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Russia Real Estate Market View

Denis Sokolov • 25/08/2021

After an early summer spike in COVID-19 cases across Russia and, specifically, Moscow, the situation has stabilised. While data from regions raises reasonable doubt, Moscow COVID-19 stats look rather reliable. By late August the daily number of new cases in Moscow is below 2000 (for total 12m population).

As a result, most of the restrictions have lifted and life is back to normal.

Office Real Estate
Nominal rents are slightly up due to inflation. The leasing market is strong as WFH forced companies to rethink their real estate strategies and forced relocation. Interestingly we see a stronger market in the city centre as tenants tend to downsize due to hybrid strategy but want to make sure the location is attractive for everyone. Central offices become a good reason for people to visit the office a few days a week. Market outlook is strong.

Remains under pressure while disposable income is decreasing, people stay home more and shop less. Activity is shifting from regional shopping centres towards community shopping. Rents are soft, retailers are downsizing. Outlook is weak.

Driven by the online retail boom, the logistics market is strong with rents outpacing inflation. Leasing activity is strong, BTS and new developments are on-going. Outlook is stable as additional demand from online is being satisfied.


27 July

Once again, Russia has changed its disease control approach. After a decline in new cases in Moscow the Government removed the ‘vaccinated only’ regime for restaurants. As of end of July all venues and restaurants will be open, some restrictions still apply but generally it is business as usual.

However, there is increasing pressure towards vaccination. The Government reports about 30 million vaccinated - about 20% of the population. Black Sea resorts announced that from 1 August they will only allow vaccinated visitors.

The office market remains strong as corporates must adapt their location strategies to new realm, facilitating the transactional activity. Rents are slightly up, net absorption is positive, vacancies are down.

The warehouse market is hot with growing demand from online retail, resulting in growing rents and shrinking vacancy.

Retail is weak. Decreasing disposable income, stagnating sales, chaotic regulation results in constant renegotiations between landlords and retailers on the rent terms. On the other hand, retailers and landlords are lobbying preferences from Government and this makes things even less transparent.

We believe that an overall positive ‘impulse’ in commercial real estate will remain throughout 2021, while the economy is recovering from recession. 


01 July

In June, Russia was struck by a third way of COVID-19.  

The infection rate tripled after several months of almost no-restrictions.  

Authorities and society were unprepared for the spike in the number of infections.  

Vaccinations were rather relaxed over the first half of 2021 but have intensified since mid-June when the Government announced restrictions and stimulus for those being vaccinated. 

As of end of June 2021 most public events were cancelled, food-courts in shopping malls were closed.  

As of 28 June, so far the following restriction measures have been announced: 

  • Service companies are supposed to have 60% of staff vaccinated 
  • 30% of employees are supposed to work from home 
  • Only those who have a vaccination certificate will be allowed to visit restaurants 
  • Sea resorts will be closed for those non-vaccinated from 1 August  

On the plus side - there is no indication of vaccine shortages - so the plan is to reach mass immunity by the end of summer applying restrictions on those who refuse to be vaccinated.  

For the first time, authorities have launched a serious vaccination propaganda campaign. 

The real estate market has not yet reacted to the new regime as it is unclear how long it will last.  

Restaurants will take a major hit, while most of the office tenants already implement hybrid working with at least 30% staff working remotely. 


14 June

The number of COVID-19 cases has stabilised at about 5000 daily cases across Russia. There are spikes in selected regions, but overall the situation remains stable. 

Closed borders resulted in the massive growth in domestic travel. Vacation destination experience huge in number of visits. 

Almost all retail centres are now open, however restrictions are applied. The major topic is the second wave of lockdowns. The Government denies any plans for this, but businesses are preparing themselves regardless. 

General shopping centre footfall is back to pre-pandemic levels, but spending is still lower. The financial system barely noticed lockdown - debt levels are increasing, and servicing of the debts is good. 

Inflation is low and the Central Bank decreased policy rate to historical lowest 4.5%. 


18 June

The number of COVID-19 cases remains stable at 8,000 - 9,000 cases per day over the previous week. However, the pandemic has shifted from Moscow to other regions. Moscow authorities are removing quarantine measures.  

Shopping centres are opening and footfall is around 40% below normal figures. Hotels are expected to open by 1 July. 

24 June has been announced as a public holiday and Mr. Putin had scheduled a military parade for this date, marking the 75th anniversary of the victory parade in 1945. A constitutional vote will take place on 1 July, so by that time most of the limitations should be lifted.  

Authorities announced that Russians will be allowed to travel abroad when accepting countries remove restrictions. 

Office and warehouse markets are performing better than expected, retail is in line with forecast.  

You can find market data in the #TrendsRadar 13/05/2020 report. 


4 June

The number of COVID-19 cases remains stable at 8,000-9,000 cases per day over the previous week. The Moscow authorities had changed their accounting method for Covid deaths, resulting in a triple increase of the number of lethal cases. However, the number is still very low in comparison to other countries. One of the reasons could be the non-existent senior housing in Russia. 

Quarantine measures have softened for 1-14 June with further easing after. From Monday 1 June, Shopping centres have started opening; however, people’s mobility is still restricted. The expected footfall for this period is about 50% of the normal figure. 

It has been announced that 24 June is a public holiday and Mr. Putin has scheduled a military parade for this date, marking the 75th anniversary of the victory parade in 1945. 

A Constitutional vote will take place on 8 July. By this time most of the limitations should be lifted.  

The authorities announced that Russians will be allowed to travel abroad when accepting countries have removed restrictions. 

You can find market data in the #TrendsRadar 13/05/2020 report. 


28 May

The number of COVID-19 cases has stabilised around 8,000 per day, raising concerns about the reliability of statistics. Lockdown is softening. Offices and malls remain closed, but people are walking on the streets freely. Moscow had introduced car passes that can be obtained twice a week. Without a pass, cars are being fined automatically by speedcams. 

Retailers report a 10% increase in turnover over the last week due to softening of quarantine. 

On 24 June people will vote for the new Constitution; presumably by that time the Government will have plans to lift lockdown. However, businesses are reluctant to return to the office with 100% of personnel. 

Office rents remain stable, but the demand is about 20% weaker than last year. Newly introduced legislation allows only small businesses to escape from lease contracts. This is major win for the real estate lobby. 

You can find market data in the #TrendsRadar 13/05/2020 report. 


21 May

The number of COVID-19 cases is reducing and government rhetoric sounds more upbeat. The FT article about unreliable Russian Covid statistics was met with anger. However, there are no straightforward guidelines on isolation. In St. Petersburg, 2 shopping malls had to close after 2 days of reopening, as social distancing proved impossible to enforce. Businesses are now required to test 10% of the working personnel for COVID-19. 

In any case, it looks like the Government is preparing to return to normal activities in June. However, some businesses may want to extend remote working as there are no clear signs that it is safe enough to return to work

Office rents remain stable, but the demand is about 20% weaker than last year. This week, the major battle between landlords and retailers over new legislation that allows tenants to escape their lease contracts is expected. The law has been submitted to Parliament and should be approved this week. If it goes through in original form, it will change the rules for the whole market. 

You can find Russia market data in the #TrendsRadar 13/05/2020 report. 


14 May

A phased ease of lockdown has been announced in Russia. In Moscow, from 12 May construction and industrial production businesses could operate. All other businesses will remain shut until at least 1 June. The school year finished prematurely; schools will open again in September. Hotels are expecting to open in June and will focus on domestic leisure tourism. 

According to the latest forecast by Oxford Economics, the Russian economy this year will lose 6.3% and this loss will be compensated only in 2022, suggesting U-shape recovery. 

The business space market is rather strong with minor pressure on the rental rates. However, the retail outlook is dimmed. About 30-50% of non-food retail stores will not open again but shopping malls will be allowed to operate. The good news is the expected 7% growth in retail sales in 2021 which means that instead of reopening stores, retailers may want to relaunch operations next year. 

The Government has not issued any substantial support measures; however, it is planning to step in lease contract regulation allowing tenants to escape from obligations.  

You can find market data in the #TrendsRadar report


7 May

The period 1 - 11 May has been declared as non-working days. The school year has also ended prematurely, and students will return to school on 1 September. People are allowed to go to their country homes, and we expect that many will remain there throughout the summer. 

Some businesses are expecting the end of lockdown on 11 May and there are signs that the Russian Government will shift their strategy from lockdown towards herd immunity. Unusually, the rather brutal police in Russia had recently demonstrated almost no signs of isolation enforcement. 

Business activity in the first decade of May will be extremely low, so we are not expecting any changes either in regulation or any movement in market indicators. 

The week commencing 11 May will be the most important for the country as it will be the turning point for quarantine regulation and the overall attitude towards the pandemic. 

You can find market data in the #TrendsRadar report

30 April

The Russian Central Bank had cut key rates by 50 b.p. down to 5.5% and raised the inflation target to 4.8%. The Government had finalised a support package to approximately 3% of GDP which is primarily aimed on support for large companies. Social support is kept at a minimum probably due to the negative outlook, so the Government wants to keep reserves. 

This week the infection rate is expected to peak in Moscow with other regions lagging. The first part of May is always low in business activities with national holidays on 1-5 May and 9-11 May, but this year it may not be the case as people continue working from home, rather than take holiday.  

The office sector is stable with a focus on flexibility. Tenants have started to think about the re-formatting of workspace. 

The retail sector is looking forward to shopping centres reopening. Retailers are insisting on % rents with payments after the month end. 

The warehouse sector is doing well with stable demand and a strong rental outlook. 

Cushman & Wakefield | RUS Business Barometer shows that 60% of businesses plan to revert fully to office working after lockdown and 67% are planning to change their lease terms. 


23 April

The number of infected and hospitalised has started growing exponentially. Moscow is still ahead but some regions are catching up. We think that Russia is 2-3 weeks behind Europe and the pandemic peak will hit our country at the beginning of May. 9 May Victory Day celebration is cancelled, and quarantine is expected to remain until mid-May. 

So far it has been a rather soft quarantine, however, it is expected to be tightened. Surprisingly the Russian Government seems unable to effectively impose quarantine and enforce social distancing. 

Last week Mr Putin pledged about 3% of GDP towards support measures primarily focused on social support and major companies. Support for small and medium sized businesses is very limited. We expect this week another announcement regarding strengthening of the regime. 

The warehouse sector started to slow down after a strong kick off in March. However, limited construction will keep supply and demand in balance, so we are expecting strong rents throughout the year. 

Retail is frozen as shopping centres and non-food stores remain locked. It is most likely that a large proportion of non-chain retail will not make it through the pandemic. In chain retail we will probably see several M&A’s. 

The office sector is still stable and the great start to 2020 still takes office indicators into the green zone in comparison to the same period of last year.  


16 April

The latest forecast from Oxford Economics suggests that the Russian economy will shrink this year by 6.7% and gain 6.9% in 2020. Retail sales are expected to slide 8.4%.  

Quarantine measures are tightening. Construction works were ordered to stop this weekend. This week Moscow will introduce QR codes for citizens to leave home. However, regional authorities have the freedom to establish local measures. So poorer regions with a small number of infections are expected to ease lockdown soon. 

The oil deal helped the Russian Ruble to appreciate against USD after dramatic devaluation driven by the oil price drop. 

Office leasing activity is slowing but the market is supported by low vacancies. While we had revised down take up forecast for 2020, on the rents side we see a strong market. 

Retailers have not yet tested the bottom of the market. Non-food retailers expect a decrease in sales this year on a like for like basis by 30%. The Government is not providing any significant support measures for the retail sector. 

Warehouse is strong, rents are increasing while demand is fueled by booming online retail and home deliveries. 


9 April

Lockdown will continue throughout the whole of April. The Government has declared April as a paid holiday at the expense of employers. At the same time a 6 month bankruptcy ban has been announced. With long public holidays in the first week of May, we expect quarantine measures to last until 9 May, when the Victory Day celebration is planned. Despite the collapse of the oil price, the Russian Ruble has recovered slightly, from a 20% depreciation. 

The office sector is stable so far with low vacancy and tight supply. However, we expect an increase in vacancy and some rent softening in Q2. The flexible space market is doing well as some tenants turned from standard office lease towards flexible office space to get through the uncertain times. 

Retailers and landlords are now renegotiating leases. In some cases, retailers simply refuse to pay rent during the lockdown period. Food retail is doing well so far. Online retail is overwhelmed with orders and in many cases, deliveries are delayed by up to 10 days.  

The warehouse sector is expecting rental growth on the back of peak demand for home deliveries. However, we expect a slowdown in new construction due to lack of financing and long-term planning on the demand side. 


2 April

Russia is climbing up the exponential curve. The first week in April has been announced a holiday and we are anticipating tighter quarantine measures in April.  

The warehouse sector is booming as food retailers hurry to secure storage capacity to meet peak demand of basic foodstuffs. Online retail growth is also contributing to the unprecedented demand for logistics space.  

The office sector is stable so far with low vacancy and tight supply. However, we expect increase in vacancy and some rent softening in Q2. The flexible workplace market is doing well as some tenants turned from a standard office lease towards flexible space to get through the uncertain times. 

Retail is in the biggest trouble. Shopping centres are most likely to remain closed through the whole of April and maybe even May. The Government is discussing measures to save F&B and non-food retail, but obviously the consumer market will take the major hit. 

Against the backdrop of the pandemic, Russia is facing 20% devaluation of national currency and 5 years of consumer market stagnation. 

However, since 2015 supply growth was limited and rents were under pressure across all sectors, we therefore do not expect any significant repricing in Ruble rents (apart from shopping centres).  

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