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RBCC St Petersburg International Construction and Property Forum
31st May 2007

With a burgeoning local economy, high level political support and growth outstripping the rest of Russia, St Petersburg is, it could be said, on something of a roll. In the second of a series of quarterly one-day business forums, RBCC St Petersburg set out to examine one of the most dynamic sectors within NW Russia’s success story, a sector which is bringing in high levels of international investment and expertise: construction, property and infrastructure development.

CHRIS GILBERT

Russia’s Northern Capital is at once an architect’s dream and a developer’s nightmare: while the city’s rapid economic growth and robust economic development is driving demand for new investment, construction, and improvements to infrastructure, its unique architectural heritage (St Petersburg is on the UNESCO list of world heritage sites) means that any regeneration carried out must be done in sympathy with the existing urban fabric. Recently announced projects, such as the redevelopment of New Holland by RMJM, and the controversial Gazprom City (now re-named Okhta Centre) are just part of the story. Investment and international expertise are now flooding into the city to make the improvements necessary for continued growth, and to make sure that this is done without losing the unique tradition of St Petersburg itself, and repeating the mistakes of other cities around the world.
The Forum was opened by Maxim Sokolov, Chairman of the City Administration’s Committee for Investments and Strategic Projects. Mr Sokolov emphasized two things in his opening remarks – firstly, that his city was open to receiving international expertise, and that his committee was always ready to examine new ideas and projects. He also made the point, surprising to some, that at present one sixth of all FDI into Russia is coming into St Petersburg itself – a compelling statistic. David Bamber, Managing Partner of KPMG in St Petersburg, noted that the construction sector in St Petersburg and the region was currently characterized by the presence of a very few large companies, and a large number of very small companies, but that this situation was now changing, with a number of medium-sized players entering the market, bringing the ideal combination of flexibility and resource that the city so needs.

The Residential Sector
Prices on residential property in St Petersburg doubled over the course of 5 months in 2006, to the chagrin of many prospective buyers (your author included!). The reasons behind this sudden boom are complex, and in some cases controversial, but the inevitable conclusion to be drawn from this boom and subsequent return to sustainable growth is that the residential property market in St Petersburg is becoming an attractive and stable place to invest. The issue, as always, is in the availability of quality housing stock, particularly in some central areas, and the way that the situation can be improved.
PRP Architects of London are leaders in the field of urban planning and development, and their Chairman, Barry Munday, flew out especially for the event to discuss the innovative solutions his company has come up with in the UK and elsewhere to provide high-density, modern and attractive housing to transform the urban backdrop in the most positive way – the UK has had mixed fortunes in this in the second half of the 20th century, and was in a unique position to help others avoid the pitfalls of poor planning.
Irina Sharipova, Project Director of VTB Capital, which is investing in a number of regeneration projects in the City, also devoted her presentation to the positive effects of learning from international experience and applying it to the Russian model.
ARUP are one of the world’s leading construction consultants, and can count such landmarks as the Sydney Opera House and the Swiss Re “Gherkin” in London in their portfolio. Colin Clinton, their European Marketing and Communications Director, took the example of his home city of Birmingham to show how an urban nightmare can be transformed into a modern city centre in the space of just over a decade by intelligent planning and coordination. Colin’s presentation served as a prime example of how good planning can revive a city’s fortunes, and how disjointed, ill-judged development can create the dreaded concrete jungle. St Petersburg is in a unique position to learn from the mistakes of others, and to get it spectacularly right, first time.
But urban development and construction is not achieved by architects and planners alone – the legislation has to be in place for projects to come to fruition, a theme taken up by Andrey Odabashyan, Senior Legal Consultant at KPMG.

Commercial and Industrial Property
Of course, people need to have somewhere to work as well as to live. The second session of the morning set out to address the issues surrounding the all-important industrial sector, and was opened by Evgenia Wolfus, Senior Tax Consultant at KPMG in Moscow. Any construction project is a major investment, and KPMG have a great depth of expertise in helping investors to find the best vehicles and strategies to maximize profit and mitigate risk and taxation burdens.
Kyle Patching, Director of Office and Industrial at Colliers International in St Petersburg, devoted his presentation to the current and future status of the office market in Russia’s second city. The situation here when compared to Moscow is a familiar one to those who know both cities: St Petersburg is currently lagging behind its big sister to the South East, but is catching up, and catching up fast. The question, as ever, is how quickly capacity can be brought to the city, and whether there is a danger of supply exceeding demand and leading to, if not a crash, then at least a hiccup, which could leave investors short.
This was a theme taken up by Maxim Melnikov, Senior Consultant for Knight Frank in the sphere of industrial and warehouse property. Maxim pointed to the danger of the wrong type of warehouse space being built in the wrong areas of the city: if there is not sufficient coordination, the worst case scenario would be large amounts of spare capacity in one area of the city, and insufficient resource in another. Warehouses have to be filled and emptied of course, and Maxim sounded a cautionary note that St Petersburg’s Moskovskoye Shosse risked becoming, ironically, a mirror image of Moscow’s infamous Leningradka, where insufficient road capacity means that logistics warehouses simply cannot fulfill their potential, as the trucks that service them are spending too long in endless traffic jams.
A partial solution, at least as far as office space is concerned, could be provided by the use of business parks, popular in the UK, and gaining ground in Moscow, where the Krylatskoe Hills project is just one example of a new solution to an old problem. One of the companies involved in this project, MEP Engineering, was represented at the Forum by its General Director, Adrian Salter, and Director Vladimir Borzdin. Adrian and Vladimir listed some of the main advantages of business parks vis-à-vis traditional office centres.
Again, the legal framework cannot be ignored, and Elena Ryzhkova, Senior Lawyer at Pepeliaev, Goltsblat and Partners, ran through the various ways that international investors could put their money into projects in Russia without encountering any unpleasant “surprises”. Again, Elena’s presentation is too detailed for the space available in this article, but further information can of course be obtained by contacting RBCC St Petersburg.

Infrastructure, Urban Planning and Finance
Widening the theme from city to oblast, Kirill Malyshev, Head of Colliers’ Industrial Group in St Petersburg examined the effects that the completion of the city’s ring-road would have both within and outside its circumference. For a city the size of St Petersburg (the third largest city in Europe by population) not to have a complete ring-road is a surprise to many, and has led to the kind of concentration of warehousing and industrial to the South of the city which was noted by Maxim Melnikov in the previous session. Kirill emphasized how important it was for the ring road to allow development around the whole city, to prevent transport collapse.
The ring-road is not the only large-scale infrastructure breakthrough on the horizon for St Petersburg over the next few years: RBCC were delighted to have the General Director of the city administration’s Agency for Strategic Investments, Olga Potiforova, on hand to discuss some of the other projects that will transform St Petersburg over the next few years, both economically and culturally, including the Orlovsky Tunnel beneath the Neva, an overland express rail-link, the sea passenger terminal on Vasilievsky Island, a new football stadium and a second stage of the Mariinsky Theatre. One thing is for sure – by 2012, St Petersburg will be a city transformed.
One of the projects soon to come to fruition is the Morskoy Vokzal project, a multifunction complex comprising offices, shops and a hotel which will stand astride Bolshoy Prospekt on Vasilievsky Island. Vladimir Malik, General Director of the Morskoy Vokzal passenger terminal, took the audience through the details of the proposed complex, which will address some of the office space issues which are currently holding back this area of St Petersburg.
Val Jerdes, Chief of Market Research and Consulting at Praktis Consulting and Brokerage, gave a concise yet thorough presentation on the current and future trends of the St Petersburg real estate market, including a tendency towards larger, more ambitious and mixed use projects, increased presence of international investment funds, earlier involvement of investors in construction projects, and so on.
The Forum was rounded off by a man who is widely considered a legend in the Russian real estate market. Geoffrey Cox OBE, Chairman of Astera Oncor, has worked in Russia for 14 years, and has a perspective on the market and country that few people can match. Geoffrey dedicated his talk to the need for improved overland logistical links across Russia as an enabler for further growth, and to the important role that St Petersburg will have to play as the gateway to this network.
RBCC St Petersburg would like to thank all those companies who made this event possible, to our sponsoring companies, KPMG, PGP Law, Astera, ARUP and Knight Frank, to our media partners, and to Patrick Naughter and his team at the Renaissance St Petersburg Baltic Hotel, for providing an excellent venue and professional service, and above all to the delegates who took such an active part in proceedings. We look forward to seeing you all next year.

Andrey Odabashian – Senior Consultant, Legal, KPMG St Petersburg (far right), Colin Clinton – Director, Marketing and Communications, Ove Arup and Partners Ltd. Europe, Maksim Sokolov – Chairman, Committee for Investments and Strategic Projects, St Petersburg City Administration, Chris Gilbert, Irina Sharipova – Project Director, VTB Capital, David Bamber- Managing Partner, KPMG in St Petersburg and Barry Munday – Chairman PRP Architects Ltd. London