TBY talks to Bahitbek Katen, Chairman of NAI Aristan, on the development of Kazakhstan’s retail and office space market.
TBY What have been the mutual benefits of the NAI-Aristan partnership?
BAHITBEK KATEN The real estate boom experienced in Kazakhstan in the late 2000s worked to the advantage of many international real estate consulting companies, boosting their development and investment ventures in the country. We met with NAI at an annual international real estate forum in Germany, and a process of dialogue began that turned into cooperation and partnership. Real estate plays an important role in the Kazakhstani economy, and developing real estate has become more than a local venture, with international standards and technology applied across the country. Aristan, as a local company, needed a global partner to be able to meet the growing demand for real estate. NAI, as a global operation, has shared its experience with us, and allowed us access to its global connections. These global connections are vital, as we are now able to provide services to more multinational companies operating in Kazakhstan. Considering the fact that almost all the top Fortune 1,000 companies are present in emerging countries such as Kazakhstan, NAI and Aristan couldn’t have afforded to miss out on the benefits that partnership has brought. Furthermore, our global presence gives us an opportunity to facilitate growing Kazakhstani companies in their expansion needs on the international markets.
NAI Global offers a wide range of services internationally. Which services are on offer in Kazakhstan?
Our services encompass consulting, valuations, and agency services, which include extensive market research to produce feasibility studies and “Highest and Best Use” analysis for real estate. Our property valuation services are delivered in accordance with the standards of the Royal Institution of Chartered Surveyors and Kazakhstani valuation standards. Transactions practice, property dispositions, acquisitions, and corporate services provide insight into market sentiments. We also have a company that provides property and asset management services. In fact, it is currently the sole independent property management company in Kazakhstan. It has launched three shopping centers and two business centers in Kazakhstan. We have a third company that provides project management and construction services for corporate real estate—specifically shopping areas. We have grown into a group of companies that employs 200 people with three main branches.
What are your niche targets?
In the real estate business we mainly target the retail industry, in which we possess great expertise due to our experience. Although we have existed for only four years, we have combined the experience of both local and foreign experts to work for us on several projects. We believe that in this niche we really possess strong advantages. We are currently present only in Almaty and Astana, but we plan to expand into other regions such as western Kazakhstan. In addition, based on our global capabilities we perform research on a number of dedicated niche services that could be adapted to local market needs.
What are the occupancy rates across all classes of office space in Kazakhstan?
A-class office space occupancy levels are at around 50%, and moving rapidly towards 60% due to the improving market. For B- and C-class office space, occupancy rates are at around 85%. The key reason for low occupancy levels in A-class is that prices are high. Project financing in Europe is cheaper as financing leverage is 5-10% per annum. In Kazakhstan the range is double this. This makes project financing extremely expensive. Also, because of the complexity of Almaty city, which possess almost 80% of all office space available in Kazakhstan, it is a high-risk area for earthquakes. Hence, construction material costs are higher, and obtaining project approval and permits is more expensive. Thus, in Kazakhstan, despite their needs, some international companies prefer to stay in A- or B-class offices.
What is the state of the retail sector in Kazakhstan?
The global retail development index states that for a retail market to be considered developed it needs the presence of more than 500 global retail brands. In Kazakhstan there is in total slightly more than 200 brands, half of which are either local, or only represented in two or three countries, which brings us down to 100 global retail brands. Only 50 of them are aggressive and actively seeking to develop their brands in the country. There hasn’t been consolidation in the market, and there is still a long way to go. Retailers have chosen not to expand because there is a lack of quality space to expand into. However, fundamentally, the retail sector has positive growth perspectives since we still lack a sufficient number of shopping centers in Almaty and other developing cities in Kazakhstan and have a growing consumer market.
What investment opportunities do you see for foreign investors in real estate?
Compared with other countries in the region, Kazakhstan presents many opportunities for real estate investment because there is still demand for commercial real estate. In the retail segment, the demand is very clear—there is a need for quality space. In the residential and office segments there is still demand, but market studies should be carried out thoroughly. The residential market will recover in the coming two to three years as there is an annual need of more than 1 million square meters in the market. There is also room for specific investments in office space for large companies. However, in the open market the risk remains rather high.
What can NAI Aristan offer to the development of retail quality in Kazakhstan?
As property consultants we aim to bring the highest value to our clients through various solutions that enhance retail development projects and help avoid potential obstacles. In addition, the traditional risks inherent to retail property developments, the country’s emerging market status, and post-crisis uncertainty make retail real estate development even more complicated. Therefore, professional advice together with pro-active management is vital for the success of property development projects. Basically, our commitment to bring the highest value is based on an understanding of the importance of retailing space infrastructure to the economic and social well being of Kazakhstan.
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