The Appeal of Russian Cities to Investors: General Criteria
The booming regional markets are causing developers of commercial properties to weigh the attractiveness of a particular place for investors more carefully. This article will recount the initial estimation procedure used to assess the potential of any city in terms of investment attraction and to describe primary development criteria.
It is important to bear in mind that, depending on investment goals, the appeal of any place to investors may vary. Those who invest in residential functions are guided by one set of criteria, while warehouse investors study a different set of factors. Specific figures and their general interdependence will also alter.
The set of criteria, a quantitative assessment of each criterion and its upper bounds under present conditions are all issues that call for serious expert analysis and research. Once this is conducated, a generalized picture of the city’s appeal can be drawn for investors.
Geographical location
Invesment appeal is defined by the area’s mapped location, weather conditions, and closeness to other regions and countries. The milder the climate is, the greater the appeal. A close proximity to highly developed regions also creates favorable conditions for the development of economic ties with other regions and states.
The administrative status of the an area, whether it be under national, republican, territorial, regional or district authority, is also very important.
Demographic criteria
One of the most important criteria defining the investment appeal is the city’s population. Appendix 1 lists Russian cities in the descending order of their population numbers. Table 1 cites the established division of cities into groups that normally determine their investment appeal. The top three groups boast the highest attractiveness, although investments in cities with half a million population have become more frequent of late.
The next criterion is the natality, estimated in percent. If natality is negative, the reasons for waning population are to be pondered.
Natality depends on birth rate, death rate and migration. Whenever birth rate exceeds death rate, it shows a positive demographic trend in a city. A positive migratory population growth is not always a favorable factor; thus a return of forcibly replaced persons often strains the situation in a town and leads to growing crime.
The average age of the population, the percentage of ablebodied citizens and the average educational level are additional significant criteria. Many Russian cities are experiencing an “ageing” of the population and a drop in the share of ablebodied citizens, which certainly lowers the investment appeal of such places.
The rate of unemployment shows what share of ablebodied citizens cannot find an official job and is therefore dependent on unemployment allowances, contributing nothing to urban economy.
Socioeconomic showing
The most important criterion is population’s average income, which is usually based off the official information from GosKomStat.
Likewise, the availability of major and functioning production facilities, especially those manufacturing construction materials and equipment, is a very beneficial factor that can enhance the investment appeal of an area.
The fact that a city is included in the nationwide development programme and therefore subsidized from the national treasury is also quite significant.
Furthmore, investors appreciate the loyalty of the local administration to a development project and the company that represents it. Under current conditions in Russia, administrative backing greatly simplifies any project promotion.
The abovestated list is in no way exhaustive. Some specific criteria, such as the average provision with housing, retail or office space, the state of housing stock, supply/demand for various types of real properties etc., might be of paramount importance in implementing certain projects.
All criteria in their totality are to be considered for investment appeal assessment. We use a table where the parameters of investment appeal are presented in the form of colored qualitativequantitative estimations.
As an example, we cite a summary table of investment appeal factors for the city of Belgorod.