astana market view residential - cec.tuwien.ac.at€¦ · astana market view residential q1 2017 ....

OVERVIEW

Quick Stats Change

from

Q4

16

Q1

16

Prices

Absorption

Kazakhstan is the largest country in Central Asia.

The relocation of the capital city functions to

Astana in 1998 offered long-term growth and

development opportunities.

According to information published by the

Statistics Agency of the Republic of Kazakhstan,

the population of Astana comprises ca. 872,655

people, with the “Almaly” district share being

44%, the “Esil” district – 16%, and the “Saryarka”

district – 41% of the total number.

The fixed capital investments in the period Jan-

Apr 2017 in Astana comprised KZT 195,399 Mln,

which represents a 31.4% increase compared to

the same period of 2016. The share of fixed

capital investment in Astana comprised 10.5% of

the total volume of capital investment in the

republic.

During the same period the investments in

residential construction in Astana comprised KZT

36,526, which represents a slight increase

compared to the same period of 2016. The share

of disbursed funds in housing construction

within the total volume of investment in fixed

capital comprised approximately 18%.

During the period Jan-Apr 2017 the total volume

of commissioned residential space in Kazakhstan

increased by 48.1% compared to the same

period of 2016, with the largest shares of

residential space commissioned in Astana

(30.41%), Almaty (18.8%) and Mangistau Province

(8.44%).

The total housing stock commissioned in the

same period in Astana comprised 2,256,920 sqm,

representing a 28.3% increase on a year-on-year

basis.

To date, the mood of market participants in

general is becoming more negative, due to

economic problems both domestically and

globally, such as decreasing global oil prices and

the significant correction of the national currency

exchange rate. A noticeable decrease of prices in

US Dollar terms can be observed on the

residential real estate market of the capital.

It is also necessary to note the considerably

increased demand and growth of the number of

sale-purchase transactions of apartments in new

buildings during the reported period, caused by

the fact that many developers kept prices in KZT

after the exchange rate correction, thus

noticeably decreasing prices in USD equivalent.

In addition, the "EXPO-2017" event may slightly

neutralize the negative effect on the market of

the capital in 2017.

Source: Kazakhstan Statistics Agency



Hot Topics

The correction of the

exchange rate of the Tenge

caused a decrease of prices in

USD terms in combination

with a growth of the number

of sale-purchase transactions;

Investments in housing

construction in Astana in the

period January-April 2017

comprised 36,526 Mln Tenge;

The total residential space

commissioned in the period

January-April 2017 in

Kazakhstan as a whole

comprised 1,115,966 square

meters, which represents a

48.1% increase compared to

the same period of 2016.

The average price levels on

the Astana primary and

secondary markets in Q1 2017

practically unchanged in

comparison with the same

period of 2016.

Astana Market View

Residential Q1 2017

A new housing construction program - "Affordable Housing - 2020" –

was given a start during 2012 as a supplement to the already existing

housing construction program for the period 2011-2014, envisaging

the construction of affordable housing units for rent with subsequent

buy-out. This program is aimed at sustaining a volume of

construction of new residential space at the level of 6 Mln sqm per

year, and reaching 10 Mln sqm per year by 2020. According to

information from the city authorities, ca. 50,000 apartments are

planned to be constructed in Astana by 2020. A campaign for

purchasing of apartments under the “lease-with-subsequent-buyout”

scheme by all categories of the population has been actively

implemented in 2013.

This housing construction program was designed by the ‘Samruk Kazyna’

National Welfare Fund, and the basic requirement for its implementation

is that the developer would take part in the construction and sales of the

residential project. The program provides for 3 options of project

development:

via target deposit – i.e. the Fund allocates the money to banks, and

the banks – further to developers;

scheme, where Akimats provide land plots and infrastructure while the

‘Samruk Kazyna’ Real Estate Fund acts as the developer and investor;

partnership of the Fund and private companies.

The housing units constructed under this program will be distributed via

several schemes:

ordinary lease,

lease with subsequent purchase,

direct sale and sale by installments via Zhilstroysberbank.

In this relation, foreign and local investors and developers have started

considering the “economy” class residential market as a field for potential

investment, while during the pre-crisis period the construction of

“business” and “elite” class projects was dominating the residential

market. At the present moment, the majority of local and international

developers have adopted a wait-and-see attitude and are not involving in

activities on the Kazakhstan real estate market.

The "Affordable Housing 2020” program assumes two different types of

transferring the residential space to the population: direct sales and lease

with subsequent buyout. In this case, the lease-with-subsequent-buyout

Agreement may provide for the right of pre-term acquisition of the

residential property by the Lessee.

A brief analysis of the average price levels of residential projects in the

New City part of Astana showed that the most expensive apartments are

offered in such projects as ‘Green Village’, ‘Rixos Khan Shatyr Residences’,

‘Dolphin’, ‘Highvill’, ‘Nursaya’, ‘Europe Palace’, ‘Zhansaya’ ‘Gorodskoy

Romance’ and ‘Parizhskiy Kvartal’.

The most affordable units in the left-riverbank part of the city can be

found in the ‘Lesnaya Polyana’ residential project in the Kosshy

settlement, planned to be developed as a satellite town of Astana.

According to the Statistics Agency of the Republic of Kazakhstan, during

Q1 2017 the average selling price on the secondary residential market is

lower than the average selling price on the primary market in Astana, and

comprised USD 1,000 and USD 900 per 1 sqm respectively. At the same

time, we provide the following information on selling prices, which we

have obtained during the analysis of the supply on the residential market

of Astana during Q1 2017 (by class; in USD per 1 sqm):

Economy Business Elite

700- 1 000 1 200–2 000 2,500–4,000

Source: Scot Holland LLP

We have noted that residential selling prices have not

shown significant changes during Q1 2017.

At the same time, there is certain demand coming from

solvent property buyers, but this category prefers to study

closely all available options, and bargain actively when

making a purchase.

It should be noted that during the reported period many

second-tier banks suspended the issuing of mortgage loans.

The loan volumes stayed at fairly low levels, as most

mortgage lending programs have either been closed, or

continue to work under terms, restrictions and conditions

that most potential buyers find either unacceptable, or

financially unviable.

The analysis of residential rental rates in Astana shows that

the weighted average rates were decreasing in 2009,

however since then have been gradually increasing until

August 2015. The average rental rates of residential

premises in Astana city are shown below:

Type of apartment Average rental rate

(USD per month)

1-bedroom 330

2-bedroom 500

3-bedroom 700

4- and 4+ bedroom 1,200 and higher

Average Rental Rate 500


Most leased apartments are traditionally offered on the

right riverbank. The most expensive housing for lease is

represented by apartments in newly-constructed Elite class

projects, where the rental rates are in the following brackets:

Type of apartment Average rental rate

(USD per month)

1-bedroom 800

2-bedroom 2,000

3-bedroom 3,000


It should be noted that since the beginning of Q1 2017 in

Astana the construction of both ‘economy class’ residential

projects under the state “affordable housing program”, as

well as ‘business’ and ‘elite’ class projects by private

developers was commenced.

Currently the local population prefers buying apartments

either in fully completed and commissioned new buildings,

or in existing older buildings of reasonable quality. At the

same time, our observations show that apartments are often

purchased even when the residential project is still under

construction, due to the lower price compared to fully

completed and commissioned projects.

As mentioned earlier, as part of the plan to mitigate the

situation on the residential market, the Astana city

authorities have started the implementation of the ‘leased

housing’ system, widely spread in many Western countries.

The Real Estate Fund is in process of elaborating the rules of

the sale of residential properties. One of the mechanisms

provides for a lease of the residential units with a

subsequent buy-out option.

Map of Astana Districts

Source: Google, Scot Holland LLP

Almaty - situated on the right bank of Esil river, comprises the eastern part of the ‘Old City’; total area 21,054 ha;

population 381,102; large and medium size industrial enterprises, residential properties, both prestigious and less so,

condominiums; basic retail facilities; open markets and bazaars, also some office space – in light blue on the map.

Esil – an administrative centre located on the left bank of Esil river, dividing Astana in East-West direction, total area

31,200 ha; population 137,826; the district includes residential microdistricts ‘Karaotkel’ and ‘Chubary’, as well as

‘Prigorodniy’, ‘Ilyinka’, ‘Komsomolskiy’, ‘Zarechniy’ and ‘Telmana’ village; business area comprises central governmental

institutions, agencies, ministries, and buildings of diplomatic missions – in green on the map.

Saryarka – situated on the right bank of Esil river, comprises the central part of the ‘Old City’; total area 19,202 ha;

population 353,727; 80 large and medium size industrial and construction enterprises, residential properties, both

prestigious and less so, condominiums; basic retail facilities and some office space – in yellow on the map.

OVERVIEW

Quick Stats Change

from

Q4

16

Q1

16

Rental rates

Occupancy

The development of the office property segment

in Astana is driven by the current status of the city,

which, thanks to the relocation of the capital city

functions, has rapidly become the commercial

centre of the country with a constantly increasing

number of private / public enterprises and

agencies.

Since the beginning of 2012, the office market is

characterized by somewhat increased demand in

the business centres of higher grade, which is

cased by the increase of business activity. The

majority of class “A” and “B” Business centres have

occupancy rates close to 100%. The main reason

for 100% occupancy is because of at the moment

demand exceeds supply and not enough good

options are available on the market, especially on

the more preferred Left Bank, where new office

premises are leased quite fast. Many multinational

companies open their offices in Astana, and there

is also a tendency to relocate existing head offices

from Almaty.

At the same time, the volumes of newly-

commissioned business centres show sluggish

dynamics, and a number of projects are

suspended due to lack of financing.

In addition it should be noted that the

construction of the large-scale multifunctional

project ‘Abu Dhabi Plaza’ has been resumed. At

the same time, «Talan Towers» - an Elite-class

multifunctional project, is currently under quite

active construction, and during the current year

the construction of a class ‘B+’ business park

called ‘Smart Ville’ is planned to commence.

In addition, a significant volume of commercial

spaces are under construction in the structure of

the EXPO-2017 complex, which may lead to the

oversaturation of the local market in the medium

term.

It can be added that the Astana market is younger

and more ‘artificially’ expanded than the more

mature and better developed Almaty. In recent

years Astana had plenty of new ambitious office

and mixed-use projects in the pipeline, promoted

by the Government efforts to give the city a

completely new appearance and international

status. Most of these large-scale high-end

developments were designed by internationally

renowned architects.

However, the construction of a significant

proportion of these projects has been delayed

due to the unstable economic situation and the

correction of the exchange rate of the national

currency.

Despite that, office properties are still quite a

promising segment of the Astana real estate

market with good development perspectives in

the medium- to long-term.

Virtually all Class A and B offices in Astana were

constructed over the last decade. Nevertheless,

by mid-2005 the total available office space in

the capital city was rather limited, due to which a

certain shortage of office space could be

observed on the market.

In the period 2005-2006, the office market

gradually started to grow.

Thanks to the substantial number of newly

constructed business centres, the supply of office

space increased by 129% in 2005 and by 320% in

2006. Unfortunately, new class A business

centres were not commissioned during that

period in Astana.

In the longer term, the demand for office space

will be closely linked to the speed of recovery of

business activity and general macroeconomic

conditions in the city.

Rental rates of Class A offices maintain stability,

while at the same time many Class B building

owners are forced to quote prices in Tenge, due

to the inability of the tenants to cover the highly

increased rental amount.

Today the Astana office market is predominantly

represented by newly-built business centres.

There is also available office space in renovated

Soviet administrative buildings, as well as ground

floors of residential buildings converted to office

use.

In most cases, the offices announced as high-

grade premises, actually do not meet relevant

international requirements.

In addition, one may observe a significant spread

of rental rates, where the lowest and highest

rental rates of offices of similar class and level

may differ by 2-3 times. The active construction

of new business centres in Astana will lead to a

change of the market situation. The supply

volumes are increasing and Lessors are

becoming more loyal and flexible in the process

of negotiations with Tenants.

Hot Topics

The Astana market is

younger and more

‘artificially’ expanded than

the more mature Almaty real

estate market, which makes

it even more volatile in crisis

times;

Supply is mainly represented

by lower-class and smaller-

size administrative buildings

(class В and С);

The analysis of rental rates in

Class A business centres in

Astana has shown

insignificant changes during

Q1 2017, compared to the

same period of the previous

year, with an average range

of approximately USD 25-30

per 1 sqm per month.

The analysis of rental rates in

Class B business centers in

Astana has shown a slight

drop during Q1 2017, due to

the correction of the KZT

exchange rate.

Astana Market View

Offices Q1 2017

Currently the range of office monthly rental rates in Astana is quite

wide and ranges from USD 15 to USD 35 per sqm per month.

For example, Class A business centres rental rates are in the range

USD 25-35 per sqm per month, with an average level of USD 25 per

sqm per month including VAT but excluding service and utility

charges, which range from USD 4 to USD 8per sqm per month.

The rental rates in Class B office buildings vary in the range USD 15-25

USD per sqm per month, with an average value of USD 15 per sqm

per month.

An analysis of rental rates in lower-class business centres in Astana

shows that they have remained practically unchanged in comparison

with Q4 2016.

Also, in the process of choosing office space, most potential tenants

consider only premises, which are already fine-finished at the expense

of the landlord (owner).

In rare cases, fit-out works can be carried out by the Lessee at its own

expense. In such cases the possibility of providing a rent-free period

for ca. 2 - 4 months depending on the leased area can be discussed.

For example, the ‘Saad’ Business Center offers a grace period of up to

6-7 months for completing all finishing works. Such rent-free periods

are provided mostly in cases, when the premises are leased in shell &

core condition. If the premises are leased in fully-finished condition,

the rent-free period is lower.

An analysis of the prices of Class A office projects offered for sale in

Astana during Q1 2017 shows that they vary widely, with an estimated

average of USD 1,000 – USD 4,000 per sqm on the left bank and USD

1,000 – USD 3,000 per sqm on the right bank part of the city. The

average office space selling price ranges have remained quite stable

and changed insignificantly since the last reported period. Sale of

office premises is extremely rare. It should be noted that the number

of requests for purchase of office premises received during Q1 2017

was rather limited.

The largest demand for office space in Astana is created by local

government-related and foreign companies. The typical tenants of

Class A offices are the companies operating in those industries which

allow rapid development and highest revenues.

Office premises with an area of 50 - 200 sqm in fully-finished

condition (to be further modified by tenants) still remain popular on

the local market.

At present the vacant office space accounts for not more than 15% of

the total office stock of Astana.

The vacancy rate in Class B+ and В business centres commissioned

prior to 2007 is approximately 5%, which evidences a quite high level

of demand for office premises with lower rental rates, despite the fact

that they may have a lower overall level of quality compared to Class

A premises.

A comparative analysis of prime office rents in the EMEA region

(Europe, Middle East and Africa) showed that despite the fact that

Almaty rental rates are lower than in other large cities like Moscow

and London, they are still above the prime rental rates in many large

cities of Eastern Europe and Asia.


Talking about business centres in the pipeline/under

construction, it should be noted that the overwhelming

majority of such projects classify themselves as Class A,

with an average area of 15,000 – 20,000 sqm, and an

average building height of 17 floors.

Class A and B Business Centres in Astana are

predominantly located in the new administrative centre

(the Left River Bank), but at the same time the ‘old centre’

is still popular with some companies. The main avenues

and streets connecting the ‘new’ and ‘old’ Centres of the

city were re-built or repaired, and now offer a more

developed roadside infrastructure of better quality.

The quality of construction depends on the facility,

customer and developer; however, lately most buildings

are characterized by a smaller gross area/usable area ratio,

due to the extensive use of internal partitions and dividing

walls.

In conclusion, we would like to note that, in our opinion, a

decrease of construction activity in Astana can already be

observed. However, the office estate market should

expand thanks to the construction of new objects as part

of the ‘EXPO – 2017’ event, which will be held in Astana.

Map of Market Zones in Astana


Market Zones

Riverside – mainly elite residential

projects with few business and

entertainment centres – in dark-blue on the

map;

Old centre – residential developments,

business centres, administrative buildings,

retail facilities, central part of the city – in

light-blue on the map;

Extended old centre – mainly

residential developments constructed in

1950-60’s, with few retail premises – in

purple on the map;

Microdistricts – predominantly

residential projects constructed in 1970-

80’s, with few retail facilities – in red on the

map;

Ak-Bulak – only new residential

developments, complexes of small

buildings, individual houses – in olive on

the map;

Energetic – residential area, individual

houses, both old and newly constructed –

in light-green on the map;

Chubary – residential area, individual

houses, both old and newly constructed –

in dark-green on the map;

Karaotkel – residential area, individual

houses, predominantly new – in yellow on

the map;

South-East – residential area, individual

houses, predominantly new – in orange on

the map;

Industrial Zone – industrial buildings

and few very low quality old residential

complexes – in black on the map.

OVERVIEW

Quick Stats Change

from

Q4

16

Q1

16

Rental rates

Absorption

The total Astana retail turnover during the period

Jan-April 2017 comprised KZT 282,299 Mln.,

Compared with the same period of 2016 the total

volume of retail trade turnover at current prices

increased by 2.3% in comparable prices.

Source: Astana Statistics Department

The year 2011 was characterized by a process of

recovery of the retail sector thanks to a certain

increase of consumer demand and stabilization of

rental rates. The Retail market segment in Astana

sustained a noticeable increase of activity since the

beginning of 2013. Currently we observe increasing

interest from retailers for new projects in Astana,

after the devaluation of national currency in 2015.

Similar to Almaty, some international retail players

expressed interest in expanding their businesses in

Astana. However, at the moment, due to the fact

that rental rates are attached to the USD exchange

rate, the majority of tenants have found themselves

in an extremely disadvantageous position. From one

side, cash volumes are decreasing dramatically, and

from the other side rental rates are increasing

substantially. For the sake of keeping their tenants,

Shopping Center owners are becoming more loyal

and willing to compromise in order to improve the

rental conditions of the tenants.

Major trends on the Astana retail market include:

high competition, relatively low purchasing power

of the population, and poor marketing concept of

some existing shopping centres. There is also a

noticeable shortage of professional and ‘branded’

operators on the retail market of Astana.

Given the fact that more and more new retail and

entertainment facilities will appear in the near

future, the Astana retail market may face oversupply

in the next 3-5 years, and developers may have to

shift focus to the new formats of shopping centres.

Shopping and entertainment centres

currently under construction as

«Respublica Plaza» and «Silk Way» are

working under attracting international and

local retail brands.

In the short-term, it is expected that

newly-commissioned buildings will drive

out of the market the old ‘Soviet-type’

stores, where currently all ‘street retail’

format outlets are located. In fact,

opening a “street retail” outlet requires

much more investments, both during the

launch and follow-up operation periods,

due to the necessity to handle all day-to-

day issues and maintain the store and the

adjacent territory in good condition.

Also, the clear positioning of the shopping

& entertainment facilities, along with

competent professional management,

have become increasingly important in

the current conditions.

Historically, low population density along

with outdated and very poorly maintained

infrastructure across all regions of the

country, have made it logistically

challenging in terms of transporting

goods and providing services on a

nationwide basis, and have significantly

increased the overall business running

costs.

There is no doubt that the purchasing

power of the population in the pre-crisis

period was somewhat higher than today.

However, the effect produced by new

conceptual projects might override that

fact, as they attract a constant flow of

visitors to experience a new, modern and

conceptual shopping, entertainment and

leisure process for people with their

families, friends etc.

Shopping centres of the so-called ‘old’

format will inevitably suffer from a rapid

decrease of the levels of activity, closing

down of outlets and subsequent high and

increasing vacancy rates, as many tenants

relocate to newer and more modern

facilities.

Hot Topics

Decrease of the rental rates

practically in all Shopping &

Entertainment Centers;

Existing shopping centres, as

well as those under

construction still experience

difficulties attracting tenants;

Less successful shopping

centres face intensive

rotation of tenants and

subsequent increase of

vacancy rate levels.

Astana Market View

Retail Q1 2017

The shopping centres will find it difficult to attract new

retail operators, and will therefore be forced to make

compromises regarding the lease terms and conditions for

potential tenants, in order to achieve an acceptable

occupancy level of the object.

At the same time some professional tenants who are

considered important for the shopping centres and

represented by well-established brands, work under the

scheme where the rental rate is calculated as percentage

of the monthly turnover.

Most modern retail facilities in Astana are concentrated on

the Left River Bank of the city, where the majority of

administrative buildings, governmental institutions and

authorities are located. The largest concentration of

‘expensive’ retail outlets is observed in the riverside area

and the Centre. The right river bank of the city is

represented predominantly by reconstructed and

overhauled older shopping centres and street retail

outlets.

Many existing shopping centres and other types of retail

facilities are of relatively poor quality and lack an efficient

concept, professional property management and

appropriate tenant mix.

As of today, ‘Khan Shatyr’, ‘Mega Astana’ and ‘Keruen’ can

still be classified as the most successful shopping &

entertainment facilities in Astana.

It should be noted that most owners of newly-

commissioned and planned shopping centres employ the

services of professional advisors, providing assistance

during the preliminary stages of development and

ensuring follow-up support of the commissioned projects.

In our opinion, this tendency helps the overall quality

improvement of the retail market, and leads to the

appearance of better-quality conceptual shopping centres

in Astana.

The table below shows the existing Retail stock in Astana,

as well as the expected/planned additions of

contemporary shopping centres (with TGA 5,000 sqm or

larger) during the period 2017-2018:

Existing popular and successful conceptual shopping centres

sustain high occupancy rates and even a waiting lists of

tenants, while poorly planned and maintained centres without

a concept are losing tenants and suffer from constantly

growing vacancy rates.

During Q1 2017, the range of rental rates in the retail

passages of conceptual shopping centres (without

considering the rates for anchor tenants) remained practically

unchanged and varied in the range USD 5 - 100 per sqm per

month. However, in many shopping centers the rental

amount in USD equivalent was decreased, and an increasing

number of landlords agree to charge a percentage of the

outlet’s sales instead of a fixed rental rate. Generally, rental

payments are made in advance on a monthly basis as agreed

between the tenant and the owner (landlord) of the retail

facility. As a rule VAT, operational and utility charges and

marketing costs are paid additionally.

At the same time it is worth mentioning that the rental rates

payable by large anchor tenants, such as cinema theatres,

supermarkets/hypermarkets, home appliance stores, family

entertainment centres, department stores etc. are significantly

lower and generally do not exceed USD 5-9 per sqm per

month.

The demand and selling prices of street retail premises

increased in the reporting period.

Currently 4 modern projects are under construction, and are

planned/announced for commissioning in the period 2017 -

2018. These are retail spaces in the “Talan Towers” and “Abu-

Dhabi Plaza” projects, a new shopping center under the

working name “Silk Way” with a TGA of 160,000 sqm, as well

as a new project on the «right» bank of the Esil river called

“Respublica Plaza”.

According to our estimates, and assuming that all the

planned facilities are commissioned during the period 2016-

2018, the total retail stock in modern shopping &

entertainment centres in Astana will reach approximately

480,000 sqm of Gross Leasable Area (GLA) by the end of

2017, beginning of 2018.

A comparison between the current GLA index per 1,000

persons in Astana and the same index in other large cities in

Kazakhstan, CEE and CIS is shown in the chart below:

Retail market indicators

Total existing stock in modern

shopping centers (GLA, sqm) 366,100

Retail stock additions during

Q3 of 2016 (GLA, sqm) 0

New retail facilities planned for

commissioning in 2017-2018

(GLA, sqm)

137,000

Average Vacancy Rate ca. 5-10%

Source: Scot Holland LLP Source: Scot Holland LLP

The locations of large-size modern existing shopping centres in Astana are

indicated on the following map:


Map Legend:

Yellow pins – existing contemporary shopping centres (larger than 5,000 sqm of TGA).

For more information

regarding the Market

View, please contact:

Scot Holland LLP

Strategic Consulting

Eugene Dolbilin

Vice President

105, Dostyk Ave.,

3rd floor

Almaty, 050051

Kazakhstan

T: +7 (727) 258 1760

F: +7 (727) 258 1768

[email protected]

Peter Goranov

Director

Strategic Consulting and

Valuations

105, Dostyk Ave.,

3rd floor

Almaty, 050051

Kazakhstan

T: +7 (727) 258 1760

F: +7 (727) 258 1768

[email protected]

DISCLAIMER 2017 Scot Holland LLP The information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we

have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to

independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are

for example only and do not represent the current or future performance of the market. This information is

designed exclusively for use by Scot Holland LLP clients, and cannot be reproduced without prior written permission

of Scot Holland LLP.

mailto:[email protected]

mailto:[email protected]

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