The real estate market overview in 2016: the imbalance of demand and supply has led to reduction of prices

In the last two years stagnation is observed on the real estate market. The solvent demand of the population for housing has considerably decreased as a result of real wages level reduction by 9,5%. Following the results of 2015 the offer of residential real estate on the market of the Moscow region has increased by 1,5 times, having reached 7,1 million sq. m. by the beginning of 2016. Due to the obvious imbalance of the demand and supply the cost of all types of housing has decreased by 10-15%.

However in the first quarter of 2016 the demand activization was marked which has been caused by two major factors. First, in January-February it was promoted by probability of cancellation of the mortgage lending subsidizing program. Secondly, because of a new round of the ruble depreciation in the beginning of the year currency savings holders could purchase the real estate which in case of lower currency rate remained unavailable for them.

Nevertheless, revival on the Moscow housing market was short-term. Such artificial activization of demand which is not supported with the actual population solvency growth has led to the fact that annual demand for residential real estate was already realized in many respects in the beginning of the year. Since May the seasonal decrease of the activity was observed, much stronger than in recent years. The similar situation has happened at a boundary of 2014-2015: in the first quarter of 2015 activity of buyers has decreased many times after the record agiotage in December, 2014 because of the ruble exchange rate collapse. Then the first signs of the market revival were shown only after the start of the state mortgage subsidizing program.

It is also remarkable that against the increase of the demand for real estate there was no price increase. Moreover, in some segments of the market sellers had to reduce the prices – the most expensive real estate (apartments in houses of comfort - and business class and multi-room apartments) which began to become cheaper after the economy class housing.

It is expected that by the end of 2016 the offer on the Moscow housing market will continue to increase. At the same time seasonal recession of transactions number will be marked in summer, and activization of demand will begin not earlier than in autumn, and it is more probable – in November-December, before the end of the preferential mortgage program. Taking into account that the solvent demand is almost exhausted, the real estate prices in medium-term prospect will fall as in case of the current demand and supply imbalance of the key competitive advantage of object is readiness of its owner for the price reduction.

As for the market of commercial real estate, it is influenced first of all by business activity of entrepreneurs and consumer market conditions. At the end of the first quarter of 2016 business in general has managed to adapt to new reality due to optimization of expenses, however the situation on the consumer market does not give cause for optimism.

Thus, developers yet have an interest to the office real estate, and trade real estate is almost not interesting for them because of threat of vacant floor spaces number growth in the conditions of the changed consumption pattern and transition to the economy regime.

At the same time the share of free office real estate in lease in the capital increases in recent years, and by March, 2016 it has reached about 20% compared to the record-breaking low level of rental rate. Due to lower demand for office real estate objects a part of the projects in progress has been reoriented to residential.

The share of free areas on lease in the sphere of trade real estate in the first quarter of 2016 was equal to 12%. At the same time the insignificant growth of vacant floor spaces was marked, the shopping centers constructed for the last 2 years are gradually filled, rotation of lessees continues. The greatest demand for this type of real estate is shown by large-format players and product networks, and developers even more often create own trade operators.

According to the forecast of analysts, until the end of 2016 low business activity and relative stability is expected on the market of commercial real estate. Participants of the office real estate market believe that in the next months the market will reach the bottom that can be considered as the prerequisite for further growth. In the short term positive shifts are not expected in the trade real estate due to further decrease of the consumer market in the conditions of the real disposable income of the population. 

In general it should be marked that after the events of 2015 the housing and commercial real estate market participants have adapted to the new reality and don’t expect any dramatic changes. Moreover, in the conditions of the demand and supply imbalance positive trends prevail: housing real estate and rent prices decrease, opportunity to participate in the preferential mortgage program, choice expansion that invites to take more circumspect and balanced decisions.