0. Russian Real Estate Market Overview
December 3, 2007
Budapest
David O’Hara
General Director DTZ Moscow

1. Executive summary
Russia Today
Real Estate Market in Russia Today:
Products
Yields and rents
SWOT analysis
Reality vs. Perceptions
Conclusions

2. Russian Federation 17,075,200 sq km total area 142 million population
Climate varies from temperate continental to strongly continental.
Political regime: Democracy
Big country
Lots of people
Cold and Snowy
Define “democracy”

3. Russia has changed dramatically.
Political Instability
Socio-economic Crisis
Deep National Malaise
1990s Russia
Political Stability
Economic Growth
Recovery of National Pride
Russia After 2000
Caveat this with the negative aspects of Putin’s regime.
SOURCE: DTZ.
Russia has changed dramatically. 3

4. The Economy Is Growing Faster Than Expected…
Economy growth
Improving economic and political environment
High oil prices support continued growth
High oil income to be reinvested (thus many real estate transactions off market)
The Economy Is Growing Faster Than Expected…

5. The Economy Is Growing Faster Than Expected…
Economy growth
The Economy Is Growing Faster Than Expected…
Increase in real income sustains a high consumer demand.
Inflation rate keeps on decreasing:
2005: 10.9%
2006: 9.0%
2007F: 8.0%
Russia investment grade:
Moody’s Baa2;
Fitch BBB+;
S&P’s BBB+, outlook is “Stable”.
Source: GosKomStat RF

6. SOURCE: DTZ, Rosstat, Central Bank of Russia.
The influence of oil decreases, while private consumption gains importance.

7. Monthly Nominal wages are growing, but …
POP Quiz: Statistics Lie!
N. Novgorod pop.: 1.24 mln
63.8% of pop. in workforce
Avg. salary = $369/month
If 1.24 mln * 63.8% * $369 * 12 = $3.5 bn, what is the official retail turnover of the city?
$1.5 bn
$2.5 bn
$3.5 bn
$4.5 bn
SOURCE: Rosstat.
Monthly Nominal wages are growing, but …

8. BRICs — we call them RBICs
Source: Goldman Sachs – Global Economics Paper No: 99 a

9. Global City – “a city that has a direct and tangible effect on global affairs through socioeconomic, cultural, and/or political means"
London
Moscow
Paris
New York
Shanghai
Tokyo

10. Today’s Real Estate Market
Background
Managed Risk, High Reward
Fast growing market
Large and successful projects
Huge consumerism
Market indicators Office, Retail and Logistic: significant Yields compression
Developers move more and more to the “regions”
MEGA

11. Developers Main players on real estate market in Russia are Developers
Russian developer manages:
land acquisition
getting all kind of permissions
dealing with local authorities
organizing development
These activities are difficult for foreigners and almost impossible in the regions.

12. Main Trends in Development
Significantly increased construction volume — construction boom;
“Hot” leasing market;
Arrival of new international developer companies;
Strong local players;
Improving quality;
Development companies started to perform IPO to attract cheap financing: Sistema Hals, PIK, AFI, Raven Russia

13. Moscow office market
By the end of 2006, the total office stock in Moscow reached mln sq m, out of which:
Class A: 1.54 mln sq m Class B: 3.83 mln sq m
The annual new supply in 2006 increased by 31% compared to and amounted to about 920,000 sq m
Class A: 24% Class B: 76%
By the end of 2008 the total office stock is expected practically to double, compared to 2005, reaching 8.25 mln sq m with annual growth of Class A office new supply exceeding the one of Class B offices.

14. Moscow office market
Source: DTZ research

15. Moscow office market deals
Office space transacted; 2006 historical record since 1998 with about 1,300,000 sq m take-up (both leased/pre-lease and sold/pre- sold).
Sale deals accounted for about 40%.
Class A office transactions less than 25% of the gross take-up,
Lack of available offices results in new deliveries been % pre-let before the completion date.
Within the next two years the gross take-up is forecast to remain at current high level.

16. Moscow office market deals
Source: DTZ research

17. Moscow vs. other cities

18. Prime rents and typical lease terms: comparative analysis
The base rents at prime new buildings in the city center are in the range of $ sq m per year.
Leases in prime new buildings in non-central locations are typically signed at $ sq m per year (base rent). In 2007, prime base rents for Class A and B offices are expected to continue on be an upward trend – the prime rental growth in 2007 was 50%. In 2008, rents stabilization is forecast.
DTZ research

19. Market indicators: Offices
Moscow: 8% in 2007
Source: DTZ research

20. Office rents Office centers: base rental rates Moscow: St Petersburg:
Prime class A: $1000—1500 Class A: $700—1000 Class B: $450—700 (per sq m per annum, excl. Opex $60— 130 and VAT )
Fixed or indexed at CPI for Class A,
average term 5 years,
leases of 7—10 years are more often;
Class B terms are 11 months to 5 years.
Office centers: base rental rates
St Petersburg:
Class A: $500—850 Class B: $400—500
(per sq m per annum, including operating expenses, VAT extra)
Class A average terms are 3 to 5 years
Class B terms are 11 months to 3 years
Last two years rates were growing
at an average of 7-10% per annum

21. Retail in Russia – Disposable Income Comparison
Houston, USA
USA %
Moscow
Russia
USD %
Typical Mid-Manger Salary
$60,000
100%
$24 000
Personal Income Tax
($13 800)
-23%
(3 120)
-13%
Mortgage/Housing
($12 000)
-20%
($480)
-2%
Car Loan
($6 000)
-10% 0%
Student Loan
($5 000)
-8%
Credit Card
($7 200)
-12%
Home & Medical Insurance
($3,000)
-5%
($500)
Food
($5,800)
-30%
Disposable income
$7,200
12%
$12 700
53% 21

22. Market indicators: Retail
2007: Moscow 8,5%
DTZ research

23. Moscow still enjoys a hefty yield premium over the rest of Europe.
Source: DTZ.
Moscow still enjoys a hefty yield premium over the rest of Europe.

24. Regional cities will continue to enjoy a yield premium.
SOURCE: DTZ Estimates.
* Estimated Net Initial Yields.
Regional cities will continue to enjoy a yield premium.

25. Russia is not just Moscow
City population
Citizens, mln
Cities
>1 mln
25 568 11
0.5—1 mln
14 903 23
0.25—0.5 mln
13 698 40
0.1—0.25 mln
14 300 94
Russian Federation
The regions hold 93% of Russia’s population.
Russia holds more than a third of Europe’s 100 largest cities.
St. Petersburg (700 km from Moscow)
Moscow
Ekaterinburg (1667 km from Moscow)
Samara (1040 km from Moscow)
Chelyabinsk (1919 km from Moscow)
Rostov-on-Don (1226 km from Moscow)
Novosibirsk (3191 km from Moscow)

26. Shopping center developers active across the Russia
1 Project
2 Projects
3 Projects
4 Projects
5 Projects
6 Projects
7 Projects
8 Projects
18 Projects

27. Moscow Holds Advantage Regions Hold Advantage
Regional Scorecard:
Moscow Holds Advantage
Regions Hold Advantage
Investment Yields +
Freehold Acquisition Possibility
Lack of Competition
Lower Land Costs
Lower Construction Costs
Purchasing Power
Pipeline
Market Transparency
Infrastructure
SOURCE: DTZ.

28. Retail rent rates Retail centers-rental rates
Anchor tenants: $200—300 per sq m p.a. in Moscow
$150—250 per sq m p.a. in regions
Retail gallery: $400—2600 per sq m p.a.
excluding operating expenses and VAT
Selling price of shopping centers
Prime Yields in Moscow and St. Petersburg 8 – 8.5% .
Yields for in regional cities are with 2—3% premium compared to Moscow and St. Petersburg.

29. SWOT analysis

30. Challenges: Perceptions vs. Reality
Russia: Living Conditions
1. Pre-1985 – Communism
“No money to spend,
but nothing to buy.”
2. Perestroika – Yeltsin Years
“We were better off before.”
3. Post-1998 – Putin Years
“Availability. Opportunity. Consumerism”
Developing Real Estate in the Biggest Country in the World
Supply Chain Management
Construction Management
Health and Safety
Environment and Ecology
On-time Delivery

31. Why Does Real Estate Market Work? – oil and consumerism
Conclusions
Russia is a Big Place! – big population, large projects and opportunities
Why Does Real Estate Market Work? – oil and consumerism
Strong local players but increasing presence of international companies
Macroeconomics – during last 6 years Russia’s Sovereign Risk decreased from 13,6% in
2006 to 1,16% in 2006 (Spread between Russia’s Money Market Spread over US T Bills).

32. Goldman Sachs is more optimistic than me!!
Incomes per Capita, 2050
Goldman Sachs is more optimistic than me!!

33. Goldman Sachs is more optimistic than me!!
Conclusion: Incomes per Capita, 2050
Goldman Sachs is more optimistic than me!! 33

34. Come to Moscow & see for yourself!!
Thanks!
Come to Moscow
& see for yourself!!
DTZ Moscow
ul. Gasheka, 7, Suite 360
Moscow, Russia
Tel.  +7 (495)
Fax. +7 (495)
Ferit Yildirim
Managing Director
Mob. +7 (985)
David O’Hara
General Director
Mob. +7 (985)