This report profiles Russia’s residential, office, commercial, industrial, and hotel real estate sectors through H1 2013, with market forecasts for each segment. The report also discusses key players in the real estate industry, including the firms Gruppa Kompaniy PIK OAO, Mostotrest OAO, Open Investments JSC, HALS-Development OJSC, and LSR Group.

Following the data for 2012 and H1 2013 that showed an across-the-board decline in the base sectors, investment, and consumption, RosStat’s July 2013 report indicates that the base sectors’ dynamics remain on a downward trend. However, the retail trade is gaining for the second month in a row, supported by declining unemployment. Construction gained 6.1% y/y in July after declining by 7% y/y in the previous month. This is likely to be attributable to a base effect, as during the same month of last year construction decreased by 3.2% y/y. The strongest performance in July was reported by the retail trade, which provides some resilience to the otherwise weak base sectors. The retail trade gained 4.3% y/y in July compared to 3.5% y/y in June and 2.9% y/y in May. Analysts surveyed by Bloomberg expect the retail trade to increase by 3.7% in July. The growth in retail sales was supported by slower inflation (down to 6.5% y/y in July), lower unemployment (down to 5.3%), and continuous real income growth (real disposable income up by 4.2% y/y in July).

Should the retail trade and extraction continue recovering in Q4 2013, Russia’s GDP growth could converge to the current forecast of 1.8% y/y. This forecast was already revised twice from the original 3.7%. Currently, RosStat estimates GDP growth for January–October 2013 at 1.3% y/y, slowing down threefold from the 4% y/y seen for the same period of last year.

Key Points:

• This report includes data on the financial fundamentals for leading real estate market players, among them Gruppa Kompaniy PIK OAO, Mostotrest OAO, Open Investments JSC, HALS-Development OJSC, and LSR Group.

• According to Jones Lang LaSalle, the Russian real estate investment market remains in positive mode, and has yet to be impacted by the slowdown in the broader economy. Taking into account the number of deals under negotiation in the industrial and office sectors, Jones Lang LaSalle has revised up the forecasts for this year to USD 8bn from USD7.5bn.

• Moscow will continue to dominate the market, but the influence of foreign capital is growing, analysts from Jones Lang LaSalle believe. According to their preliminary calculations, the share of foreign capital in real estate transactions is expected to increase slightly this year, ending at a minimum of 30% at the end of the year, compared to 17% in 2012.

• Capital investment dynamics continued to be unstable with a negative direction: after shrinking by 3.7% y/y in June, investment picked up by 2.5% y/y but declined by 6% m/m in July. In January to July, investment declined by 0.7% y/y (down by 1.4% y/y in H1 2013).