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bne December 2017 Cover Story I 25
from them,” Gordeev told bne in an interview in PIK’s headquarters in central Moscow. “So we will see the profits from the current activity in 2018 and 2019.”
The company’s financial results in this dif- ficult market were given rousing support by international ratings agency Standard & Poor’s (S&P) at the start of November, which praised the company’s “sound performance” at time when many of PIK’s competitors are seeing sales fall, while PIK is enjoying “strong pre-sales and cash collection growth driven by robust demand for its apartments”.
“The stable outlook reflects our
view that PIK's liquidity position is supported by large cash balances and our expectation of sound operating cash flow,” the agency concluded.
Sector trends
The real estate sector boomed in the noughties and profits could be made from buying a building on Monday and flipping it on Friday. But the real estate business has had a hard time in the years since the global financial crisis. Only one
new business centre has been opened in Moscow this year. A flurry of old retail projects were completed in 2015-2016, but since the “silent crisis” that hit two years ago, no significant new projects have been completed.
“The retail business is changing fast and the old style of malls are not as relevant as they were. There is a lot more space than there was 10 years ago. There is an oversupply,” says Gordeev. “We don't see any change in office in the near future either, as this business is being disrupted by the co-working spaces. This way office space is being changed.”
Gordeev used to have an office development company called Horus Capital that developed office space but he sold it in 2010 because of the changing trends in the industry.
The disruption in retail is also starting to be visible: the latest Watcom shopping index, which tracks footfalls in Moscow’s leading malls in real time, is having
its worst year since the index was established in 2014, which is surprising
as real incomes have started to rise again, albeit modestly, and the economy is a lot healthier this year than it has been for most of the last two. Part of
the fall in the index must be due to the stagnation of real disposable incomes, but part of it is also due to the increasing completion of online stores.
The growth of Russia's e-commerce is easily outpacing the development of traditional retail outlets: the online market grew by 22% year-on-year
to RUB498bn ($8.6bn) in January- June 2017 and Russia’s e-commerce
is predicted to account for 10% of the global total by 2025, according to Russia’s Ministry of Industry and Trade. Clearly Russia’s booming e-commerce is already affecting the real estate sector.
“In malls you can clearly see the chang- ing traffic as a new generation come to the fore – the millennials,” says Gordeev. “They don't like using cars and prefer the metro or buses. They want to be inde- pendent from cars. That means retail has to mingle with the metro stations. There has to be more entertainment and fewer
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