1. Prospects for commercial real estate development in Kazakhstan – office and shopping real estate
Dmitry A. Revin,
Director for finance and business development
Eurasia RED,
Adam Smith conference – Construction and Real Estate in Kazakhstan
April 1-3, 2008
Almaty, Kazakhstan

2. WHAT’S AHEAD…?
DEMAND
SUPPLY
RATES
PROFITABILITY

3. Executive summary
Kazakhstan is a rapidly developing market with strong GDP growth, significant foreign investments and stable political environment that presents exciting profitable opportunities for commercial real estate development.
Astana - market will be mostly saturated for offices and shopping center space by Unsatisfied demand for modern shopping center space may arise in as early as 2010.
Almaty - there is unsatisfied demand for offices and modern shopping center space.
Regions – offices and shopping real estate development projects present marginal opportunity in selected regions.

5. Analysis of Kazakhstan commercial real estate market5
Analysis of Kazakhstan commercial real estate market
Sources for analysis of Kazakhstan commercial real estate market:
JLL
Knight Frank
CBRE
Cushman
DTZ
Deloitte
EIU
OECD
Kazakhstan commercial real estate center
Agency of RK for statistics
Ministry of economy and budget planning of RK 5

6. Kazakhstan is the biggest dynamically developing country in Caspian region with attractive investment climate 6
1. Territory – 2,725 thousand sq.m.
2. Population – 15,514 thousand people
3. Yearly GDP growth – 9-11% a year ( , same growth forecast for the next 4 years)
4. Average retail turnover growth – 20% a year ( , same growth forecast for the next 4 years)
5. Average salary increased 3,6 times during
Source: Agency of RK for statistics

7. Stage III. Maturity stage
Kazakhstan commercial real estate market passed through emerging market stage and is currently still in the stage of dynamic growth 7
Stage I. Emerging stage
Stage II. Growth stage
Stage III. Maturity stage
Kazakhstan regions
Regions of RF
Almaty, Astana
Moscow
Examples
«Kendala»
Almaty, 2005
«Astana Tower»
Astana, 2005
BC at Gagarina str,
Almaty 2006
«АFC»
Almaty, 2008
Time
Office real estate is comprised of facilities in old administrative buildings of Soviet period (i.e. Scientific Research Centers)
Modern business centers are not constructed, just reconstruction of Soviet period buildings
Construction of new business centers of А, В+ and B class
Share of old buildings in office real estate is significant
Mainly construction of А+ and А class business centers
MFC * with offices of premium class
Business centers
Слайд за Максом
Shopping real estate is comprised of old stores and soviet supermarkets, markets/bazars, stand alone shops, booths.
Construction of shopping centers, in particular due to network retailer presence
Share of Soviet period commercial buildings is still high
Segmentation of shopping space by types (trade center, shopping mall, neighborhood store, etc.)
Construction of malls with GLA> 20,000 sq.m. outside of the city
Insignificant share of markets/bazars in trade turnover
Shopping centers
* MFC – multifunctional complex (offices, shopping center, hotels, etc) 7

8. Analysis of Kazakhstan commercial real estate market8
Analysis of Kazakhstan commercial real estate market
Overview of Kazakhstan commercial real estate market
Business center real estate market
Shopping center real estate market 8

9. With dynamic growth of GDP per capita, office real estate area in Almaty and Astana should significantly expand as well 9
Office real estate availability per 1,000 inhabitants in world cities and its correlation with GDP per capita
Paris
Toronto
Sidney
Almaty (2012)
Office real estate availability per 1,000 city inhabitants, sq.m.
Madrid
Prague
Warsaw
Astana (2012)
Bratislava
Budapest
Добавить города не успел
Moscow
Sofia
Almaty(2006)
Istanbul
Astana (2006)
GDP per capita at purchasing parity index, USD
Source: OECD, JLL (Cities’ reports), Swiss Realty Group, Istanbul Metropolitan Municipality, CBRE, Knight Frank 9

10. Analysis of Kazakhstan commercial real estate market10
Analysis of Kazakhstan commercial real estate market
Overview of Kazakhstan commercial real estate market
Business center real estate market
Almaty
Astana
Shopping center real estate market 10

11. Based on Almaty city population forecast and existing office real estate, it is expected that 1,5 mln. sq.m. of office space should be constructed to satisfy new demand by 2012 11
Almaty city population forecast
New demand growth forecast for office real estate in Almaty
Thousand city inhabitants
Thousand sq.m.
1360
1375
1330
1345
1316
1287
1301 X
Office space per 1,000 Almaty inhabitants based on GDP forecast
Comments
Sq.m. / 1,000 city inhabitants
2090
Based on forecasted population of Almaty city, it’s expected that there will be on average 2 sq.m. per citizen by 2012.
1393
928
618
412
275
183
Source: Agency of RK for statistics, Kazakhstan commercial real estate center, Deloitte estimate

12. Economic forecast for office space demand shows that Almaty market is still far from saturation point 12
Comments
Economic forecast of new demand and
planned supply of office real estate
in Almaty, thousand sq.m.
Declared volume of office space supply by market players lags behind economic forecast for new demand. In 2010 deficit could reach thousand sq.m.
Taking into account completion of first phase of AFC in 2007, insignificant market oversupply is expected that may stabilize prices in 2008.
Nevertheless, soon additional demand will create deficit and rent prices will further increase, unless market players will manage to supply additional office space.
Economic forecast for new demand
Potential new supply taking into account AFC
Planned supply of office space taking into account declared plans on AFC
1 According to the plans declared by the market players and business center projects under development as of the end of 2007.
Source: Deloitte forecast 12

13. Analysis of Kazakhstan commercial real estate market13
Analysis of Kazakhstan commercial real estate market
Overview of Kazakhstan commercial real estate market
Business center real estate market
Almaty
Astana
Shopping center real estate market 13

14. According to economic forecast, new demand for quality office real estate in Astana will increase eightfold from 2007 till 20012 14
Astana city population forecast
New demand growth forecast for office real estate in Astana
Thousand city inhabitants
Thousand sq.m.
766
730
696
663
632 X
602
574
Office space per 1,000 Astana inhabitants based on GDP forecast
Comments
Sq.m. / 1000 inhabitants
According to the forecast, Astana office real estate could reach 1,2 million sq.m. by 2012.
In the near future demand for Astana office space is unlikely to grow fast because Astana is still an administrative and political center rather than business center of Kazakhstan.
1600
1109
755
532
369
255
177
Sources: Agency of RK for statistics, Kazakhstan commercial real estate center, Deloitte estimate

15. According to economic forecast, Astana office supply will considerably exceed demand in the next 2 years 15
Economic forecast of new demand
and planned supply of office real estate
in Astana, thousand sq.m.
Comments
In the next 3 years massive completion of development projects and supply of office real estate is expected in Astana market. Taking into account business center projects under development and declared plans, more than 600 thousand sq.m. of office space might be constructed till 2009.
Planned supply of new BC¹ space
Economic forecast for new demand
1 Based on market player plans and BC projects under development as of the end of 2007.
Source: Deloitte forecast 15

16. Analysis of Kazakhstan commercial real estate market16
Analysis of Kazakhstan commercial real estate market
Overview of Kazakhstan commercial real estate market
Business center real estate market
Shopping center real estate market 16

17. Analysis of major foreign city development shows that there is a strong correlation between city GDP and shopping space availability 17
Taking into account GDP forecast, shopping space availability may reach 650 sq.m. in Almaty and 530 sq.m. in Astana per 1,000 city inhabitants in 2011.
Shopping real estate availability per 1,000 inhabitants in world cities and its correlation with GDP per capita
Paris
London
650 sq.m. per 1,000 city inhabitants
Shopping real estate availability per 1,000 city inhabitants, sq.m.
Warsaw
Madrid
Almaty 2011
Budapest
Astana 2011
530 sq.m. per 1,000 city inhabitants
Berlin
Prague
Bratislava
Almaty 2006
Moscow
Kiev
Astana 2006
GDP per capita, thousand USD
Source: Kazakhstan commercial real estate center, Agency of RK for statistics, EIU, OECD, Deloitte estimate

18. Analysis of Kazakhstan commercial real estate market18
Analysis of Kazakhstan commercial real estate market
Overview of Kazakhstan commercial real estate market
Business center real estate market
Shopping center real estate market
Almaty
Astana 18

19. Experts forecast that Almaty retail market turnover will increase threefold from 2006 to 201219
Retail trade through trade enterprises* grows annually and may reach 56% by 2012
Retail trade turnover in Almaty, billion USD
Retail trade turnover through different sale channels
20%
Kazakhstan
The same period 20%
24%
Надо подтвердить цифры по КЗ
Almaty is the largest trade center of Kazakhstan with about 40% of total retail trade turnover of RK in 2006.
* Trade enterprises – include all kinds of modern trade formats – neighborhood stores, supermarkets, hypermarkets, except for open markets (bazaars) and small retail outlets (stalls, stands) of individual enterprisers
Source: Agency of RK for statistics, EIU 19

20. 20
Economic forecast for 2 scenarios of Almaty shopping space demand – using official and unofficial statistics on city inhabitants
Scenario 1. Official statistics on Almaty city inhabitants
Scenario 2. Unofficial statistics on Almaty city inhabitants
Economic forecast of demand for
shopping space in Almaty
Almaty city inhabitants growth forecast
Thousand sq.m.
Scenario 1
Demand for new shopping space
Thousand city inhabitants
1142
2010
1914
1823
1736
32%
859
1653
1575
1500
642 1
479
358
268
1345
1360
1375
200
1287
1301
1316
1330 X
Shopping space per 1,000 Almaty inhabitants based on GDP forecast
Thousand sq.m.
Scenario 2
Demand for new shopping space
1770
Sq.m. / 1000 Almaty city inhabitants
890
37%
1247
650 2
865
477
600
360
416
272
288
206
200
160
Source: Agency of RK for statistics, Deloitte estimate

21. Almaty economic forecast shows that future demand for shopping space in may exceed supply by 1.5 times 21
Comments
Economic forecast for new demand
and planned supply of shopping real estate in Almaty, thousand sq.m.
In the next 4 years Almaty developers plan to construct about 300 thousand sq.m. of shopping space (based on the projects announced by developers).
Taking into account current plans of developers up to 2010, potential deficit of shopping space in Almaty will potentially reach about 220 thousand sq.m.
It should be noted that in 2007 IKEA announced its plans for development of 2 MEGA centers in Kazakhstan – one in Almaty and another one in Astana with area of thousand sq.m.
Economic forecast for new demand for Scenario 2
Economic forecast for new demand for Scenario 1
Deficit ~1.5 times
Taking into account construction of 140 sq.m. MEGA center (IKEA)
Developer plans for construction of shopping centers
Source: Company data, Deloitte estimate

22. Analysis of Kazakhstan commercial real estate market22
Analysis of Kazakhstan commercial real estate market
Overview of Kazakhstan commercial real estate market
Business center real estate market
Shopping center real estate market
Almaty
Astana 22

23. According to expert estimates annual growth of Astana retail market turnover will comprise 25% in the next 6 years 23
Retail turnovers will be more and more through trade enterprises and share of open markets (bazaars) may decrease up to 10-15% in 2012.
Retail turnover in Astana, billion USD
Retail turnover through various sale channels
Kazakhstan
for the same period - 20%
25%
31%
Надо подтвердить цифры по КЗ
Comments:
Retail turnover growth in Astana is the highest in RK.
Total retail turnover in Almaty and Astana comprise about 50% of total retail turnover of the Republic of Kazakhstan.
Source: Agency of RK for statistics, Ministry of Economy and Budget Planning of RK, EIU 23

24. Demand for new shopping space in Astana may be higher than in Almaty due to higher population growth in Astana 24
Scenario 1. Official data on Astana city inhabitants
Scenario 2. Unofficial data on Astana city inhabitants
Economic forecast of demand for
shopping space in Astana
Astana city population forecast
Thousand inhabitants
Thousand sq.m.
Scenario 1
575
Demand for new shopping space
1239
1127
1025
39%
414
847
932
700
770
298 1
730
766
215
663
696
155
574
602
632
111 X
Shopping space per 1,000 Astana inhabitants based on GDP forecast
Thousand sq.m.
Scenario 2
894
Demand for new shopping space
Sq.m. / 1,000 inhabitants
721
50%
597
530
427 2
400
323
267
244
184
179
130
120
Sources: Agency of RK for statistics, Kazakhstan commercial real estate center, Deloitte estimate

25. Supply planned by developers
Economic forecast for shopping space demand and supply shows their balance in However, shopping space deficit may be expected as early as 2009. 25
Coments
Economic forecast for new shopping space demand and supply planned by developers in Astana, thousand sq.m.
Total shopping space planned for completion by developers in Astana during is around thousand sq.m.
Few large shopping complexes were launched in
Total shopping space completed in Astana may exceed economic forecast for demand in 2008.
Given growing competition among shopping complexes, in 2008 rent may get stabilized and grow insignificantly (close to inflation level and difference of KZT to USD rate).
Nevertheless, given potential demand for shopping space as Astana inhibitant income grows in and absence of major plans by developers for construction of major shopping complexes (except for potentially Mega by IKEA), we expect that in 2010 there might be deficit of quality shopping space and rent may grow significantly.
Supply and demand stabilization period
Shopping space deficit growth period
Economic forecast for new demand under Scenario 2
Supply planned by developers
Economic forecast for new demand under Scenario 1
Source: Deloitte estimate

26. Is Kazakhstan commercial real estate market competitve in terms of investment yield with other major CIS markets? 26
Investment yield
Change YoY, bpts
2006
2007
Russia
Office
9.5%
8.5%
-100
Retail
11.0%
9.25%
-175
Warehouse
9.75%
-125
Ukraine
-150
13.0%
-200
14.0%
12.0%
Слайд за максом
Source: Cushman & Wakefield Stiles & Riabokobylko, JLL, DTZ, Colliers, Renaissance Capital estimates 26

27. Investment yield for office real estate investments
What about profitability? By 2012 profitability of office real estate in Almaty and Astana may decrease to current profitability in Moscow 27
Investment yield for office real estate investments
Almaty
Moscow
Аstana
5 years
Eastern Europe
3 years
Western Europe
Minimal office real estate profitability ~ 4,5-5%
Comments
Current office real estate profitability in Astana is close to profitability level in Moscow 5 years ago.
Office real estate profitability in Moscow in its turn is 3 years behind profitability in Eastern Europe, which has profitability very similar to profitability of Western Europe “mature” market.
Analysis of worldwide profitability dynamics shows that for growing stage markets profitability is decreasing at approximately 2% a year, due to increase in new office space construction and decrease in the level of risk for investors. Having reached the level of 7% a year, profitability decrease slows down to 0.5-1% a year and reaches 4,5-5% a year (current profitability in Western European countries).
We forecast decrease of office real estate investment profitability in Kazakhstan by 2% a year till 2010, with slow down to 1.5% a year after that.
Слайд за максом
Source: JLL, CBRE, MC «Accord Asset Management», Deloitte estimate 27

28. BRIGHT FUTURE FOR SELECTED MARKETS WITH CLEAR PROFESSIONAL PROJECTS!28
DEMAND
SUPPLY
RATES
PROFITABILITY 28