Almaty Market View Q2 2011 Eng

12
©2011, Scot Holland | CB Richard Ellis OVERVIEW Quick Stats Change from Q1 11 Q2 10 Prices Absorption Hot Topics Stable levels of selling prices and rental rates; The number of actual residential sale-and-purchase transactions during Q2 2011 increased compared to Q1 2011 however still remains quite limited; Slight easing of the mortgage lending terms, caused by higher competition between the second-tier banks and increased demand on behalf of population. The implications and impact of the global economic downturn have “cooled down” the Residential market segment, as a result of which many players have left the market. However, the stronger and more financially capable developers have continued their construction activities, although at slower rates. The total residential space commissioned in Almaty in the period January-June 2011 comprised 325,269 sqm, which represents a 21.5% decrease on a y-o-y basis. According to information published by the Kazakhstan Statistics Agency, the number of residential property sale & purchase transactions during January-June 2011 in Kazakhstan increased by 12% y-o-y. It is worth mentioning that the number of transactions in Almaty in Q2 2011 is the highest across the country, showing approximately 30% increase compared to the previous quarter of 2011. The chronological analysis of the number of property sales & rental transactions evidences a seasonal trend of the Almaty market activity. This being said, traditionally the most active periods for purchase of residential properties are spring and autumn, whereas summer and winter show low activity. The “asking prices” on the primary and secondary residential markets in Q2 2011 fluctuated slightly at the beginning of the reported period and then remained virtually unchanged during June. Despite the increasing number of incoming requests for sale & purchase of apartments/houses and land plots, the property sales market still remains slow. The property owners still quote overestimated prices, which affects the market in a negative manner and potential buyers still cannot afford purchasing residential units at relatively high prices, and are waiting for further price decreases. Commissioned residential volumes in Kazakhstan in the period January – June 2011 decreased by ca. 1.2% compared to the same period of 2010. According to official statistics, the largest shares of residential space in January-June 2011 were commissioned in Astana (23.8% of total), Almaty (12.2% of total) and Almaty province (15.3% of total). Given the fact that Kazakhstan has not yet achieved a level of meeting residential space demand to the full extent, it is planned that approximately 6 mln sqm of residential space will be constructed in Kazakhstan in 2011. For reference, 6.4 mln sqm of residential space was commissioned in 2010 with state support of the shared interest construction sector. Completed Residential Buildings ('000 sqm) 1 10 100 1,000 10,000 2006 2007 2008 2009 2010 Jan-Jun 2011 Almaty Kazakhstan Source: Kazakhstan Statistics Agency Housing Stock per Capita 14.5 15.0 15.5 16.0 16.5 17.0 17.5 18.0 18.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 sqm per capita Kazakhstan Almaty Source: Kazakhstan Statistics Agency Almaty Housing Stock 19,000 20,000 21,000 22,000 23,000 24,000 25,000 2006 2007 2008 2009 2010 Jan-Jun 11 1,000 sqm Source: Kazakhstan Statistics Agency Almaty Market View Residential SCOT HOLLAND | CB RICHARD ELLIS www.cbre.kz Q2 2011

description

Real Estate in Almaty Q2 2011

Transcript of Almaty Market View Q2 2011 Eng

Page 1: Almaty Market View Q2 2011 Eng

©2011, Scot Holland | CB Richard Ellis

OVERVIEWQuick Stats

Changefrom

Q111

Q210

Prices

Absorption

Hot Topics

• Stable levels of selling pricesand rental rates;

• The number of actualresidential sale-and-purchasetransactions during Q2 2011increased compared to Q12011 however still remainsquite limited;

• Slight easing of the mortgagelending terms, caused byhigher competition betweenthe second-tier banks andincreased demand on behalfof population.

The implications and impact of the global economicdownturn have “cooled down” the Residential marketsegment, as a result of which many players have leftthe market. However, the stronger and morefinancially capable developers have continued theirconstruction activities, although at slower rates.The total residential space commissioned in Almatyin the period January-June 2011 comprised325,269 sqm, which represents a 21.5% decreaseon a y-o-y basis.According to information published by theKazakhstan Statistics Agency, the number ofresidential property sale & purchase transactionsduring January-June 2011 in Kazakhstan increasedby 12% y-o-y. It is worth mentioning that the numberof transactions in Almaty in Q2 2011 is the highestacross the country, showing approximately 30%increase compared to the previous quarter of 2011.The chronological analysis of the number of propertysales & rental transactions evidences a seasonaltrend of the Almaty market activity. This being said,traditionally the most active periods for purchase ofresidential properties are spring and autumn,whereas summer and winter show low activity.The “asking prices” on the primary and secondaryresidential markets in Q2 2011 fluctuated slightly atthe beginning of the reported period and thenremained virtually unchanged during June.

Despite the increasing number of incoming requestsfor sale & purchase of apartments/houses and landplots, the property sales market still remains slow.The property owners still quote overestimated prices,which affects the market in a negative manner andpotential buyers still cannot afford purchasingresidential units at relatively high prices, and arewaiting for further price decreases.

Commissioned residential volumes in Kazakhstan inthe period January – June 2011 decreased by ca.1.2% compared to the same period of 2010.According to official statistics, the largest shares ofresidential space in January-June 2011 werecommissioned in Astana (23.8% of total), Almaty(12.2% of total) and Almaty province (15.3% oftotal).Given the fact that Kazakhstan has not yet achieveda level of meeting residential space demand to thefull extent, it is planned that approximately 6 mlnsqm of residential space will be constructed inKazakhstan in 2011.For reference, 6.4 mln sqm of residential space wascommissioned in 2010 with state support of theshared interest construction sector.

Completed ResidentialBuildings ('000 sqm)

1

10

100

1,000

10,000

2006 2007 2008 2009 2010 Jan-Jun2011Almaty Kazakhstan

Source: Kazakhstan Statistics Agency

Housing Stock per Capita

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

2002 2003 2004 2005 2006 2007 2008 2009 2010

sqm

per

cap

ita

Kazakhstan Almaty

Source: Kazakhstan Statistics Agency

Almaty Housing Stock

19,000

20,000

21,000

22,000

23,000

24,000

25,000

2006 2007 2008 2009 2010 Jan-Jun11

1,00

0 sq

m

Source: Kazakhstan Statistics Agency

Almaty Market ViewResidential

SCOT HOLLAND | CB RICHARD ELLIS

www.cbre.kz Q2 2011

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Page 2©2011, Scot Holland | CB Richard Ellis

Despite the relative overall improvement of the market situation, theactivity of real estate market players remains quite moderate. Thiscan be explained by the ongoing process of overcoming theconsequences of the market downturn and stagnation, as well asthe low level of confidence in the property market and cautiousnesswith regard to property investments.

According to the estimates of financial analysts, the constructionand real estate business are currently considered among the riskiestfields of activities.

At the same time, we noted an increase of the supply of mortgageproducts from local banks and specialized institutions, including‘KMC’ and ‘Zhilstroysberbank’ during the first half of 2011.Increased competition between the mortgage market playersresulted in somewhat eased financing terms and lowered interestrates of mortgage loans. ‘Zhilstroysberbank of Kazakhstanmoderated the terms for the participants of housing constructionsaving system, which mainly means decrease of the interest rates.In addition JSC ‘Mortgage Organization ‘Kazakhstan MortgageCompany’ also changed its credit conditions for purchase ofhousing and interest-shared participation in the construction ofmulti-family residential houses, by decreasing the interest rate underthese loans by 1% - to 13.5% per annum.However, despite the above, the system of evaluation of borrower’ssolvency remains strict. The banks continue to check solvency andpaying capacity of customers very thoroughly.Although most locally operating banks plan to preserve the keyterms of mortgage loans, nearly 24% of banks expect further easeof their credit policy on mortgage loans, due to the fact that theyobserved higher demand for mortgage products during the first halfof 2011.

The Government of Kazakhstan has committed to reform the systemof technical regulations applied in the Kazakhstan constructionindustry and to shift to the European Standards (Eurocodes) by2015, which we consider a positive development for the entry ofnew international investors and foreign developers on theKazakhstan market. It is planned that this transition will be gradualwith respective customization of European standards in accordancewith climatic conditions of Kazakhstan. It will allow foreigninvestors to implement their project and apply their designs andcalculation on the territory of Kazakhstan.Starting from 2011 a new residential construction program isbeing implemented. Its main purpose is to stimulate supply, inorder to prevent a rapid increase of property prices, which maytake place due to the current increase of demand and shrinking ofsupply on the residential market.

The program for Government support of the residential sectorincludes 3 major support schemes:- construction of affordable housing by local authorities using theresidential savings system,- allocation of funds to second-tier banks for the subsequentfinancing of construction and mortgage lending,- construction of utility infrastructure.

Currently 3 shared interest developments are being financed andcompleted in Almaty and Almaty Province through the mechanismsof the ‘Samruk Kazyna’ National Welfare Fund.

It should be noted that in contrast with the pre-crisis period, when alarge portion of buyers was willing to participate in shared interestconstruction projects, today this method of purchasing a housingunit is the least popular among potential buyers due to the facts ofnon-bona fide activities of development companies using thisscheme. Currently the largest part of potential buyers are eitherconsidering the use of mortgage loans or their own funds, or wouldproceed with the state housing program for obtaining an apartment.

The situation on the ‘premium’ lease market has appeared to havechanged somewhat over the last few months as some majorcompanies have started moving out of Almaty. This means thatthere is a little bit of uncertainty how many expatriates are livingand accordingly renting an apartment in Almaty.

Traditionally there has been a steady influx of expatriates duringAugust and September, anxious to find appropriate housing and getsettled before school starts. At the same time this year (andparticularly in June) there has been a larger-than-usual number ofexpats leaving Kazakhstan to take up new assignments elsewhere.We expect have a clearer picture in the next couple of months as tohow many of these people will be replaced.

Rental rate levels continue to hold although landlords seem to beslightly more willing to negotiate. High end properties are in greatdemand but unfortunately good ones are now proving extremelydifficult to find, which indicates of a very limited supply of propertieswith an actually good quality.

Generally rental rates are holding steady but if the current demandcontinues for high end properties, then the prices may riseproportionally.

In conclusion, we would like to note that the average price levels onthe Almaty primary and secondary residential markets haveremained practically unchanged in the course of H1 of 2011 .

Distribution of residentialprojects under construction by

class

41%

31%

21%

7%

Economy Business Elite Deluxe

Apartment sizes related to thenumber of rooms (sqm)

0

200

400

600

800

1000

1200

1400

1 room 2 rooms 3 rooms 4 rooms 5+ rooms

Average sale price,primary market

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2,000

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2005 2006 2007 2008 2009 2010 Jan-Jun11

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Source: Scot Holland CBRE Source: Scot Holland CBRE Source: Kazakhstan Statistics Agency

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Map of Almaty Residential market zones

Source: Google, Scot Holland CBRE

Map legend:• Al-Farabi Corridor – red;• Dostyk Corridor – dark blue;• Extended Centre – magenta;• Golden Square – yellow;• Lower Town – light green;• Micro-districts – light blue;• Mountain Belt – dark green.

Market Zones

• Al-Farabi Corridor – Currently, the mostpopular area for up-market projects, mostlydue to the availability of large land plots fordevelopment and re-development, good roadconnections (though over-reliance on thisartery leads to heavy traffic jams and is likelyto decrease its popularity) and proximity tothe mountains and to the expanding CBD ofAlmaty;

• Dostyk Corridor – Lower part – Samal micro-districts were quite popular in the 1980’s –1990’s when they were newly developed;there are some land plots for developmentand re-development; most projects in thisarea are Elite class, though Business classprojects can also be found;

• Extended Centre – Mostly residential stockfrom the 1950’s – 1970’s; with some landplots for development and re-development,there are a few Elite and Business classdevelopments;

• Golden Square – In the second half of 20thcentury, centre of Almaty City; residentialstock mostly built in 1950’s – 1960’s, most ofwhich is with excellent for those years qualityand still very demanded; virtually there is notland free for development, but there are afew spots that were or will be re-developed;most of the buildings completed in the past10 years are Elite class;

• Lower Town – Poor quality residential stock,mostly individual houses and some apartmentbuildings; it is largely unpopular due to poorair quality, inefficient road network causingtraffic jams, and higher density of industrialenterprises in the area;

• Micro-districts – Mostly residential stock builtin 1960’s – 1980’s, and some parts withsingle-family houses; the areas closer to thecentre and to the mountains attract Businessclass developments, while the remainingterritory hosts mostly Economy class projects;

• Mountain Belt –Most of the residential stockis single-family houses; an attractive area dueto its proximity to the mountains and lowerpopulation density, hosts a variety of Deluxe,Elite and Business class projects.

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©2011, Scot Holland | CB Richard Ellis

OVERVIEWQuick Stats

Changefrom

Q111

Q210

Rental rates

Occupancy

Hot Topics

• Despite the consequences ofthe financial crisis and bankliquidity issues, the Officemarket remains relativelystronger compared to the morevolatile Residential sector;

• Rental rates across all classesof office properties remainedrelatively stable during Q2 of2011;

• The demand for office spacecontinued recovering graduallyduring the2nd Quarter of2011.

Almaty remains the commercial focal point of oil-rich Kazakhstan and aspires to become CentralAsia’s regional financial centre.

The commercial real estate market of Almaty isthe best developed in the country, especially theoffice segment with approximately 20% growthin total gross area forecasted for 2011, giventhe completion of planned and suspendedprojects.

The bank liquidity crisis which started in August2007 affected the office market through slowingdown the construction and investment rates inthe real estate industry.

Nevertheless, both the economic and marketindicators offer a positive outlook for the futureof office real estate projects in Almaty. Thisoptimism has attracted multiple investors anddevelopers, thus making the office marketenvironment more competitive every day.

Taking into consideration projects completedduring 2010, it is our estimate that at thepresent moment there are approximately630,000 sqm of office space in Almaty.

However, this number does not includenumerous smaller office projects which aremostly graded as Class B- or lower.

An analysis of the prime office yield levels in theEMEA regions (Europe, Middle East and Africa)showed that the Almaty market has one of thehighest indicators, which on the one handevidences of high risk degree of investments,and on the other hand – is very attractive fornew players and investors.

About 70% of these offices are ‘Old Soviet’type of real estate properties which are eithernot involved in the office rental market or arerenting only 10-15% of the premises. Hence,this stock is not included in our market analyses.

Due to the decreased demand for space inoffice and administrative buildings, the vacancyrate largely increased in 2009 reaching a levelof approximately 40% both in Class A andClass B projects.

However, starting from Q4 of 2009 thedemand for higher-class office premises startedrecovering gradually, and by the date of thisreport the estimated average vacancy rate isapproximately 27% and is expected todecrease further in the short-to-medium term andreach 24-25% by the middle of 2011.

The growth of business activity ofmanufacturing, retail and other entities in 2010is a sign of improvement of the economicsituation, resulting in a forecasted GDP growthof 6% in 2011.

No significant increase in the rate ofconstruction of office developments wasobserved during the first half of 2011.

Below is a brief overview of lease brokeragetransactions completed recently with theinvolvement of Scot Holland | CBRE:• LLP «BASF Central Asia» moved to a new

office with a total area of ca. 500 sqm;• «Sberbank» opened an additional office in

Almaty (ca. 500 sqm);• Boart Longyear Drilling Services KZ opened

a new office in Almaty (over 500 sqm).

Prime Office Yields

Moscow

Kyiv

PragueLondonCity

WarsawBudapest

InstanbulSofia

Almaty

4

6

8

10

12

14

16

%

GDP Growth Rate, % y-o-y(2003-2010f)

0

2

4

6

8

10

12

2004 2005 2006 2007 2008 2009 2010 2011f

Source: Scot Holland CBRE Source: Kazakhstan Statistics Agency

Almaty Market ViewOffices

SCOT HOLLAND | CB RICHARD ELLIS

www.cbre.kz Q2 2011

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Page 5©2011, Scot Holland | CB Richard Ellis

The 2nd Quarter of 2011 was characterized by a relativestability of rental rates across all Classes of office properties.

The expectations for an improvement of the macroeconomicsituation and overall business environment encouraged localmarket participants to show a higher interest in new officepremises. Professional office brokerage companies operatingon the Almaty market have noted an increase in the numberof new orders and completed transactions.

Currently, the base rental rates for Class A office buildingsstart from USD 25, up to approximately USD 42 per sqm permonth, with an estimated average of USD 32 per sqm permonth. However, some specific Class A business centres stillkeep much higher rental rate levels, in some cases up to USD45 per sqm per month.

The difference in office rental rates between Class A andClass B is approximately 30%. The base rental rates forClass B offices start from USD 15, up to approximately USD25 per sqm per month, with an estimated average of USD 20per sqm per month.

Service charges are in the range USD 3-9 per sqm permonth, depending on the location and class of the businesscentre, as well as the amenities and services offered.

The average selling prices of office space in business centresdiffer from district to district, and the current Almaty averageis approximately USD 2,000 per sqm. This being said, itshould be noted that the selling prices of premium-class officespace have slightly increased during several previousQuarters (by approximately 2-3%). In addition, we havenoted that companies tend to submit more inquiries for thepurchase of their own office premises.

Having analysed the existing office stock in Almaty, it isnoted that approximately 30% of all office premises are ClassA, while the remaining 70% are Class B or B- (see pie-charton the right).

A comparative analysis of prime office rents in EMEA region(Europe, Middle East and Africa) showed that despite the factthat Almaty rates are lower than in other large cities likeMoscow and London, they are still above the prime rentalrates in many large cities of Eastern Europe and Asia.

Most developers prefer to retain ownership of the businesscentres after their completion, and lease the premises tomultiple tenants. On rare occasions, whole buildings areoffered for sale to institutional investors, and some projectsare completed as built-to-suit. Currently the “Nurly Tau”complex is the only sizeable office project offered for sale“by the piece”.

The practice of office pre-leasing has traditionally been quitepopular and successful on the Almaty market. During the pre-crisis period, many newly-built business centres were morethan half leased to tenants even before the actual completionof their construction.

Office Monthly Rental Rates

01020304050607080

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D p

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Class A Class B

Source: Scot Holland CBRE

Almaty Office Sales Prices(USD per sqm)

5,2006,000

3,000

2,000 2,000 2,000

3,200

4,500

1,500

1,500

1,5002,000

1,200

2,200

3,200

4,200

5,200

6,200

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Class A Class B

Source: Scot Holland CBRE

Completed Business Centres

Class A20%

Class B80%

Source: Scot Holland CBRE

Prime Rents for Office Space

KyivAlmaty

LondonCity

Moscow

BudapestPrague

WarsawAstana

Sofia

Istanbul

0

20

40

60

80

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Page6©2011, Scot Holland | CB Richard Ellis

Locations of major Office developments in Almaty

Source: Google, Scot Holland CBRE

Map legend:Al-Farabi Corridor – red; Dostyk Corridor – dark blue;Extended Centre – magenta; Historic Centre – yellow.

Market Zones

• Al-Farabi Corridor – New Class A office buildings which include Nurly Tau, Esentai Park, and AFD, are located along Al FarabiStr. This zone will be the prime office property area for the following reasons: major tenants, existence of large land plots, high-risebuildings, world known design companies, professional property management companies, higher prices and rental rates, sufficienttenant/visitor parking, etc;

• Dostyk Corridor – Older Class A office buildings along Dostyk Ave. and up to Gogol Str. to the North is a less desirable officespace area, due to higher congestion, government restrictions on reconstruction, lack of clear land plots, limited tenant/visitorparking, lower prices and rental rates;

• Extended Centre – An area with new Class B office premises, demanded by smaller companies who are willing to pay higherrental rates in order to stay closer to the centre of Almaty. Located predominately south of Abai Str. and east of Rozybakiev Str.,this area is characterized by both residential and commercial use projects and availability of land plots due to demolishing of olderresidential and commercial buildings;

• Historic Centre – This office space area with older and lower-quality Class B buildings is located in the northern part of Almaty, upto Raimbek Ave. This zone is the least desirable due to high congestion, high residential use, lower quality buildings withpractically no property management, limited or no tenant/visitor parking, and the lowest selling prices and rental rates.Q

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Page 7: Almaty Market View Q2 2011 Eng

©2011, Scot Holland | CB Richard Ellis

OVERVIEWQuick Stats

Changefrom

Q111

Q210

Rental rates

Absorption

Hot Topics

• Increase of rental rates short- tomedium-term in newconceptual and popularcentres;

• We estimate that the total retailstock (GLA) in Almaty hasreached ca. 484,000 sqm atthe end of Q2 2011;

• The expected addition of retailspace to the Almaty total stockin 2011 should be ca.41,700 sqm of GLA;

• Some shopping centres underconstruction and planned forcommissioning earlier havepostponed their launch;

• Stable demand for street retailfacilities with intensepedestrian flows, goodlocation and accessibility.

The 2nd quarter of 2011 was characterized byactive demand for retail premises, and acontinuous positive trend towards the entry ofnew brands and opening of new retail premises.

Starting from 1999, the increasing number ofnew retail developments with a total areabetween 5,000 and 20,000 sqm attracted moreand more the attention of Almaty residents.

The reported period was marked by a significantincrease of the interest on behalf of internationalretailers planning to enter the Kazakhstanmarket within the forthcoming 2 years.

The tendency towards involving new brands andexperienced international players woulddefinitely contribute to the faster ‘naturaldevelopment’ of the retail market segment, andespecially of larger trade formats required bynon-food international brands.

We expect that other international retailoperators will enter local market, however thisprocess would require sustained negotiations.

Overall, the retail market in Kazakhstan consistsof individual and specialized stores, shoppingcentres, bazaars, and wholesale markets.

Due to its historical and economic particularities,the fact that it is an immature market with verylow population density, and the dependence ofthe economy on global oil & gas prices, theretail system and retail quality levels inKazakhstan vary widely across the cities andregions of the country.

The active development and construction ofshopping centres and shopping & entertainmentcentres in Kazakhstan during the past 5-6 yearswas concentrated mostly in Almaty and Astana.

The relatively low level of development of theKazakhstan retail market and the noticeableabsence of large international retail chains arecaused by several reasons, the most prominentamong which are: very low population density,geographical position and complicated logisticscaused by poor and outdated infrastructure. Asa result, we can observe a lack of good qualityretail space.

Kazakhstan is the largest of the five countriesforming the Central Asian region, but at thesame time its low population of approximately16.0 million people places it among the leastdensely populated countries in the world.This factor, along with the outdated and verypoorly maintained infrastructure across allcountry regions, makes it logisticallychallenging in terms of transporting goods andproviding services on a nationwide basis, andsignificantly increases overall business runningcosts.As a result, up until now many internationalretailers and world-known brands were havingsecond thoughts about the feasibility of enteringthe market and investing significant amounts ofmoney in retail facilities in cities acrossKazakhstan.Since late 2010 the retail market of Kazakhstansaw some professional international retailersbecoming more active with implementing theirdevelopment programs in the country. Theplans for expansion cover mainly well locatedshopping centres with a strong mix of bothanchor tenants and internationally knownbrands. When negotiating with landlords,many well-established retailers manage to getfavourable lease conditions.The situation on the retail market is starting tochange in a positive direction, due to the factthat several large internationally known chainsand brands have started looking for possibilitiesto enter the market, either independently orthrough local partners.During Q2 2011 new retail outlets wereopened by such brands as GAP, Sportmaster,Ессо, Peacocks and Oasis, which were notpreviously represented on the Kazakhstanmarket. It is also expected that the stores of suchnewly entering international brands, as LaSenza and TopShop will be opened by theyear-end. Furthermore, Saks Incorporatedofficially announced of its plans to open alicensed store in Almaty in 2012.

International retailers which have theKazakhstan market ”on their radar screens” areprimarily seeking opportunities in Almaty, dueto its relatively larger retail volumes. It shouldbe noted that Russian retailers express thehighest interest in researching the local market.

Almaty Market ViewRetail

SCOT HOLLAND | CB RICHARD ELLIS

www.cbre.kz Q2 2011

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In recent years, more than 28 shopping & entertainment centres(with a TGA of more than 5,000 sqm each), were constructed orreconstructed. However, for various reasons, Almaty market stillexperiences a deficit of conceptual project with proper location.

The table below shows existing Retail stock in Almaty, as well asexpected/planned additions in 2011:

Retail Market IndicatorsTotal existing stock (GLA, sqm) 484,000Delivery in Q2 of 2011 (GLA, sqm) -Aggregate expected annual addition in2011 (GLA, sqm)

41,700

Vacancy from 5%

Source: Scot Holland CBRE

Many existing shopping centres and retail facilities are of poorquality and lack an efficient concept, professional propertymanagement and appropriate tenant mix. As of today, ‘MegaAlma-Ata’, ‘Sputnik’, ‘Aport’, ‘Prime Plaza’ could be classified asconceptual and professionally managed shopping & entertainmentfacilities in Almaty.More than 17 projects are currently under construction or atplanning stage (expected to be completed in 2011 or later), ofwhich:

• 3 projects are planned for commissioning in 2011,• 5 projects are planned for completion in 2012.

Some shopping centres under construction and planned forcommissioning in 2011 have postponed their launch to a later date.

Distribution of modern retail space by administrativedistrict of Almaty City

Bostandyk 26%Auezov 26%Zhetisu 20%Alatau 12%Medeu 10%Almaly 6%

Source Scot Holland CBRE

A map with a more detailed explanation of the city administrativedistricts is given on the next page. The map also shows the locationsof existing shopping & entertainment facilities in Almaty.

According to our estimates, as of the end of Q2 of 2011the total retail stock in Almaty (taking into account onlycentres with GLA above 5,000 sqm) reachedapproximately 484,000 sqm, and the expected annualaddition of GLA in 2011- will comprise approximately41,700 sqm.The current GLA index per 1,000 persons in Almaty incomparison to other Large CEE and CIS cities is shownbelow (conceptual centres only).Due to the fact that the commissioning dates of a number ofshopping centres were re-scheduled to a later date, thedemand for high quality retail space still remains relativelyhigh in conceptual shopping centres with professionalmanagement.In addition, the expected entry of new international brandsand retailers should stimulate the more active marketdevelopment and absorb newly-added retail space.The demand for retail premises in stand-alone buildingswithin the retail zones of Almaty remained high during Q22011. Most retailers seek to occupy retail space in the so-called «Golden Square», which however is short of properretail premises with large windows, high ceilings, loadingareas, easy access ways and sufficient parking. In mostcases, available premises in the retail zones of Almaty donot meet the requirements of international and localretailers. The demand for such premises is still quite high,which is a reason for relatively high rental rates.Last but not least, we would like to note some additionalfactors, which will also have a significant, althoughindirect, influence on the longer-term supply/demandbalance in the Retail property market segment:• Overall economic development of the country;• Subsequent growth of the average income level of the

population;• The appearance of new international brands and

large-scale retailers;• Expected population growth;• Winter Asian Games (2011);• Participation in the newly-formed Customs Union with

Russia and Belarus would have a positive effect on therate of development of the local retail marketsegment;

• Pending infrastructure improvements in Kazakhstan’smajor regional cities, etc.

Distribution of Modern RetailSpace, by Almaty Districts

26%

26%20%

12%

10%

6%

Bostandyk Auezov Zhetysu Alatau Medeu Almaly

Total Conceptual Shopping CentreProvision Rates of Large CEE and CIS

Cities

0 100 200 300 400 500 600 700 800

Almaty

Kyiv

Moscow

Zagreb

Astana

Sofia

Budapest

Warsaw

Prague

sqm per 1,000 people

Source: Scot Holland CBRE Source: Scot Holland CBRE

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Locations of shopping & entertainment centres in Almaty

Source: Google, Scot Holland CBRE

Map Legend:

• Yellow place marks –existing shopping centres;• Red place marks –shopping centres underconstruction and planned;• Blue polygon – Alatau• Red – Almaly;• Orange – Auezov;• Yellow – Bostandyk;• Green – Medeu;• Purple – Turksib.• Light Blue – Zhetisu.

Administrative Districts

• Alatau - a new administrative district of Almaty, which was formerly the western outskirts of the city; its population is still to beassessed to obtain reliable figures; it represents a mix of low quality individual households, industrial facilities etc – in blue on themap above;

• Almaly – comprises the central part of Almaty; population 188,100; mostly residential properties, both prestigious and less so,condominiums and houses; both fine and basic retail facilities; also some office space and light industrial facilities – in red on themap above;

• Auezov – comprises the western part of Almaty; population 370,200; mostly residential, not very prestigious properties, multi-familyat south-eastern part of the district, individual houses in the other parts; basic retail; no contemporary office space – in orange on themap above;

• Bostandyk – comprises the southern part of Almaty; population 307,400; mostly business class residential multi-family properties plusa few prestigious residential developments; expanding retail facilities; business centres at the eastern end of the district – in yellow onthe map above;

• Medeu – comprises the south-eastern part of Almaty; population 164,300; the most prestigious residential part with condominiumsalong Dostyk Ave. and individual houses in outlying parts; both fine and basic retail facilities; the business core of Almaty – in greenon the map above;

• Turksib – comprises the outlying north-eastern part of Almaty; population 195,100; not prestigious individual houses; basic retail; nocontemporary office space and some industrial facilities – in purple on the map above;

• Zhetisu – comprises the northern part of Almaty; population 179,300; a mix of industrial facilities, trade centres and less prestigiousresidential properties – condominiums at the southern end and individual houses at the eastern and western parts – in light blue onthe map above.

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OVERVIEW

Quick StatsChange

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Rental rates

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Hot Topics

• No significant changes ofwarehouse rental rates wereobserved during the secondquarter of 2011;

• Persistently Low demand levelsin the logistics/warehousingsegment;

• Slightly higher occupancy ratesof Almaty warehousingfacilities;

• Marginal increase of thesupply volume of warehousingspace.

In the period 1991-1994 there werepractically no warehouse developments inAlmaty. This market segment starteddeveloping only with the arrival of largeinternational companies to the Kazakhstanmarket, nevertheless constructed facilities werenot A or even B class.

According to our estimates, the current Almatywarehouse space amounts to approximately800,000 sqm, including old Soviet-typewarehouses, which represent approximately70% of the total existing stock. Soviet-typewarehouses are usually rented by smaller(predominantly local) companies, which areeither not interested in the quality level of thefacility and services it offers, or simply cannotafford more expensive premises of betterquality.

Currently, there is practically no supply ofland plots with a ready infrastructure for theconstruction of an industrial park. This marketis still at a very rudimentary stage ofdevelopment.

New commercial developments reside alongthe Almaty – Astana road. Lack of railways inthe west of Almaty (Bishkek road) has createda problem for construction of warehouses inthis area. Future investment in new projectswill stimulate the warehouse sectordevelopment and become a key factor formost practical placement of storagecomplexes.

Some companies prefer to build their ownwarehouses, which are subsequently taken offthe market, and are therefore not taken intoconsideration in this report.

Market practices show that if companies havespecific requirements for warehouse storage,they construct their own facilities around 20-50 km from the city and one storage-yard inthe city, which is used as a distribution centre.

Other companies rent small storage places,mainly of Class B or lower, attracted by thelower price.

The commercial warehousing propertysegment demonstrates relatively low activity.According to the information available, onlyone large modern warehousing terminal witha total area of 30,000 sqm is currently underconstruction.

The high level of transportation-related trafficleading to the quick deterioration of the roadsurface, together with the threateningincrease of the level of pollution in the air,provided an impetus to the local cityadministration to develop a new policy ofreducing the transportation burden andimproving the environment.

Several plans have been devised to move allwarehousing and industrial premises out ofthe city, in conjunction with the constructionof the new ‘Large Almaty Ring Road’(BAKAD).

Today, many old-type logistics terminals arein the process of renovation, the quality of theinfrastructure (motor-ways in particular) isbeing improved and the traffic capacity -extended. Though this is not a quick process,the sector shows a relatively good futureoutlook.

The construction of new generationwarehouses should partially relieve theAlmaty road system of its current trafficcongestions, optimize storage conditions, andsolve a number of logistic problems in theretail sector.

The annual rental rates for warehouse spacein Almaty vary quite significantly, startingfrom USD 30 and up to USD 110 per sqm,which means they are in the range USD 2.5-9 per sqm per month.

At the same time no significant changes inwarehouse rental rates were observed duringQ2 2011. Moreover we do not expect rentalrates to increase in the short term.

Almaty Market ViewWarehouses

SCOT HOLLAND | CB RICHARD ELLIS

www.cbre.kz Q2 2011

Page 11: Almaty Market View Q2 2011 Eng

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The average rental rate levels of warehousing space inAlmaty (by class) are given in the following table:

Class Rental rate, USD per month(including VAT)

Class A 7-9Class B 5-7Lower class 2.5-5

Source: Scot Holland CBRE

The average selling price of warehouse space in Almaty isapproximately USD 600 per sqm.

Given the current average occupancy rates in existingwarehousing terminals (approximately 80%), as well astaking into consideration the recovery of the economy andbusiness activity in Kazakhstan (in particular related to thedevelopment of the Customs Union) and implementation ofindustrial and innovation development programs, we canconclude that the existing warehousing stock of Almaty mayprove to be insufficient in the medium- to long-term.

The slowdown of the global markets and national economy ofKazakhstan, together with the decrease of business activity,have led to the increase of vacancy rates in existingwarehouses, sometimes reaching 30%. However at thecurrent moment average vacancy rates are in the range20-25%.

Net Usable Warehouse Stock (sqm) 800,000

Vacancy rate (%) 20 %

Source: Scot Holland CBRE

Despite the slight increase of occupancy rates in existingfacilities, it is our estimate that the demand for newwarehousing premises is currently not high.

Large tenants of warehousing premises, represented bothby local and foreign companies, still prefer renting largespaces in Class A or B+ warehouses for 5 and more yearsand virtually provide no new orders for additional spacedue to their reduced development and expansion plans.

At the same time, due to the difficult economic situationduring the past several years, the market did not see theentry of large new companies to the Kazakhstan market.

As a rule, orders for the search of warehousing premisesare submitted by local entrepreneurs, i.e. small- andmedium-sized businesses.

However the number of such orders is limited, which ispartially due to low demand, and also due to the fact thatlocal companies predominantly search for the warehousesusing their own resources.

Existing warehousing stock,by size

18%

23%

34%

25%

15.000-20.000 20.000-40.000 40.000-60.000 > 60.000

Source: Scot Holland CBRE

In conclusion, we would like to note that the average size ofwarehousing space sought by such local companies is inthe range 100 – 500 sqm.

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Map of locations of old Soviet-type warehouses and industrial facilities

Source: Google, Scot Holland CBRE

Map Legend:The green areas on the map indicate old Soviet-type industrial zones, mostly outdated and notproperly managed and maintained.

Map of locations of modern warehouses and industrial facilities, existing and under construction

Source: Google, Scot Holland CBRE

Map legend:Yellow placemarks represent completed Class A and B warehouse facilities; Red placemarks represent newprojects under construction. It is obvious that the warehouse facilities concentration depends on its class andage in two distinctive zones highlighted in Yellow (completed Class A and B), and Red (under-constructionClass A).

DISCLAIMER 2011 Scot Holland | CB Richard EllisThe information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have notverified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm itsaccuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do notrepresent the current or future performance of the market. This information is designed exclusively for use by Scot Holland | CBRichard Ellis clients, and cannot be reproduced without prior written permission of Scot Holland | CB Richard Ellis.

For more informationregarding the MarketView, please contact:

Scot Holland | CBREStrategic Consulting

Eugene DolbilinVice PresidentScot Holland |CB Richard Ellis105, Dostyk Ave.,3rd floorAlmaty, 050051KazakhstanT: +7 (727) 258 1760F: +7 (727) 258 [email protected]

Peter GoranovSenior ManagerStrategic Consulting andValuationsScot Holland |CB Richard Ellis105, Dostyk Ave.,3rd floorAlmaty, 050051KazakhstanT: +7 (727) 258 1760F: +7 (727) 258 [email protected]

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