St. Pete Years Behind Moscow, Experts Say

ST. PETERSBURG -- While mushrooming apartment blocks on the city's outskirts and endless restorations of historic buildings in the center could give the impression that nowhere is developing faster than St. Petersburg, its real estate market still lags behind Moscow's, experts say.

"St. Petersburg is currently three to five years behind Moscow," said Boris Moshensky, general director of Maris | Part of the CBRE Affiliate Network. "There is not such a huge demand for commercial real estate as in Moscow," he said.

"In Moscow, there are far more deals on the market for offices covering 5,000 square meters than there were four years ago. The average size of an office in St. Petersburg is 250 square meters, and in Moscow that figure is 500 to 1,000 square meters."

Vladislav Zabrodin, managing partner of Capital Legal Services, estimated the time lag between the cities at two to three years. "It would be unrealistic to think that St. Petersburg could catch up with Moscow any time soon," he said. "There are some interesting exceptions. ... There is more high-quality decent retail space available in St. Petersburg than in Moscow -- about 300 square meters per 1,000 inhabitants in the former, compared to 180 in the latter." Office space is more abundant in the capital, where there are about 500 square meters per 1,000 people, compared with 200 square meters in St. Petersburg, Zabrodin said. The difference between the cities seems negligible, however, when compared with foreign statistics. There are 7,000 square meters of office space per 1,000 people in London, and 5,500 in Stockholm, he added.

When it comes to profitability, however, Russia's second city outstrips not only its traditional rival, but other European cities, too.

"The profitability of real estate in London stands at 5 percent, and at 13 to 14 percent in Moscow," said Zabrodin. "That figure is 17 to 20 percent in St. Petersburg."

Despite the differences in development, the markets share a number of trends. For example, business centers in both cities are gradually moving out of the center, but the rate at which they are doing so is slightly faster in St. Petersburg because of the restrictions on building in the center, Zabrodin said. St. Petersburg and Moscow also share a lack of logistics space. This year, the volume of new logistics space in St. Petersburg and the Leningrad region is for the first time comparable to that in the Moscow region, said Alla Solovyova, chief operating officer of Multinational Logistics Partnership.

"On both markets, demand for logistics complexes significantly outstrips the market's ability to supply, as there is still a deficit of logistics space," she said. She predicted that after several large-scale logistics projects are completed by early 2009, there will be no new influx of space because of the current situation in the financial markets.