The Russian building market Despite remaining in recession, the Russian economy began to show the first signs of improvement in 2016 (GDP -0.6% following the sharp -3.7% downturn in 2015). According to figures published by Rosstat (Russian national statistics institute) and the World Bank, the economy is expected to return to positive territory this year (+1.5%) and consolidate this growth in 2018 (+1.7%). The measures put in place by the Government and the Central Bank to offset the negative impact of lower oil prices and economic sanctions have begun to have an effect. Inflation has more than halved in the space of a year, falling to below 6% by the end of 2016; the banking sector appears to have stabilised; and unemployment has reached an almost all-time low of 5.6%. The strategy of reducing reliance on imports by boosting domestic production while at the same time expanding exports has brought good results, especially in the agricultural sector, although the figure for industrial production is also positive (+1.1% in 2016 according to initial estimates). By contrast, private consumption has continued to fall, dropping by 1.9% in 2016 following the dramatic 9.4% slump in 2015, but is likewise expected to recover in 2017 (+1.3%). The construction industry The macroeconomic environment has naturally affected the construction industry, which continued to contract throughout 2016 following a downward trend that began in December 2013. According to the preliminary Rosstat figures reported by the agency PMR, in 2016 Russian building production fell by 4.3% year on year compared to -4.8% in 2015 (Fig 1). This contrasted with a slight growth in value (+0.6%), up from 6,148.4 billion roubles ( 96.37 billion) in 2015 to 6,184.4 billion roubles ( 96.94 billion) in 2016 (Fig. 2). Analysing the monthly trend (Fig. 3), the figures show that fig. 1 - Construction output *in Russia (y-o-y % change) 56
Fig. 2 - Construction output in Russia (billions of roubles) fig. 3 - Construction output in Russia (%, y-o-y) - January 2014/December 2016 57
the sector continued to contract through to November, when it recorded the first upturn since December 2013 (+1.5% year on year), followed by a further fall in December (-5.4% compared to December 2015). The worst monthly performance was in June (-10% year on year). Residential building The new residential building segment maintained weak growth through 2015 but finally fell into negative territory in 2016 (Table 1). The number of new homes dropped by 3.2% from 1,195,000 units in 2015 to 1,156,500 in 2016 (PMR puts the estimated decline at 1.1%). The contraction was greater in terms of floor space of homes completed, which fell from 85.3 to 79.8 million sq.m (-6.5%). The sector reported a downturn in all months of the year except for the summer Table 1. - Housing completions in Russia, number of units and floor space Fig. 4. Flats completed in Russia (millions of sq.m of space and y-o-y change) 58
months (June, July and August) which saw 5.8% growth over the same 3 months of 2015 (Fig. 4). In greater detail, the total floor space of homes completed was 15.6 million sq.m in the first quarter (-16.1% compared to the first quarter of 2015), 15.9 million sq.m in the second (-1.2%), 18 million sq.m in the third (+1.8%) and 30.3 million sq.m in the fourth (-7.9%). The largest volumes completed in the new residential building segment were in the Moscow region (6.7 million sq.m between January and November 2016), followed by the Krasnodar region (4.05 million sq.m) and the city of St. Petersburg (2.4 million sq.m). Next came the Republic of Bashkortostan (2.3 million sq.m) followed by the capital Moscow (2.28 million sq.m), then the Republic of Tatarstan and the St. Petersburg region (both with 2 million sq.m). Growth prospects in the Moscow region Construction activity in the Moscow Region is expected to remain high in coming years. According to the agency ITA (Italian Trade Agency), a housing programme has been approved that will involve the construction of 7.5 million sq.m of new homes per year for the next ten years, complete with services and infrastructures. A total of 28.6 billion roubles will be allocated to the programme, including 18.6 billion roubles granted by the regional government. The Moscow region is also one of the most active in terms of commercial building construction. In the first 8 months of 2016 permits were issued for the construction of around 3.02 million sq.m of commercial properties (795,000 sq.m of warehouses, 645,000 sq.m of manufacturing facilities, 604,000 sq.m of retail space and 112,000 sq.m of offices), while 2.7 million sq.m of floor space had already been put into use (60% more than in the same period in 2015). Russian construction materials production The downturn in the building sector also impacted domestic construction materials production, which dropped by 6.7% year on year during the period January-November 2016. As reported by the company PMR (based on Rosstat data), all the main production segments saw contractions (Table 2): cement production fell by 11% in the first 11 months of the year, clay bricks by 18% to 5.15 billion units, and bricks made of cement, concrete and artificial stone by 31%. Ceramic tile production suffered a smaller 6% decline, falling from 158.2 million sq.m to 148.8 million sq.m to November 2016. Green building According to a study carried out by Jones Lang LaSalle (JLL), real estate services firm specialising in commercial property management, leasing, and investment management, the green building market in Russia has almost doubled in the last two years, growing by more than 1.7 million square metres to a total of more than 3.6 million square metres. According to the study, peak growth was in 2015 with total construction of about 1.1 million sq.m, while the surface area of certified and registered structures amounted to 627,000 sq.m in the first nine months of 2016. The Moscow region ranks first in terms of numbers of certified buildings with a total of more than 2.2 million sq.m (54 buildings), followed by St. Petersburg with 310,000 sq.m (13 buildings). Half of the green buildings Table 2 - Production of selected building materials in Russia (January-November 2015 and 2016) jan-nov 2015 jan-nov 2016 % var Cement mill. tons 58.9 52.4-11.0 Heavyclay bricks mill. standard bricks 6,293.1 5,152.6-18.1 Bricks made of cement, concrete and artificial stone mill. standard bricks 3,533.8 2,438.8-31.0 Ceramic floor tiles mill. m2 85.4 81.8-4.2 Ceramic wall tiles mill. m2 69.8 64-8.3 Tiles for exterior usage mill. m2 2.9 2.9 0.6 Source: PMR based on Rosstat, 2016 60
constructed in the first nine months of the year (around 370,000 sq.m) consist of commercial buildings, especially shopping centres. But despite this considerable growth, the green market still makes up only a small portion of the total commercial segment. In Moscow just 5% of all offices are certified as green buildings, warehouses 6%. In St. Petersburg the figure for offices is below 7% and virtually non-existent for industrial buildings. The property market According to a recent study by the firm JLL, real-estate investments in Russia totalled US $4.2 billion in 2016 (74% up on 2015). This was largely driven by rising oil prices and the stronger rouble, which reduced market uncertainty and boosted speculative investor activity. As in the period following the crisis of 2008-2009, the construction investment sector was the quickest to react to the upturn in the economy. Based on these observations, experts from JLL expect this positive trend to continue in the near future and are forecasting an investment volume of $4.5 billion in 2017. In 2016 the majority of the investments (80%) were in Moscow. Offices remained the most attractive category for investors with an almost 60% share of the total, while industrial and commercial activities made up respectively 5.7% and 13.3%. The residential segment also benefited from the growth in investments in 2016, with the share of the total increasing from 1.7% to 7.6%. The Russian ceramic tile industry In 2016 the Russian ceramic tile industry managed to limit the decline in its end-ofyear production to just -5.5% with respect to 2015, dropping from 170.4 to 161.1 million sq.m (Table 3). The biggest contraction was in the wall tile segment, where output fell from 75.1 million sq.m in 2015 to 69.3 million sq.m in 2016 (-7.7%). The floor tile segment suffered a modest decline during the first 9 months of the year, followed by a recovery in the last quarter to bring overall production to 91.85 million sq.m (down 3.6% on the 95.3 million sq.m of 2015). Exports are estimated to have risen to around 24 million sq.m in 2016, 9-10% up on 2015, and as in the past were mainly shipped to the markets of Kazakhstan, Kyrgyzstan, Belarus, Ukraine and Uzbekistan. Domestic consumption is estimated to have fallen by a further 10% from 194.6 million sq.m in 2015 to 175 million sq.m in 2016. The biggest fall was once again in imports, estimated at below 38 million sq.m (down 18.2% following the 35.6% contraction seen in 2015). With the exception of Germany and Belarus, all the other exporter countries suf- Table 3 - The Russian ceramic tile industry and market (values in million sq.m) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Production 100 115 135 147 117 126 136 154 166 166 170.4 161.1-5.5 Wall tiles 70 75.1 69.3-7.7 Floor tiles 96 95.3 91.8-3.7 Exports 7 10 15 12 12 9 11 13 16 19 22 24 9.1 Imports 39 46 55 63 38 51 63 72 80 73 46.2 37.8-18.2 Domestic consumption 2016 est % var. 16/15 131 153 176 191 139 158 181 213 230 220 194.6 174.9-10.1 Local production on consumption (%) Imports on consumption (%) 70.2 69.9 68.8 67.0 72.7 67.7 65.2 66.2 65.2 66.8 76.3 78.4 29.8 30.1 31.3 33.0 27.3 32.3 34.8 33.8 34.8 33.2 23.7 21.6 Source : World Production & Consumption of Ceramic Tiles, Acimac November 2016 and estimates for 2016 62
fered between 13% and 50% losses by volume (Table 4). As a result, imports as a share of domestic consumption fell to 21.6%. Kerama Marazzi (Mohawk Group) confirmed its position as the largest Russian producer, closing 2016 with an output of 31 million sq.m and double-digit revenue growth. Its results were also boosted by the expansion of its operations in the bathroom furnishing sector. On 16 January the company started up the new Continua+ line from Sacmi for the production of large ceramic panels and at Batimat Russia 2017 (Moscow, 28-31 March) will be unveiling its first 30x180 cm wood effect tiles and new 60x120 cm marble and stone look tiles, including a variety of honed surfaces and new materials produced using the double-filling technique. 5 Table 4 - Russian imports of ceramics tiles (values in million sq.m ) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1. Belarus 8.2 7.7 9.2 11 10.9 14 14.1 12 14.4 15.8 14 12.9-7.9 34.1 2. Ukraine 1.3 1.9 2.8 5.7 6.2 10.1 13.8 17 20.5 15.2 11.2 9-19.6 23.8 3. Spain 7.9 10.1 11.2 13.9 7.1 9.3 10.4 13 13.1 13.1 7.5 5.8-22.7 15.3 4. Poland 4.4 4.6 7.4 5.5 2.7 3.4 3.9 4.6 4.9 4.5 3.1 2.7-12.9 7.1 5. China 6.8 11.7 12.5 13.9 4.8 7.4 10.6 10.8 14.9 12.8 4.5 2.6-42.2 6.9 6. Italy 4.9 5.6 6.1 6.3 3.5 4 4.7 5.8 5.6 5.1 2.8 2.5-10.7 6.6 7. Germany 0.4 0.5 0.6 0.9 0.5 0.6 1.2 1.5 1.7 2 1.1 1.3 18.2 3.4 8. Turkey 1.7 1.3 0.8 1 0.4 0.7 1.3 2 1.8 1.5 0.6 0.3-50.0 0.8 Other countries 3.3 2.8 4.8 4.6 2 1.9 2.9 5.5 3.6 3 1.4 0.7-50.0 1.9 TOTAL 38.9 46.2 55.4 62.8 38.1 51.4 62.9 72.2 80.5 73.0 46.2 37.8-18.2 100.0 2016 est % var. 16/15 Source : World Production & Consumption of Ceramic Tiles, Acimac November 2016 and estimates for 2016 % share 2016 63