The Russian government suffered an embarrassing election outcome on December 4, when the ruling United Russia party lost its overwhelming majority in the State Duma. Although we do not believe that this marks a major shift in Russias political landscape, and believe that Vladimir Putins return to the presidency in March 2012 remains assured, future government policy will undoubtedly be shaped by growing voter dissatisfaction and an emboldened political opposition.

We maintain our long-held view, however, that a return to the presidency by Putin must not mean a diversion from earlier plans to bolster the countrys business environment and its appeal to foreign investors. Russias energy-dependent economy is facing yet another gloomy global backdrop, which, to the embarrassment of the authorities, starkly exposed the economys vulnerability to global business cycles back in 2009. With the eurozone entering recession and China braced for a hard landing in 2012, the government will be looking to attract foreign investment to help raise capital for major infrastructure upgrades and real estate projects.

The Russian real estate market has rapidly recovered after the 2008-2009 global economic crisis, with the reported volume of deals in Moscow for Q111 totalling US$2.37bn and US$2.15bn for Q211, compared to US$1.74bn for Q108. BMIs reports on Russias real estate sector have previously highlighted the excess of projects under development. It is clear that vacant property levels have dropped, although there is still plenty of space. Development projects have stalled and slowed over recent years. Cushman & Wakefield reports that in Q211, just eight office space projects were delivered in Moscow. CB Richard Ellis (CBRE) puts the figure at 97,500 square metres (sq m) of new office space in market that was completed in Q211, about one-third of the average completed even in 2010.

Some of the key opportunities currently in the real estate market are:

- CBRE has identified Shanghai and Moscow as the most popular business locations across all emerging markets, reports the Moscow Times. According to CBREs research, which is compiled from 280 major companies in 101 countries and 232 cities, Shanghai houses 61.4% of the companies profiled, followed by 60.7% in Moscow. The figures mirror the reports findings that 17 of the top 30 most popular company office locations are in emerging markets.

- The World Cup in 2018 is beginning to produce activity in the construction sector.

- The Russian governments decision to create a US$10bn investment fund highlights the states commitment to sharing the risks inherent in investment in Russia with the private sector, in an effort to attract a greater level of private capital. The government aims to use this investment fund as seed money to mobilise between US$50bn and US$90bn over the next five years, by financing up to 20% of the cost of privately procured development projects.

Some key risks to the current real estate market are:

- Any increase in political stability that appears adversely to alter the business environment and investment landscapes would affect the bounce back of the real estate sector, particularly the sub sectors which stand to benefit from international investment.

- The Moscow city government has announced that there are no new shopping centres to be built in the centre of Moscow