% 17,6% 23,8% 31,1% 28,9% 26,3% 30,0% 29,5% 29,0%
Vacancy rate class B (B+ and B-) 2,7% 4,1% 6,1% 11,1% 10,4% 8,9% 9,1% 9,8% 10,8% 14,4% 16,3% 15,9% 16,0% 15,8% 15,5%
Take up class A, '000 sq m 287 487 456 183 388 638 459 361 324 427 179 66 400 300 250
Take up class B (B+ and B-), '000 sq m 863 1 024 1 237 558 911 1 224 1 398 1 205 937 872 180 233 700 800 850
Rental rates class A, USD/sq m pa $714 $934 $1 092 $729 $645 $733 $790 $867 $772 $549 $433 $502 $460 $470 $500
Rental rates class B (B+ and B-), RUB/sq m pa 14 337 16 486 20 240 16 141 12 671 13 370 14 624 17 041 18 699 17 820 14 214 15 046 15 000 15 500 16 500
Prime capitalization rate 8,25% 7,25% 12,00% 13,00% 9,00% 8,50% 8,75% 8,50% 11,00% 10,50% 10,50% 10,50% 10,50% 10,50% 9,50%
MOSCOW QUALITY SHOPPING CENTERS
Total stock, EOP, '000 sq m 1 477 1 696 2 052 2 569 2 957 3 147 3 297 3 482 4 129 4 555 4 555 4 655 4 915 5 115 5 215
New construction, '000 sq m 369 219 356 517 388 190 150 185 647 426 0 100 360 200 100
Prime vacancy rate, EOP 0,7% 1,0% 3,0% 5,0% 2,1% 0,4% 0,5% 1,2% 1,5% 2,0% 2,5% 2,5% 3,0% 2,5% 2,0%
Prime rental rate indicator, RUB/sq m pa* 94 990 91 980 99 480 87 368 88 102 105 804 114 959 121 258 127 380 159 432 145 000 145 000 145 000 145 000 160 000
(until 201 6 nominated in USD, paid in RUB by offical ex change rate)

APPENDIX
COMMERCIAL REAL ESTATE MARKET INDICATORS (2)
WAREHOUSE AND INDUSTRIAL, INVESTMENTS
The forecast is based on the conservative macroeconomic scenario.
MOSCOW REAL ESTATE MARKET INDICATORS FORECAST/ПРОГНОЗ

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016 2016 2017 2018
Q1 Q2
WAREHOUSES, MOSCOW REGION
Stock, class A, EOP '000 sq m 1 943 3 129 3 723 4 352 4 676 4 933 5 598 6 456 7 852 8 669 8 716 8 922 9 457 9 857 10 407
Stock, class B, EOP '000 sq m 1 789 1 978 2 060 2 109 2 157 2 264 2 317 2 409 2 688 2 690 2 690 2 690 3 060 3 100 3 145
New construction, class A, '000 sq m 863 1 186 594 629 324 257 664 858 1 396 817 47 206 788 400 550
New construction, class B, '000 sq m 126 188 82 49 48 107 53 92 279 2 0 0 62 40 45
Vacancy rate class A 2,0% 2,0% 2,0% 10,5% 8,0% 1,0% 1,0% 1,5% 7,0% 10,0% 10,0% 10,0% 11,0% 9,0% 8,0%
Vacancy rate class B 2,0% 2,0% 2,0% 5,9% 6,1% 1,5% 1,5% 2,0% 5,0% 8,0% 8,0% 8,0% 8,0% 7,0% 6,0%
Net Absorption Class A, '000 sq m 846 1 162 582 247 409 580 658 817 944 500 42 185 615 553 605
Net Absorption Class B, '000 sq m 123 185 80 -33 40 205 53 78 192 -79 0 0 341 68 73
Rental rates class A, RUB/sq m pa 3 691 3 322 3 482 3 336 3 342 3 968 4 194 4 308 4 500 4 150 4 000 4 000 3 900 4 000 4 100
Rental rates class B, RUB/sq m pa 3 284 2 989 3 109 2 859 2 795 3 821 4 039 4 148 4 000 3 800 3 700 3 700 3 600 3 700 3 800
INVESTMENTS
TOTAL, MN US$ 4 560 5 354 5 798 2 256 3 994 7 657 7 458 8 066 4 309 2 828 2 337 173 3 500 3 000 4 000
Office, US$ mn 1 244 1 719 3 149 1 998 3 282 3 432 2 854 3 517 2 230 1 198 1 559 113
Retail, US$ mn 2 224 2 216 2 029 30 459 1 767 2 585 2 798 639 731 23 20 * Base rental rate for 100 sq m unit on the
Warehouse, US$ mn 616 723 110 81 1 080 660 1 395 363 584 202 10 ground floor of retail gallery of prime
Other, US$ mn 476 696 510 228 172 1 379 1 358 355 1 076 315 553 30 shopping mall for fashion retailer

APPENDIX
STANDARD COMMERCIAL LEASE TERMS

LEASE TERMS RENTAL PAYMENTS DISPOSAL OF LEASES
DURATION OF LEASE RENT PAYMENT AND FREQUENCY ASSIGNMENT AND SUB-LETTING

Office: 5 years Offices & Industrial: Usually possible, but subject to negotiation.
Industrial: either short-term (1-3 years) or long-term Offices and retail: RUB or US$ per square meter per year, payable due Retail: Not common.
(5+ years) monthly or quarterly in advance.
Retail: 3-5 years, anchor tenants - 10-25 years. SERVICE CHARGES, REPAIRS & INSURANCE
BREAK OPTIONS Industrial: Rubles. REPAIRS

Tenant: Internal repairs and maintenance.
Offices: Possible after 3 years with deposit withdrawal RENT DEPOSIT Landlord: Structural repairs, common areas.
as penalty. After crisis has become very popular. Notice Offices: 1-3 months rent equivalent (bank guarantee optional, very seldom
period is 6-9 months. When there is an option to review however). INSURANCE
the rent after the third year, contract can be terminated Retail: 1-2 months rent equivalent (bank guarantee optional). Tenant: Contents insurance.
from both sides. Industrial: 1-3 months rent equivalent (bank guarantee optional, very seldom Landlord: Building insurance which is normally charged back to tenant via the service charge.
however as landlords as landlords prefer the deposit)
Retail: a standard lease agreement is not supposed to SERVICE CHARGES
include break option. RENT REVIEWS Service charge is payable by the tenant at either an ‘open book’ basis or as a fixed cost.
After crisis have become more popular, negotiable.
UTILITY EXPENSES
INDEXATION Often included to service charges, but depends on landlord and different types of projects.
Offices: 7-10% for RUB agreements; 3-5% or at the level of USA / EU CPI.
Retail: if rents in US$ – US CPI or 5%; if rents are in RUB – Russia’ CPI or 8- TAXATION
9%.
Industrial: 8-10% REAL ESTATE TAX
Tenant: None.
ENTRANCE FEE Landlord: the amount of tax depends on the region. In Moscow for office and retail: 1.2% of
It is possible to pay extra-fee to “enter the project” – applicable only for prime cadastral value in 2015, 1.3% in 2016, 1.4% in 2017 and 1.5% in 2018.
projects.
VAT: 18%
Turnover rents (only in Retail):
Compound rental rates (fixed rent and a percentage of turnover) are almost MEASUREMENT PRACTICE
always used in shopping centers. Normally, the percentage of turnover varies
between 12-15% (fashion), 1-3% for large anchor tenants. Space is measured generally on the BOMA system. Some Landlords have started to apply BTI
(Bureau of Technical Inventory) measurements.

APPENDIX
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CUSHMAN & WAKEFIELD

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RESEARCH DEPARTMENT | CUSHMAN & WAKEFIELD IN RUSSIA
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Analyst
Junior analyst
Andrey.Vladimirsky@cushwake.com
Evgenia.Safonova@cushwake.com
The information provided in this report is intended for informational purposes only and should not be relied on by any party without further independent verification. Classifications of individual buildings are
reviewed on a continuing basis and are subject to change. The standards used in this process are consistent with those used by Moscow Research Forum and in the United States by the Society of Industrial and Office
Realtors (SIOR) and BOMA International. Reproduction of this report in whole or part is permitted only with written consent of Cushman & Wakefield. Data from this report may be cited with proper
acknowledgment given.

2016 Q2 MarketBeat - EN

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2016 Q2 MarketBeat - EN

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COMMERCIAL REAL ESTATE | RUSSIA

03 | Outlook 15 | Office 45 | Market Indicators

#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT | 2

In summer 2016 Russian real estate market has hit

#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT | 3

BUDGET DEFICIT (% of GDP)

-4.5% -4.3% -2.6% -1/3%

RUB/USD EXCHANGE RATE

2016 2017 2018 2019

MACROREVIEW 70.34 69.01

2016 2017 2018 2019

-5.0% -0.1% 2.4% 3.5%

2016 2017 2018 2019

GDP GROWTH 11.6% 8.55% 6.68% 6.3%

2016 2017 2018 2019 Source: Oxford Economics (05/2016)

RUSSIAN ECONOMY IS STABILISING, BUT THERE ARE NO

GDP growth outlook

According to the GDP Growth | Рост ВВП, %

CONSUMER MARKET IS ON THE EDGE

#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT | 6

CONSUMER CREDIT SLOWS DOWN. MORTGAGE GROWS

Household debt m-o-m change Total debt Share of overdue debt

‘000 RUB 2,0% 5 000 6%

AVERAGE HOUSEHOLD 1,0% 0 5%

Source: The Central Bank of the Russian Federation

Decrease of debt CORPORATE DEBT OVERDUE DEBT

Of all corporate debt 19 000

IS ISSUED IN FOREIGN 15 000 5%

ACTUAL INVESTMENT VOLUMES

EXPECTED TOTAL INVESTMENTS

PRIME CAPITALIZATION RATES

Source: Cushman & Wakefield

CAPITALIZATION RATES REMAIN UNCHANGED

#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT | 10

THE MARKET IS PAUSED

In Q2 2016, there were almost no investments in the commercial real estate.

INVESTED VOLUMES, US$ MN

#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT | 11

SPORADIC FOREIGN INVESTMENTS IN H1 2016

1672 In H1 2016, the total amount of foreign investments

was US$ 120 mn (87 – in Q1 and 33 – in Q2). Almost

#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT | 12

THE BIGGEST DEALS

THE THREE TOP DEALS OF H1 2016 – US$ 1.76 BN

OFFICES Q1 AVRORA BUSINESS PARK O1 PROPERTIES 250

RETAIL Q1 METRIKA (ST. PETERSBURG) KESKO 10

PNK - CHEKHOV 3 RDIF

WAREHOUSES Q1 BIN GROUP NIKOLSKOYE LOGOPARK (DMITROV) 50

НОТЕLS Q1 KURORT PLUS KRASNAYA POLYANA (SOCHI) 500

НОТЕLS APART GROUP NOVY ARBAT 15 35

#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT | 13

CENTRAL AND EASTERN EUROPE

TWO-DIGIT DIFFERENCE BETWEEN MAXIMUM AND

0 500 1000 1500 2000 2500 3000 3500 4000

#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT | 14

SHARE OF VACANT OFFICE SPACES

Second quarter figures indicate stabilization and the 175,000 SQ M

RENTAL RATES TAKE-UP

CLASS A CLASS B CLASS A&B 660,000 SQ M

$454 $213 $268 Source: Cushman & Wakefield

#MARKETBEAT | Q2 2016 CUSHMAN & WAKEFIELD RESEARCH DEPARTMENT | 15

DEMAND FOR OFFICES EXCEEDED NEW SUPPLY IN H1 2016

ABSORPTION AND NEW CONSTRUCTION QUARTERLY ABSORPTION BY CLASSES