After the oil and gas sector, real estate was considered one of the most lucrative sectors in Kazakhstan in the early 2000s, yielding high profits due to relatively low supply as a result of continuously increasing demand for residential and commercial properties. Despite the liberalization of the market, the unprecedented growth in the sector came to a halt with the onset of the global financial crisis. Market data now suggests things are on the mend, while a host of developments are continuing across all regions of the country. It is still Almaty, however, that holds the status as the largest and most developed real estate market, given its historical role as a major city and commercial center. In the past decade Astana has also increasingly become more attractive due to its administrative role as the new capital of the young republic. Atyrau, on the other hand, is considered the oil capital of Kazakhstan, and the real estate market of the city in all segments depends on and reflects the development of the oil and gas industry in the area.
In the pre-crisis years luxurious residential real estate was seen as the core of new development.
Between 2005 and 2007 prices for new housing increased by 148% in dollar terms, while on the secondary market this rate was 272%. In Almaty, the biggest real estate market in the country, the price increases were 354% and 218%, respectively. Consequently, as was the case in many countries, Kazakhstan’s residential real estate sector was badly affected by the credit crunch. From the start of the crisis in 2007 until the end of 2010, real prices decreased by 37% for new apartments and by 46% on the secondary market.
Following almost three years of virtual stagnation, there are several indications that the recovery of the real estate market has begun. In 2010 housing sale and purchase transactions increased by 17.1% y-o-y. According to the Kazakhstan Statistics Agency, in the first quarter of 2011 the number of residential property transactions increased by 10% y-o-y. The majority of these transactions took place in Almaty.
Secondly, in the same period square meter prices in dollar terms increased by 2.9% for new apartments and 4.2% for those on the secondary market. ATF Bank projects that growth in average dollar per square meter prices will continue increasing in 2011 and 2012, amounting to 6.1% for new apartments and 7.8% on the secondary market. With renewed interest in housing investments, the bank estimates that the price growth rate may surpass the 10% threshold in 2013.
The development of the office segment has gained momentum with the entrance of foreign companies into Kazakhstan. The supply of and demand for office space was particularly high and perhaps disproportionate until the offset of the financial liquidity crunch in August 2007, after which the construction and investment rates in the office real estate market slowed down. However, recent positive trends in the market indicate an upward swing. In the first quarter of 2011, rental rates across all classes of office properties remained stable. Furthermore, as far as the future of office real estate projects is concerned, improved macroeconomic performance and business activity are expected to heighten market participants’ interest in new office space.
In Almaty, 20% growth is forecasted in the office market, which will primarily be driven by first recovering and then increasing private sector activity. On the other hand, in Astana the development of the office real estate sector will continue to be driven by the new capital’s government-supported quest to become not only an administrative but also a commercial center. In recent years, the government promoted the development and construction of landmark office and mixed-use projects, which were designed by internationally renowned architects. Although their construction slowed in recent years due to a lack of financing, such ambitious office properties have good development prospects in the medium to long term.
The retail system varies greatly across the cities and regions of Kazakhstan, and the market is considered underdeveloped, with large international retail chains and quality retail space missing. The main reasons behind this are the low population density and logistical difficulties due to the large size and the state of infrastructure in the country. In the past decade the majority of shopping and entertainment centers have opened in Almaty and Astana. Mega Center in Almaty and Khan Shatyr in Astana represent the finest examples of conceptual retail space development in Kazakhstan.
Increased activity in the retail market is expected as large international retail chains and brands draw the country into their expansion plans. Almaty and Astana will continue to remain as the most attractive destinations for both retail space development and international retail chains planning to enter the market.
The warehouse segment started developing with the arrival of large international companies to the market. Currently, provided its commercial significance, Almaty boasts the most extensive warehousing facilities in Kazakhstan. The city’s existing capacity reaches 800,000 sqm, with an additional 30,000 sqm under construction. Approximately 70% of this capacity is represented by old Soviet-type structures. Due to a generally low level of service quality, some companies prefer to build their own warehouses should they have specific requirements for warehouse storage. These complexes are located up to 50 kilometers away from the city and are also used as distribution centers.
The economic slowdown has increased vacancy rates in existing warehouses of late. The average vacancy rate in Almaty is 20%-25%. However, demand for existing warehouse space is expected to pick up with economic recovery and increased economic activity triggered by the Customs Union. As per new warehouse space, greenfield commercial developments are located along the Almaty-Astana route—the busiest in the country. Furthermore, future investment plans on the main domestic and international transportation axes, such as those routes heading to China or Kyrgyzstan, present the warehouse sector with significant prospects for development.
© The Business Year