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26 I Cover story bne December 2017
shops as traditional retail is being dis- rupted by e-commerce. The food retail outlets – the big supermarkets – these will remain but the fashion stores will be diminished.”
Russian food retailers are better posi- tioned than some Western European retailers for the changes resulting from
of new deals up 54% in the first half of this year to 362,000 sq m of acquired space on the back of soaring demand from e-commerce companies. A large chunk of the demand came just from the major online retailers Utkonos (groceries) and Wildberries (clothes & shoes), two of Russia’s largest e-commerce companies.
The takeover of Morton transformed PIK into a market leader almost overnight. There were significant cost savings as
all Morton’s properties and land bank
of 4.6mn sq m worth RUB53.6bn was taken under the control of the PIK management; more than 6,000 staff were let go as a result.
“There was a huge administrative cost saving and at the same time the cost of loans fell significantly,” says Gordeev. “We sold the non-standard properties and concentrated on controlling costs and boosting the returns.”
However, one of the more valuable assets that PIK picked up from the acqui- sition was a state-of-the-art plant built by Morton that makes prefabricated con- struction panels for high-rise buildings. Gordeev has a bee in his bonnet about technological advances in the construc- tion business and carried on investing in the panel plant.
“With this tech we can reduce the time to put a 25-storey building up down to two months. Morton didn't make full use of this capacity and it is an important driver of cost reductions,” says Gordeev. “We have created a lot of different plants and we should be able to create all the elements for an apartment by the end of this year. We have a small plant where all the elements of the bathroom are made and can be delivered to the site.
It is already producing 5,000 units,
“Profits could be made from buying a building on Monday and flipping it on Friday”
disruptive e-commerce challenges and its attempt to adjust to consumers' increasing preference for shopping at smaller convenience stores rather than at hypermarkets, Fitch Ratings said on November 23.
The retail segment amongst Russia’s top 50 companies by revenue accounted for RUB606bn ($10bn), or more than half of the aggregate revenues of Russia’s top 50 companies, soaring from 18% of the total in the preceding year, but still lag- ging behind the RUB1.38 trillion grossed by the fastest growing retailers in pre- crisis 2014. Fitch said it sees consumer interest in hypermarkets continuing to decline globally as shoppers put more of a priority on speed and convenience.
As Russian hypermarkets tend to be smaller and closer to their customers than their Western counterparts, the trend will go slower in Russia, but Fitch expects the size of the average Russian hypermarket to fall by around 300 sq m to 4,200 sq m over the medium term, the ratings agency said in its report.
And the same sort of disruption is just getting underway in the office business. A number of co-work space hub com- panies have sprung up in the last year and already have a dozen locations in Moscow where established companies are moving in, due to their cheapness and convenience.
The one bit of the real estate business that is benefiting from these disruptions is warehousing, which saw the volume
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Residential
But none of this has stopped residential projects from going forward. Prices on the primary residential market have been flat or even fallen a little, but
a government sponsored mortgage- subsidy programme for loans with interest rates over 12% has been supporting sales in this subsector.
Demand for residential property remains huge and not just in Moscow where the demand is so great you could build a second Moscow alongside the existing one. As mortgage rates have now fallen below 12% the government has ended the subsidy programme, and rates continue to fall: in November Russia’s leading bank Sberbank cut its rates to their lowest ever level of 8.6%-9.7% and the central bank is expected to cut rates
“Demand for residential property remains huge”
to 4-5% in the next year or so. Mortgage sales already account for 57% of PIK’s sales, up from 7% in 2010.
“The CBR could go faster, but I don't think it will. It is being very cautious, as it fears the return of inflation. However, if rates were to fall to 4-5% we would probably see acceleration in mortgage sales. But rates falling to 4% could happen in the next two to three years,” says Gordeev, who adds he is relying more on cost cut- ting than rate cuts to make his profits.
which will grow to 15,000. It is modular, robotic and cheap. We are also thinking about exporting these elements, but that is in the future.”
It’s all about the money
Along with the changes in the business have been changes in the ownership
of PIK. In August Gordeev bought out two significant minority investors – legendary Russian financier Alexander Mamut and the owner of failed bank Binbank (aka B&N Bank) Mikhail