ANALYSIS: Almaty Financial District aims to be regional hub

analysis

ANALYSIS: Almaty Financial District aims to be regional hub

By SRI ⋅ February 4, 2009 ⋅

(bne) - Between downtown Almaty and the mountains, is the area that Capital Partners hopes will become the business hub not just for the city, but for the whole of Central Asia.

By Clare Nuttall in Almaty (business new europe)

Its developments are concentrated here – the firm’s headquarters at Esentai Park, the Haileybury school and the newly-opened Almaty Financial District (AFD).

Both Esentai and the AFD are examples of true class-A office space in a city where demand for suitable premises for international businesses has long been an issue. Migrating to both developments are big local banks (Kazkommertsbank, BTA), international banks (RBS, HSBC), investment bank Renaissance Capital and “Big 4″ financial services firms – Deloitte is the first tenant at the AFD.

According to Yusuf Sarimsakci, managing director of Capital Partners, construction of these two buildings, which together account for 70% of Almaty’s class-A space, has actually helped to define the concept in a market where it has previously been rather blurred. “The separation of A and B classes is becoming more visible both in terms of the type of space and in the price differential,” he says. “Before, the market was so hot that class-B landlords were able to charge class-A prices. Today, class-A space is retaining its price, whereas B is coming down. I think that’s a sign of a maturing market.”

While the AFD is a purely business development, Esentai – which will be Amaty’s tallest building when completed – is a mixed-use development, comprising a JW Marriot hotel, residential apartments, and a shopping centre. According to Sarimsakci, there has been “huge interest” from international brands in setting up at the Esentai mall. “They were interested because of the wealth generation in Kazakhstan over the last 10 years, and the perception that the market is ready and can carry their investments,” he says. “I think the same holds true today, though obviously retail has not escaped the international crisis, so investments in opening new stores are not as aggressive as they were before. Kazakhstan will be affected, as it may take some brands longer to enter new emerging markets.”

The Esentai mall is due to open in 2010, by which time Sarimsakci is optimistic that conditions will have improved. “I think 2010 is a great year to open because we hope the effect of the current financial crisis, which is already 15 months old for Kazakhstan, will have passed. It may not be over for the world in general, but we hope that because Kazakhstan came to the crisis early, it will emerge early. Of course, this will depend on a lot of external factors too.”

Hesitant lending

Capital Partners has largely eschewed the residential sector and has, therefore, escaped the problems that its peers have experienced since mid-2007. It is, however, finding it more difficult to put together finance for new projects. “Banks are very hesitant to lend now, and it’s having a direct impact on developers. That’s true all around the world, except maybe in China.”

On the other hand, investments are still being made in Kazakhstan, both infrastructure investments from the government and numerous foreign direct investment (FDI) projects in particular from Middle Eastern investors.

Capital Partners’ infrastructure projects at the Chymbalyk ski resort are funded by a loan from the government-backed Kazakhstan Development Bank. The loan will be used to complete a gondola line up to Chymbaluk, to open up new areas to ski, and to build powerlines, carparks and other infrastructure, as Kazakhstan prepares to host the 2011 Asian Games. A second, commercial part of the project will be launched once Capital Partners puts a funding package together. “Given current circumstances around the world with financing, the loan is very welcome,” notes Sarimsakci. “We want the city to really benefit from having a great resort just half an hour away. Almaty is one of very few major cities with a ski resort so close. The whole investment is to make sure the quality of life gets better for everybody.”

With billions of dollars being spent on massive infrastructure projects, Kazakhstan is a unique market for property developers. “The population is a bit small for its size, which makes it a bit more difficult to develop real estate projects, but the amount of FDI and internal investment is so high it’s creating a lot of demand. Wealth is tricking down to the population, which is growing the retail and service sectors, which in turn creates more jobs and everybody becomes wealthier.”

Regional hopes

Sarimsakci is particularly enthusiastic about prospects for Western Kazakhstan, in particular the cities of Atyrau and Aktau. As foreign companies flood into the region, demand for office space and accommodation – both apartments and hotels – is growing rapidly. Capital Partners has projects in both cities. “Emerging cities need a lot of this type of investment. It will take a long time, but I would prefer to see it take longer rather than shorter, because I think it’s healthier,” says Sarimsakci.

Healthiness is something of a theme with Capital Partners, which has made it a priority to incorporate “green” elements into its buildings. “For us, it is very important to be part of the environment, never against it,” says Sarimsakci, also pointing out that the initial expenses are outweighed in the long-term by lower energy bills. “Little things add up,” he adds.

At the firm’s office in the Esentai Tower where we are sitting, argon gas between the panes of double-glazing increases insulation. Downstairs, sensors are set at night to detect when anyone enters the building, activating the power, which is switched off at other times. The plazas between the buildings of the AFD are covered with glass roofs angled to stop the sun’s rays directly entering the buildings in summer but to let light and heat in when the sun is lower in winter.

The firm’s social conscience is also evident in another newly opened project, the Hailwybury school in Almaty. The school, which is a non-profit organization run under an agreement with Haileybury in the UK, had its first intake in September 2008. “Haileybury will make it easier for children to access a western style education in Almaty and to go to western universities. If we can instill in them curiosity, honesty, ability to learn and love for their country… that’s our goal,” says Sarimsakci. “The school will serve the city for - we hope - hundreds of years. It will be there forever.”