Real Estate

The Changing Face of Moscow

James Brooke is director of external relations and special projects for Russia and the CIS at Jones Lang LaSalle.

For the last half century, Moscow’s skyline has been frozen in time, defined by the neo-Gothic spires of the Seven Sisters, the ring of postwar highrises erected by Stalin, the last tsar of Moscow to try to compete with New York.

Blink your eyes. By 2020, Moscow will boast the 10 tallest skyscrapers in Europe.

Two are already up. The steel canyons of Moskva-City clang with the construction of new towers.

A few miles to the east, Crystal Island, a swirling mountain of glass four times the size of the Pentagon, is to rise within a decade. Looking like a space station parked by the Moscow River, the project is touted by Norman Foster, its British architect, as the “world’s largest inhabited building.”

To the west, construction begins this spring on Rublyovskaya Riviera, a new town of 1,300 apartments. To the north, a Singapore fund is financing Yaroslavsky, a development of 50 highrises to house 50,000 people. To the south, a Kazakh group is building Eurasia City, a $15 billion new town for 150,000 inhabitants that is to rise near Domodedovo, now the nation’s busiest airport.

With a decade, travelers leaving Moscow by land will be able to choose between German-made bullet trains making two hour runs to St. Petersburg or the family car which will cruise up an American-style toll highway at 120 kilometers per hour. This road is to be part of a new network linking Moscow with the millioniki, the 10 regional capitals with populations over 1 million. Air travelers exploring Russia, the world’s largest country, will move through an archipelago of newly built airport terminals and international chain hotels.

Reconstruction plan for Domodedovo, currently the country’s busiest airport

Welcome to the era of Rebuilding Russia.

The Kremlin’s goal is to spend $1 trillion on infrastructure renewal by 2020.

“This is the world’s largest investment program outside China, and, unlike China, Russia is not going it alone,’’ Daniel Thorniley, Russia specialist for the Economist Intelligence Unit, wrote recently. “It wants public-private investment — from private Russian investors.”

In Russia, 80 percent of the investment money is to come from private business and from foreign investors. This will mean work for construction companies from Austria, China, Germany, South Korea, and Turkey. Emblematic of this trend was a partnership signed in December between Sistema- Hals and Hebei Construction Group, of China.

Renaissance Capital breaks down the $1 trillion goal as follows: $560 billion on roads, $317 billion on railroads, $70 billion on electric power generation, $33 billion on ports, and $10 billion on airports.

From the government side, the money is in the bank. This spring, Russia’s savings from oil and gas sales total almost $650 billion. In February, Thorniley told a gathering of company executives at the Ritz-Carlton: “Russia is now the strongest economy in the world.’’

Russia’s construction drive is a combination of cash on hand and pressing needs to replace infrastructure built during the Brezhnev years.

“The potential returns for upgrading infrastructure could be very large,’’ wrote Eduard Faritov, author of the Renaissance Capital report Investing in the Future: Infrastructure boom in Russia, Ukraine and Kazakhstan. This Russian investment bank, a pioneer tenant of Moskva-City, recently formed a joint venture with Macquarie Bank, an Australia- based firm with world experience in managing public private partnerships. “On some measures, more than half of Russia’s railways, roads and airports are fully depreciated.’’

Plan for the Russia Tower in Moscow

“Russia’s road capacity per person is less than one seventh of that of Canada,’’ Faritov wrote, drawing on government statistics. “In 1992, Russia had 1,302 operational airports. Today it has 351.’’

In 2006, Russia spent only 1 percent of its GDP on roads, far below the 4 percent in Britain and 3.7 percent in France. During the five years that ended in 2006, Russia’s paved road network actually shrank by 5 percent, or 35,000 kilometers.

“We look at that $1 trillion, and between airports, roads and railroads, we can see the construction equipment market doubling each year,’’ said Robert Drooglever, general director of Caterpillar CIS. “Our guess is that the construction equipment industry will hit $2 billion in sales in 2008. It is huge.”

Douglas Lund, construction materials manager for Basic Element, predicts that road construction in Russia will dwarf anything seen recent years in Europe.

“Portugal, Greece, Spain — they have all put in new highway networks,” Lund said. “But you are talking about very small countries. All the major cities of Russia have to be connected.” 

Dmitri Medvedev, Russia’s president-elect, may prove to be Russia’s Dwight D. Eisenhower, presiding over the creation of the nation’s first interstate highway system.

“We are working on the High Speed Diameter project,’’ Lund said, referring to St. Petersburg’s ring road. “We will soon be seeing a highway from St. Petersburg to Moscow. It is only a matter of time.”

Lund is scouring Russia to buy cement plants to feed one of Basic Element’s biggest projects — construction of the Olympic Village and skating rinks for the 2014 Winter Games in Sochi.

The $12 billion Olympics is the billboard project for a series of other megaprojects planned across Russia.

In Vladivostok, $6 billion is to be spent on hotels, highways and a bay bridge for a summit in 2012 of Pacific Basin leaders. In St. Petersburg, Gazprom plans to build a quarter-mile high tower with enough space for 10,000 office workers. In Sochi, regional authorities recently approved the construction in the Black Sea of “Federation Island.” Built in the shape of Russia, this $6 billion, 330- hectare development is to be completed in time for the Olympics. In Moscow, the $12 billion Moskva-City highrise project is to contain three times the floor space of all of London’s Canary Wharf.

America’s subprime mortgage crisis is expected to have only an indirect impact on Russia’s construction drive. Almost all of Russia’s big projects, such as Moskva- City, are financed with Russian money.

Residential housing construction in Moscow

The main driver for the rebuilding of Russia is the economic transformation of the nation. Today, about 20 percent of Russia’s 144 million people are middle-class. By 2020, the middle class portion should be 50 to 70 percent of a population of 140 million, according to different government forecasts. In real numbers, this means an expansion of customers for Russian shopping centers rising from 30 million today to 70 to 90 million by 2020.

With the money in the bank, political stability in place, and a popular consensus on the need to catch up with Western Europe, the time has come in Russia to pour cement.

“After enduring a very traumatic century, Russia is going to play major catch-up with the rest of the world for the next few decades,’’ Alexei Zabotkin, chief strategist for Deutsche Bank, told a group of Yale business school students who came to Moscow in January to learn where Russia is heading.