Moscow investment digest

April 2019

Dear colleagues!

The Moscow Department for Investment and Industrial Policy, in cooperation with the Moscow City Investment Agency, presents a new issue of the Moscow Investment Digest.

NEWS

Moscow became a PPP development leader again

For the fourth year in a row, the capital has been topping the public-private partnership (PPP) development rating among the Russian regions. As is customary, the rating results were presented at the Russian PPP week. The rating is annually compiled by the Ministry of Economic Development of Russia in cooperation with the National PPP Center.

Public-private partnership is one of the Moscow investment policy priorities. The volume of the Moscow PPP contracts concluded from 2013 to April 2019 has already exceeded RUR 850 bn. Such partnership helps to increase the efficiency of the city property use, to develop competition and to improve the quality of public services, for example, public transport, medicine, and education.At the same time, Moscow uses various PPP forms depending on the project: offset contracts, concessions, life cycle contracts, etc. Moreover, new PPP mechanisms are constantly being created.

“This policy helps to integrate private capital into the economy on the most favorable terms, stimulating the megalopolis development and complementing budget investments,” Head of the Moscow Department of Investment and Industrial Policy Aleksandr Prokhorov said.

Moscow credit rating was confirmed by Fitch Ratings

The Fitch international rating agency Ratings confirmed Moscow’s BBB credit rating with a positive outlook. According to the agency analysts, the city rating corresponds to the sovereign rating of Russia, although the real credit rating is above the established level. This is due to the fact that a regional value cannot exceed the national rating.

According to Fitch Ratings, the stability of the Moscow rating depends on several criteria. The city has a high level of socio-economic development: the gross regional product per capita is noticeably higher than the national average. The Moscow economy is largely diversified and has been growing steadily over the past few years, with the growth of more than 2.1% in 2018. Moscow is attractive for investors, which stimulates business activity and increases capital investments in the city production and infrastructure.

French Orpea will open a rehabilitation center in Skolkovo

According to Moscow Mayor Sergei Sobyanin, the French group of companies Orpea is going to open a rehabilitation center at the Skolkovo international medical cluster. Moscow Mayor Sergei Sobyanin considers the French colleagues’ technology, competence and qualification worth integrating into the city medical development.

Under the agreement signed, the Orpea Group will open the Clinea high-tech rehabilitation center in Skolkovo and become the fourth official member of the international medical cluster. The Center will occupy the area of 10,000 sq. m to accommodate a 200-bed hospital and a 50-bed out-patient department. The clinic is expected to admit about 3,500 patients a year. The share of French specialists will be 30% at first and will decrease over time.

The main areas of the center operation are cardiology, neurology, oncology, metabolic disorders, orthopedics. At the center, it is planned to open a specialized sports medicine clinic, where professional athletes who have been injured or are suffering from chronic diseases will be able to recover under the supervision of world-class medical professionals.

At present, 25 foreign clinics and 5 investors have preliminarily declared their will to participate in the Moscow medical cluster project at Skolkovo. Besides Orpea, three international partners are already taking part in the project: a diagnostic center of the Hadassah Israeli clinic was opened in September 2018; the South Korean Bundala hospital and the Spanish Roman Fernandez clinic are currently getting ready to launch their projects.

Four production complexes will be created in Moscow

“The Moscow Urban Planning and Land Commission has approved the implementation of four large-scale investment projects with a cumulative investment of over RUR 3 bn,” Vice-Mayor of Moscow for Economic Policy and Property-Land Relations Vladimir Efimov said.

The Moscow Government decided to lease land plots without bidding: to OOO BIG for constructing a cosmetics and toiletries production complex, with a total area of 28,000 sq. m.; to AO Eksperttsentr for constructing a radiation monitoring equipment production complex, with a total area of 4,400 sq. m.; to OOO NovaProdukt AG for constructing a dietary and enriched food production complex, with a total area of 34,000 sq. m.; to ZAO MPO Elektromontazh for constructing an electrical equipment production complex, with a total area of 18,000 sq. m.

More than 1,300 new jobs will be created as part of four new projects in Moscow and the Moscow region, as Head of the Moscow Department of Investment and Industrial Policy Aleksandr Prokhorov stated.

A data center will be built in the Yuzhny Port industrial zone

The Moscow authorities have approved a project to build a data center in the south-east of the city. The building with an area of almost 56,500 sq. m. will be erected within the Yuzhny Port (South Port) industrial zone in Ostapovsky passage. This territory already accommodates OAO NPO SEM” producing electrical equipment. The new data center will provide 20 jobs.

The investment will exceed RUR 2.5 bn. This project will increase the territory efficiency and provide new jobs for the city residents. Moscow enterprises are actively growing and investing funds in new developments; for this purpose, it is planned to build a data processing center,” Head of the Moscow Department of Investment and Industrial Policy Aleksandr Prokhorov said.

A large-scale investment project for ice palace construction will be implemented in Moscow

A large-scale investment project to build an ice palace for the Angels of Plushenko figure skating academy will be implemented in the Moscow Western Administrative District. The land lease decision was made by the Moscow Urban Planning and Land Commission. The total area of the sports and recreation center will make 5,800 sq. m.

The construction is expected to be financed by an investor. The sports complex is being built with an aim to develop popular physical culture and sports, namely figure skating and hockey. The Angels of Plushenko figure skating academy students of the most different age groups will be training at the arena. In the future, the sports and recreation center is planned to be used for training the Russian junior national team and Moscow combined teams.

British businessmen are interested in Moscow investment potential

Moscow has held a round table to present Moscow's investment opportunities to British businessmen. The event was attended by the representatives of the Moscow Government, the Moscow City Investment Agency, the Moscow Chamber of Commerce and Industry, and British businesses.

Today, Moscow is one of the largest economies in the world. The capital accounts for about 14% of the total investment in fixed assets in Russia, the volume of which amounted to RUR 2.43 tn in 2018. Over the past 8 years, investment in fixed assets increased more than two times, in comparable prices. Foreign investors are continuing to take interest in Moscow: as of October 1, 2018, cumulative foreign direct investment (FDI) amounts to almost USD 238 bn. The UK is among the countries actively investing in the Moscow economy: the cumulative FDI from the United Kingdom makes USD 2.1 bn.

Among other opportunities, entrepreneurs can implement their investment projects in the Technopolis Moscow Special Economic Zone (SEZ). The capital grants profit, property and land tax benefits to investors for a period of 10 years. The overall regional tax burden reduction can reach 47%.

For residents, a free customs zone regime is applied: all the goods and equipment imported to the special territory are exempt from customs duties and taxes. The SEZ offers investors the opportunity to create so-called greenfield projects, i.e. production sites built from scratch at vacant land plots with all necessary utility connections. In addition, entrepreneurs can rent finished premises, including those for industrial purposes,” Head of the Moscow City Investment Agency Leonid Kostroma explained “According to forecasts, by 2025 the volume of funds invested in the Moscow SEZ by the city and by investors will make about 40 bn RUB, and the number of jobs will increase to 12 thous.”

In general, the Russian capital is constantly offering ample opportunities for international businessmen to implement their projects on comfortable terms.

MACROECONOMICS

Moscow citizens’ purchasing activity is growing

In January and February of 2019, the retail trade turnover in current prices amounted to RUR 764 bn, having increased by 7.1% against the same period of 2018, according to Head of the Moscow Department for Economic Policy and Development Denis Tikhonov.

As the Department Head noted, retail trade has become an important driver of economic growth in the main Russian megalopolis. Tax deductions from the city's retail trade organizations account for about 4% of the total payments. Today, more than 1 m people are employed in this field, which is about 14% of the total working population of Moscow.

Last year alone, retail trade organizations paid taxes and fees for RUR 74.6 bn to the Moscow budget, which is 14.2% more than in 2017. Tax funds are used for public services and amenities, as well as the citizens’ life quality improvement.

The Moscow shopping malls attendance has been growing for 5 months in a row, which confirms the increasing purchasing power of Muscovites. Moscow citizens spend more due to the salary growth that made 2.5% in real terms in January 2018 alone, and the amount of savings that has grown by 13.2% since February 2017 and exceeded RUR 10 tn.

More than 37,000 people in Moscow are registered as self-employed

“In the first quarter of 2019, the number of self-employed persons in Moscow amounted to 34,600 people. Their total income amounted to RUR 1.9 bn. Moreover, there is a very positive dynamics: as of April 8, the number of self-employed persons has exceeded 37,000, and the total income has increased up to RUR 2.1 bn. Taking into account the total number of self-employed persons in Russia that makes about 57 thous. as of the end of the first quarter, Moscow’s share is a little over 60%,” Vice-Mayor of Moscow for Economic Policy and Property-Land Relations, Head of the Department of Economic Policy and Development of Moscow Vladimir Efimov noted.

The first experiment results show that the new tax regime is convenient for entrepreneurs. People now have the opportunity to promptly register as self-employed persons and legally reflect their income using the “Moi Nalog” (“My Tax”) mobile app. Another advantage is the lowest tax rate for today: 4% of income from services for individuals and 6% for legal entities.

Most of the self-employed persons already registered in Moscow are taxi drivers, programmers and apartment owners who rent out their property.

SUPPORT MEASURES

A reduced rental rate set for two Moscow companies

“As part of the support program for the enterprises granted the industrial complex status, a lower annual rental rate, namely 0.3% of the land plot cadastral value under the lease agreement, has been established for ZAO Ostankinsky Zavod Baranochnykh Izdeliy. The annual rent including the benefit is RUR 615,000,” Vice-Mayor of Moscow for Economic Policy and Property-Land Relations Vladimir Efimov said.

The city has also established a preferential rental rate in the amount of 0.01% of the cadastral value for the land plots leased to the Kalibr open joint stock company Kalibr. The plots are located in the Moscow Ostankino District in Godovikova Street.

The city authorities provide property support to industrial enterprises, which have received the industrial complex, technopark or technopolis statuses. Land lease agreements provide a reduced annual rental rate amounting to 0.3% of the land plot cadastral value for industrial complexes and 0.01% for technoparks and industrial parks.

Moscow provides rental benefits as part of SME support

90% of socially-oriented small and medium-sized enterprises (SMEs) that had applied for the city support received premises at a reduced rental rate. The rent made RUR 3,500 per 1 sq. m. a year. The preferential rate remains at the level of 2014.

417 of the 484 leaseholders that were reviewed last year by the Interdepartmental Committee for Property Support of Socially Important Small Business Entities, were approved. The total area of premises leased in 2018 to small and medium-sized businesses at a reduced rate made 83,500 sq. m. This kind of support reduces the entrepreneurs’ financial burden and, as a result, allows SMEs to develop a socially oriented business, while maintaining the existing number of jobs.

“Since early 2019, the Interdepartmental Commission has already reviewed 334 entrepreneurs’ applications, benefits have been granted to 320 organizations that can rent premises at a reduced price until December 31, 2019,” Minister of the Moscow Government, Head of the Moscow Department of City Property Maxim Gaman noted.

Rented premises can be used for any purposes. The benefits are granted to entrepreneurs involved in the fields of health, veterinary medicine, education, sports and culture. Moreover, a reduced rate is provided for those engaged in production and consumer services, food products sale and social catering.

AUCTIONS

Businessmen are highly interested in auctions for parking placement

“The first nine auctions for the right to conclude contracts for placing the non-capital facilities “at-grade parking lots” without land plot registration aroused great interest among the Moscow business community. On average, there were 4 bidders per lot,” Vice-Mayor of Moscow for Economic Policy and Property-Land Relations, Head of the Department of Economic Policy and Development of Moscow Vladimir Efimov noted.

The highest starting price excess was registered during the bidding for a land plot intended for 40-car parking lot in the Perovo area in Elektrodnaya Street. 6 entrepreneurs took part in the auction; the lot starting price increased seven times and amounted to RUR 1.8 m. The most expensive lot finally sold at a price of RUR 5.8 m was located in Vavilova Street in the South-Western Administrative District. It was won by the Sovcombank public joint-stock company. The company explained that they were going to create a 12-car parking lot for their employees.

The land plots intended for future commercial parking lots are located in the Altufyevo (300 car places), Voykovsky (12 car places), Kotlovka (31 car places), Gagarinsky (44 car place ), Kuzminki (40 car places), Perovo (40 car places), Zyablikovo (35 car places), Tverskoy (32 car places), and Troitsk (26 car places) areas. The at-grade parking lot installation takes no more than 5 months from the moment of the contract conclusion. The non-capital facility placement contract is valid for 5 years.

Investor will be able to rent a premise to arrange a kindergarten for RUR 1

The auction winner will be able to rent a facility to arrange a private kindergarten in the Basmanny area. The building area makes 693 sq. m. The minimum number of children is 45. The initial annual rent rate is 6.4 m RUB, and then it is replaced with a rate of RUR 1 per 1 sq. m. a year for 49 years. Applications for the auction are accepted until May 24; the auction will be held on May 30, 2019.You can find the lot documentation at the Moscow Investment Portal.

To switch to preferential terms, an investor should meet the requirements of the Moscow Department of Education, i. e. to fulfill educational service standards during the first 2 years. Also, at least 80% of children attending the kindergarten should be registered and residing in Moscow.

“The RUR 1 per 1 sq. m preferential program to attract private investment provides advantages to all the parties. The city can save budget funds, and investors have the opportunity to rent a building at a preferential rate for children's educational centers for a period of 49 years,” Vice-Mayor of Moscow Vladimir Efimov noted.

Year to date, entrepreneurs have rented about 34,000. sq. m. of real estate

“For three years, Moscow has been offering small businesses an opportunity to rent commercial real estate at a starting rate of RUR 1,000 and RUR 4,500 per sq. m a year. Since the program was launched, it has been very popular among entrepreneurs. In the first quarter of 2019, 284 lots with a total area of about 34,000 sq. m. were sold at the city auctions, with 1,600 bidders,” Vice-Mayor of Moscow for Economic Policy and Property-Land Relations, Head of the Department of Economic Policy and Development of Moscow Vladimir Efimov said.

The average starting price excess made 220%. Despite such high competition, the rental offer remains quite attractive. The highest competition is related to bidding for facilities with an area ranging from 150 to 200 sq. m. On average, six bidders compete for each such facility, with a starting price increasing 4.5 times. Smaller facilities rate second. On average, six bidders apply for facilities with an area ranging from 50 to 100 sq. m.The average starting price of such lots increases 3–3.5 times.

Entrepreneurs often use the city premises to open shops and pharmacies. The service sector, from beauty parlors to quest studios, is also developing. Most recently, several adjacent facilities in the Khoroshovsky district have been auctioned. The investor plans to use them to create a large medical center. 59 lots are currently put up for auction. The documentation is presented at the Moscow Investment Portal.

A premise in the Count Sheremetev's tenement building can be rented as an office

“The auction winner will be able to rent a 159 sq. m. premise located on the first floor of a residential building in Arbat Street. The city leases such premises very rarely. In addition, the facility is in good condition, so high competition can be expected,” Head of the Moscow Department for Competition Policy Gennady Dyogtev said.

The initial annual rent rate is RUR 3.6 m. The facility is located at Romanov Lane, 5. In general, the lot might interest the investors that are looking for a good office space.

Videos

Round Table With British Businessmen

The Department of Economic Policy and Development of Moscow

www.depr.mos.ru

Moscow City Investment Agency

https://en.investmoscow.ru/agency/

Purchasers’ portal

www.zakupki.mos.ru

The Moscow Digest archive is available at the Moscow Investment Portal.