Vyacheslav Pimurzin: ‘Commercial real estate in Kazan has not exhausted the opportunities for growth in price’
Market expert — about the prospects and differences of investing in offices and housing in the capital of Tatarstan
Where is it more profitable to invest in Kazan today: the primary or secondary housing market, in apartments, or offices. Which segment of real estate has already exhausted the opportunities for growth in price, and which one will not only save savings, but also increase them. These issues are of concern to many potential investors today. In the author's column for Realnoe Vremya, the expert of the commercial real estate market, head of the Affordable Office Fund, Vyacheslav Pimurzin, discusses how the process and prospects of investing in residential and commercial real estate differ in 2023.
Difference #1: pricing quirks
Commercial real estate, as well as residential one, is divided into primary and secondary. There is a significant difference in pricing between these two asset classes. Residential “secondary” housing on average in the city costs the same and the price of a new building may differ by a maximum of 5-6%. A strong discount can be obtained only for a “fixer-upper” apartment, in which you need to invest more than its square metres cost.
But the commercial “secondary” real estate is not only that it sharply differs in cost among themselves, it can also be cheaper than the “primary” by one and a half times. Of course, a small shop on the first line of a tourist street will be even more expensive than an office in a new residential complex in a residential area. But we do not consider such terminal options. However, we always recommend potential investors to take a closer look at inexpensive offices in the secondary: they can and should earn money.
Difference #2: commercial real estate is cheaper to buy, but more expensive to rent
Secondary commercial real estate in Kazan on the ground floors is currently being sold for 85-100 thousand rubles per square metre. The apartment on the floor above costs 150-160 thousand per square metre. Therefore, if a client has a conditional 5 million rubles and he is an adept of investing in housing, in Kazan today he can get only a small studio apartment. The asset is liquid, one-room apartments are sold well. But by the end of 2023, the rise in housing prices, spurred by preferential mortgages, has exhausted its reserves — more and more experts say that there is nowhere to raise prices higher, because the flow of buyers stops. Therefore, it is difficult to consider such purchase as an investment — just as a protection of money from inflation. However, it can be rented for about 20 thousand rubles a month.
Let's consider the situation for commercial real estate. For 5 million, you can buy an office with an area of about 50 square metres. One can rent such a property for 700 rubles/square metre. 35,000 per month is significantly more than 20,000 for one-room apartment.
There is one more nuance: commercial real estate in 2022 has not exhausted the opportunities for growth in price. It still costs one and a half, or even two times cheaper than residential — and given the serious shortage of high-quality commercial space in millionaires (for example, in Kazan), there is every chance of its appreciation. Therefore, investing in commercial real estate (especially in secondary), an investor today can count on both the rental business and the growth potential in price.
Difference #3: the difference in capital investments
To prepare housing for renting, it needs to be brought into a living condition. To make repairs, buy furniture, be sure to put household appliances: a washing machine, a TV, a microwave oven, a stove for cooking — this is the minimum set. Moreover, over time, all this will require depreciation, and residents do not have a special habit of taking care of rented apartments. All this requires considerable investments. For example, I know businessmen who have not started major repairs in their own apartments for years, because they feel sorry to withdraw a couple of million from circulation at once.
To prepare the office for renting, you must make a calm, neat repair there and lay electrical wiring. Furniture, appliances, signage — all this is the care of the tenant. And sometimes it even happens that the tenant himself makes repairs in his office “for himself”. Thus, it increases the liquidity of your property, and does not lower it, as in the case of apartment tenants.
First half of 2023 is a great time to buy commercial real estate
Investing individuals in office real estate is not the most popular strategy at the moment. Russians have always sought to invest in square metres, and they choose the most understandable investment for them: to “hide” money from inflation by buying apartments. This is traditional and it never fails: indeed, there has never been a year when apartments in Kazan would not have risen in price by at least 2%. But if you decompose the prospects from the point of view of business, payback, investment prospects, then many private investors miss more interesting opportunities in terms of commercial real estate.
I am sure that in a year or two, it will be impossible to buy offices for 100 thousand rubles per square metre in Kazan. The growth potential in this segment is very great. Therefore, the first half of 2023, in my opinion, will be a great time to invest in office real estate. This is an investment that will show itself immediately, will give a steady stream of income and will become more expensive every year. And it will require much less investments than housing.
The author's opinion may not coincide with the position of the editorial board of Realnoe Vremya.