Katen Bakhytbek. Shopping and office building.// 23.10.2007
http://www.kn.kz/articles.php?id=442

Everything is getting expensive including money to complete construction projects. Departmen Director of trading real estate company “Aristan Property advisors” Nursultan Kasenov says that rise in prices of funds reflects on pace of development of shopping real estate market. “There is a decline in overestimated assets and at the same time, there is an opportunity for world strategic and institutional investors to support Kazakhstan markets by projects co-fund or their purchasing” – he said.

Deals of merging and takeovers actually can change the “face of market”. But will every market niche be interesting for investments? To answer this question one can say that “iced age” (construction objects freezing) will not spread over shopping real estate. Based on current situation in financial sector, real estate and construction markets, experts forecast that local and foreign developers start actively invest in shopping and office building construction.

More than alive

Many experts share the opinion that existing problems with bank liquidity will probably slow down the development of mortgage construction projects, but shopping real estate market also requires qualitative projects, which are rare today. Growing consuming sector, in Kasenov’s opinion, today is the most favorable economic sectors for investments. Even largest cities in Kazakhstan still have demand on shopping real estate projects. Kazakhstani travel in Europe and Asia enough to be familiar with world class malls and want to have the same quality in homeland” – commented Charles Reiter, the head of the “Jones Lang LaSalle Kazakhstan”. So, market requires high quality malls of international level. Another thing, that liquidity deficit can cause delay in initiation of new projects and while, demand on shopping and office areas exceeds the offer, interest rate steadily grows. “However, format and conception of shopping real estate, strong anchors availability and other prerequisites to have  intensive human flows are very important in this market segment” – noted Nursultan Kasenov.  – “That’s why, historical shopping real estate including unorganized market places have higher rental rates than some modern malls, often because of inefficient conception of last ones.” In existing effective shopping centers galleries’ rental rates are around 1300-2000$ per squire meter per year. Generally, the tendency of rate stable growth will continue due to insufficient qualitative projects of shopping real estate.

Rental rates are different even in large cities. For example, as Charles Reiter said, rental rate in modern malls in Almaty approximately 20% higher than in Astana. “In near future we do not expect the rental rate fall down untill demand equals supply”- he said.   

Preparation to start.

Currently experts distinguish most significant objects of shopping  real estate market such as “Mega” (Almaty, Astana, Shymkent, Aktobe and possibly CIS), which constructed by “Astana Group” company as well as TC Chagala Zere Malls, developed by “Chagala Group” and “Zere Astana Group” corporation.  It had the effect on market last year when megamall has been constructed.  However, Capital Partners initiates new project of a new mall construction in Astana in November and next year  the new project will be launched  - Esentai Park. “Esentai will be one of the best multifunction shopping centers in the country even in compare to expecting projects”- says Charles Reiter.  – Oriental real estate plans to construct two modern shopping centers in Almaty and one in Astana, which also will be world class level. Project “Mamyr” of TS-Engineering company in rapidly developing western part of Almaty is expected to be attractive for leaseholders as well as for buyers. Besides, BI Estate (part of BI group) actively works with several projects to enter the market of shopping real estate in Astana. Experts also distinguish the construction of new underground trade center “Almaly”, where in charge is Basis-A company. 

There is an absence of foreign palyers in Kazakhstan market, except  Capital Partners, which has Kazakhstan roots. The same situation is observed with leaseholders and buyers. Only Russian trade marks gradually appears on our markets, and several foreign brands intend to enter local market after they reinforces their positions on Russian markets. However, as Mr. Reiter assumes,  Kazakhstan market  is considered as small and geographically remote but rapidly developing with high degree of return. The dynamic development of projects as Sulpak (jointly with Eldorado) and Technodom trade network can be distinguished in segment of electronic appliances’ retail. These networks occupy cities with 100 thousand populations. Among most developed are “Gross”, “Ramstor”, “SM Market” and others. They are actively developing companies and occupy regions. This segment is still far from saturation. DIY networks as “Maksi” JYSK, “Emity” drug stores are getting stronger. World networks and trade marks are almost absent there.   In 2-3 years active introduction of Russian and international network will start” – assumes Nursultan Kasenov, the director of shopping real estate department.  – This sector is very appealing and alongside with further market growing and improvement of managing skills in network technologies, international players entering local markets, we can talk about beginning of merging and takeovers.

Experts

General director  TOO “UMEX Reality” Askar Mukashev

The most significant event in the last period was liquidity crisis in bank sector, which already had an effect on development of construction market. Developer companies faced the issue of stability of erecting objects funding, as a result of reducing the cash funds. So, one can assume the substantial optimization of sales processes (as a result of tightening of mortgage lending, potential clients will be investors with “long” money, but not eventual buyers). At the same time “short” players (1.5 – 2 years) will suffer damages because customers will be forced to sell real estate with substantial discount to escape crisis situation and continue construction. Liquidity deficit requires increasing share of own funds, used in for an object construction. Generally, companies do not have sufficient funds for self-financing to complete the project. As a result, the supply of partially developed projects or shares of future projects will increase on market. On my opinion, the situation is logical, it has short-term character. Crisis of cash liquidity will lead to players’ merging in bank and in construction sector. It can be assumed with great certainty that market in Almaty will proceed in to more stable phase on December and real estate price and its demand will rise in second and third quarters 2008.

Considering the current situation (decreasing of bank liquidity, tightening mortgage lending, increasing mortgage interest rates, fall in real estate prices and demand on housing) we can forecast that local and foreign investors will invest more active in shopping and business constructions. Market potential, which is at the early stages of development, is great. Several cities shopping real estate market reached high level but they still have possibilities for further development. Twice increasing of purchasing power indicates high demand on trade network.

Generally, all existing shopping centers are not professionally managed. Many mistakes have been done at their panning, and leaseholders are basically more private entrepreneurs than professional trade operators. Many shopping  centers do not have anchor leaseholder. However, as it was pointed earlier, market is at early stages of its development. As a result, first generation shopping centers are represented only in Almaty and Astana. Shopping centers in the rest of the cities, remind local marketplace, where local traders dominate. There are only a few network operators.

Managing partner Aristan Property Advisers, Bakhytbek Katen.

Today absolutely all large constructors froze at least 50% of all projects (based on our information it is 80%), which they announced in 2006-2007. This situation can continue till March 2008, when world market situation probably will be get better.  Today is very hard to notice good changes. If alternative resources of financing are not found, we will have  regression of construction in main cities in coming winter.

Generally, objects announced in 2006-2007 will not be completed to 2009, which is considered by professionals as critical for office real estate, when supply will reach the critical point. Based on this scenario, we can assume that domination of office real estate demand continue in 2009 and probably due to limited supply, fall 2008 or spring 2009 will have  another peak of prices and rental rates. Forecasts made before 2007 could not take account of wavelike jumping increment of medium and large business, which stimulate demand on class A offices. Now, after corrections made, we can assure that demand will predominate over supply in 2009 even with positive market conjuncture. Another factor influenced growth in office rental rates is growth of deliberate strategic investors and rentiers. Today, more people understand the gist of office real estate leasing. The office buildings demand and inflation stimulate such investors to increase the rental rates, which should be equal to 20 % of annual income, because some deposit programs offer 16%. That means 5-6 years of recoupment is expected by investors.

Text by Maya Beristemova

Katen Bakhytbek. Shopping and office building.// 23.10.2007
http://www.kn.kz/articles.php?id=442