Baltics
The economic transformation of the Baltic States of Estonia, Latvia and Lithuania since their independence in 1991 has been dramatic. Each of the Baltic States has rapidly modernised, developed fully functioning market economies and has achieved macro-economic stability in a relatively short period of time. The Baltic States have been amongst the best performing of all European economies in recent years experiencing average GDP growth of 9,2% over the past 4 years compared to an EU27 average of 2.6%. This sustained period of high GDP growth, coupled with a stable political and pro-business environment including low flat tax rates, has helped increase disposable income and consumption. This has, in turn, had a positive impact on property prices. The Baltic States were among fastest growing economies in the EU in 2007, with an average GDP growth rate of 8.7% and as continued levels of high growth are forecast, the Investment Manager believes that the Baltic States will continue to be an attractive area for investment in property and other market sectors. Specifically, the Investment Manager believes that there remains considerable demand for high quality office and residential developments in the Baltics. With developed banking systems, a strong legal framework, clear title registration systems, robust market demand and limited barriers to foreign property ownership, Baltic property is an accessible and attractive asset class with good long-term prospects for continued capital appreciation.
 
St Petersburg
The general improvement in the Russian economy, which has experienced an average GDP growth of 7.1% over the last 4 years, and the increased stability in Russian government finances, have been evident across all major indicators (money markets, stock exchange, currency etc.). St Petersburg ,which is Russia’s second largest city, has in the past five years undergone significant change and experienced significant and consistent economic growth considerably above Russian regional average. In 2006, there was a dramatic increase in foreign direct investment into St Petersburg, which grew by 90% to approximately $0.5bn, and continued investment growth is anticipated in the current year and beyond. These factors have helped boost demand across all sectors of real estate. However research has shown there has been significant under investment in the St Petersburg property market for a number of years and this coupled with increased market demand has resulted in there being considerable shortages of stock in several market sectors particularly offices, residential and retail. For example, office vacancy rates in St Petersburg are very low, at circa 3% and both class A and class B space remains very limited at only 420,000 sq m at the end of 2006, which is significantly below both comparable major European city levels and less than 20% of Moscow levels. The trading, cultural and business links between St Petersburg, the Baltics and Estonia in particular, are very strong and these factors support the rationale for addressing the St Petersburg property market as part of a broader Baltic property investment initiative.