REVIEW

High Rise

With continuous residential demand in major cities and the opening of new commercial space, Kazakhstan is set to see vacancy rates fall and activity increase.

While Kazakhstan’s oil capital, Atyrau, is showing strong signs of growth in the commercial and residential segments, the majority of Kazakhstan’s real estate industry is concentrated in its two largest cities, Almaty and Astana. Although market conditions are recovering gradually in the wake of the economic crisis, growth has been moderate. The defining trends of 2012 include an increasing demand for office space despite the low supply of new stock, minor purchasing activity, and expanding demand for residential rentals in a market that continues to be affected by shrinking budgets.

ALMATY

Currently, the office space market in the country’s largest city is landlord-driven and marked by increasing rental rates. Growing demand is predominantly sourced from new occupiers seeking to establish operations in the city. To date, class A and B office stock has reached 155,000 sqm and 602,000 sqm, respectively, excluding buildings that are currently under construction and many that have been put “on hold.” With vacancy rates at 8.7%, “office development has been restricted,” Steve Brown, Managing Partner at Veritas Brown | Cushman & Wakefield, told TBY. There has also been “difficulty in raising project finance… and we foresee an undersupply of office space in the grade A to B range over the next two years, which may continue the trend for over-priced accommodation and a landlord-driven market,” he noted.

The city boasts a leasable area of modern shopping centers of about 350,000 sqm. In 2012, the first underground shopping center
will be opened, supplying 25,000 sqm of new leasable area. Dostyk Plaza is also being developed, and is regarded as one of the most ambitious projects in the city. This premium segment project, scheduled to open in 2014, encompasses residential and commercial complexes, and will host an international hypermarket chain. The plaza “signals a change in the funding schemes of real estate in the post-crisis period,” Bahitbek Katen, President of Aristan Group, told TBY. “Previously, banks heavily leveraged the structure of real estate development in Kazakhstan, which brought larger risks that materialized during the credit crunch.” Katen emphasized the fact that local investors, instead of banks, are spearheading the investments made in the plaza.

Almaty has the most developed transport and logistics infrastructure in Kazakhstan. With its 400,000 sqm of existing Class A warehouse space, the Almaty region hosts 30% of the modern warehouse infrastructure of Kazakhstan. The Damu Industrial logistics center has 45% of the city’s total class A and B stock. The vacancy rate for 1Q2012 averaged around 9%, while rental rates for class A facilities fluctuated between $10 and $15 per sqm, excluding VAT and OPEX. The market has room to grow as the economy improves and Almaty’s transit trade volume increases. An additional 600,000 sqm of warehouse space is expected to come onto the market in the near future.

ASTANA

The majority of new office development in Astana is for governmental use. However, the increasing presence of international companies in the city is driving up the demand for available office space. Currently, the vacancy rates in the current stock vary between 2% and 4%. Due to low construction activity, Astana’s office market is increasingly landlord driven. Astana boasts around 450,000 sqm of modern leasable office space, and the completion of the second phase of the Emerald Towers project supplied the market with an additional 112,000 sqm of class A office space. “Expectations on the demand side are changing,” Gianluca Mattioli, General Manager of Renco, told TBY. “We are observing that it is no longer only expatriates who demand a full-service office or residential space; locals are beginning to demand them as well.”

The five largest shopping malls—MEGA Center, Saryaka, Keruen, Khan Shatyr, and Asia Park—comprise more than half of Astana’s 300,000 sqm of retail space. Additionally, the mixed-use Abu Dhabi Plaza also offers retail facilities, which will be completed by the end of 2015, bringing in an additional 25,000 sqm.A year-by-year analysis of residential rental rates shows that the average decreased in 2009, and gradually increased in 2010 and 2011. The majority of the rental market is located along the city’s riverbanks. Elite-class projects lie on the left bank, where apartments can be worth up to four times more than their counterparts across the river.

ATYRAU

The oil capital of Kazakhstan is home to an up-and-coming real estate market in the country, as more workers and expatriates move to the city to partake in the development of the giant Kashagan project. The market in Atyrau is very different from Astana, as Francisco Parrilla, CEO of Chagala Group, explained to TBY. “The two cities are very different places. At first, there was a need for basic quality housing and better food service options, office space, and logistics [in Atyrau]…the nature of the need in the market continues to evolve.”

As Atyrau is a working-class city, there is an inherent demand for residential property. The market is defined by continuous demand created by an influx of workers to the city. The price range for a two-bedroom apartment in 2012 increased from $1,000-$1,200 to $1,500-$2,000 per sqm, compared to the average price in 2011.

The office space in the city has been growing since 2001. Due to the structure of the local economy, demand is directly linked to contracts with companies in the oil and gas sector. While commercial rates have fallen from almost $40 per sqm in 2006 to less than $30 per sqm in 2012, the city has built 270,000 sqm of office space, 57% of which is Class B, with vacancy hovering at about 5%.

CROSS COUNTRY

The real estate market in other major cities of the country is concentrated predominantly in the residential segment. The recurring trend across the country is decreasing purchasing prices and increasing demand for residential rental space. Prices in Shymkent decreased by more than 13%, while land for individual housing construction fell by 12%. On the other hand, residential rental for apartments and individual homes increased by 17% and 14%, respectively. In Karaganda, the decrease in price per sqm for apartments and individual homes were 2% and 4%, respectively, while rental rates increased by 2.5%. Uralsk had the steepest decline in sqm prices for apartments, at 25%, while the sqm price for private homes increased by 4%. The steep decline is attributed to an oversupply of low-segment apartments.

Although Kazakhstan still lacks modern warehouses in central and western cities, where goods are stored in Soviet-era buildings with low maintenance, the area has huge potential for growth. “The smaller markets in Kazakhstan, particularly in the west, are difficult to supply with the transport links and warehousing that currently exist, and as these cities develop further the stock grow accordingly” Steve Brown, Managing Partner at Veritas Brown | Cushman&Wakefield, told TBY.