A global property boom Russian style

Forget London, New York and Tokyo. The place to be for booming commercial property development right now is Moscow. According to international property analyst Knight Frank, new developments of high-grade office space in the Russian capital have doubled since 2003, with a further 1.5m square feet of space becoming available before 2011.

Yields at the top end of the sector now average 10 per cent, mirroring a similar boom in the residential sector, where prices for new-build homes rose by 92 per cent last year alone. Rents are rising at 30 per cent a year.

Not surprisingly, international property funds are looking for a piece of the action. PIK, the Russian residential company that floated on the London and Moscow stock exchanges in June, is one direct play on the market - though its float was at the bottom of its indicative price range, reflecting the country's risk profile - but an alternative is to invest direct.

Horus Capital, a Russian developer that will this month open an office in Savile Row, London, is well-placed to channel their money. Alexey Blanin, founded Horus four years ago, and analysts now value his company at around $1bn (£494bn), thanks in large part to its focus on the commercial sector.

Blanin's strategy has been to concentrate on the massive - and mostly defunct - inner-city industrial landbanks at the heart of his property portfolio. He is working with the leading British architect, John McAslan Partners, to design new buildings - and reinvent old ones - in Mayor Yuri Luzkhov's fiefdom.

McAslan's track record in transformational architectural projects is well-known in Britain, including the reinvention of London's Roundhouse, plus a leading role in the £400m King's Cross station redevelopment.

"Two years ago, Horus was 30 people," said Blanin. "Now, it's 120 people. We want to be fast, we try not to waste time. We want to do projects with better architects for best investment value and maximum sustainability."

Those products include the redevelopment of the so-called Stanislavsky site, once the seat of the family of the inventor of Method acting. Here, McAslan is converting mid-century industrial hulks into offices, delivering an ultra high-end apartment block, and transforming the decrepit 18th-century Stanislavsky home into a hotel and restaurant.

Mr Blanin's interest in high-end development began in 1995, when, after being used to living in what he admits were "shabby" conditions, he visited Moscow's Park Place residential complex, the city's first truly luxurious modern development. "It was like a wow effect."

Aidan Potter, a McAslan director, says he's never worked for this kind of client before. Even McAslan's projects in Delhi and Algiers have not prepared them for what they are encountering in Moscow. One issue is the clash between architecture and high finance. Moscow contains more billionaires than New York. It generates a million square metres of new office accommodation a year, and five million more in the residential sector.

There are six-storey car showrooms, armed guards outside city-centre Xanadus, and fraying Corbusian super-blocks in the outer "rings". There is a certain brusque drama in pursuing architecture and property development here - "an intense and open debate about every aspect of design," as Mr Potter puts it. "You have to grasp the big difference in construction standards."

McAslan's ability to navigate novel design processes is tied to several live Horus projects: a newbuild mixed-use and leisure complex on a massive site owned by the legendary Dynamo sports club; and, at the city centre Stanislavsky site, the architectural and functional reinvention of three marvellously tough industrial hulks.

Bringing Muscovite projects to fruition, at pace, is fraught. Horus, like other Russian developers using foreign architects, is still perfecting project delivery. Architecture plus speed equals tightrope, as Horus's other imported architects have discovered.

Still, there is surging demand for new buildings - 200 high-rises are planned - in relation to the estimated 2,000 buildings in the historic city centre razed since Luzkhov became Mayor in 1992.

On the face of it, he and Moscow's chief architect Alexander Kuzmin appear to be using increasingly dense planning processes to filter out crass architectural and urban decisions.

Even so, critics remain. Marcus Binney, president of SAVE Europe's Heritage, warns: "Moscow is in danger of becoming an ersatz city, which makes a mockery of its great past."

Moscow's property boom

Commercial Upside

New developments of higher-grade office space have doubled to 5.6m sq ft since 2003.

* Some 1.5m sq ft of Grade A office space is due by 2011.

* Prime yields in the office sector average 10 per cent.

* Prices for prime new-build residential property rose by 92 per cent in 2006, and by 69 per cent in the re-sale market. Top offers for newbuild housing exceeded $36,000 (£18,000) per sq m, with prices in the re-sale sector at over $40,000 per square metre.

* Average growth in prime residential rents passed 30 per cent in 2006.

* Top price in the prime new-build apartment sector is more than $25,000 per sq m. Almost two-thirds of these properties are in the $1.5-$4.5m range, and typically purchased by men aged between 30-40, married with two children.

Cultural Downside

More than 1,000 buildings razed in last five years, 200 despite having official historic preservation status.

* Seven 17th century mansions are derelict; others have been flattened.

* Architecturally important industrial and Modernist buildings demolished.

* The late Alexei Komech, a member of the Mayor's board of experts, said: "The attitude is there wasn't any heritage, but there will be! There's no need to take care of the original because we can make a new [one]. We'll have the newest ancient heritage in the world."