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Success of Product Repositioning Strategy for Class B Office Development in Moscow - Essay Example

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From: Vitaly Rudenko Course topic: Strategy Professor: Neil Jones Success of Product Repositioning Strategy for Class B Office Development in Moscow The idea of selling offices in the big office centers like private residential apartments is a perfect example of creating market space while looking across substitute industries in line with Blue Ocean Strategy described by W…
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Success of Product Repositioning Strategy for Class B Office Development in Moscow
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Download file to see previous pages My company hired by a real estate investments fund, an owner of this property, received commercial contract to arrange marketing campaign and to sell these buildings as residential property. The reasoning behind this strategy is quite simple. On one hand, relatively small investors receive opportunity to invest into lucrative office property market in Moscow, which has 10-12% rate of return on investment compared to 5-6% that of residential property market. On the other hand, property developers receive so much desired cash significantly decreasing the whole property development cycle and improve their own rate of return on investment. The classical scheme (when office buildings are kept by developers to receive lease income or sold to strategic investors interested in regular income stream provided by lease payments) is modified with a new buy option for typical clients (lease holders) and completely a new option for residential property investors. Despite recent severe turbulence on the equity markets and overall pessimistic attitude towards any long term investments our group managed to achieve remarkable results. The success of the strategy is proven by retail sale of a number of office buildings in Moscow. The purpose of this essay is to illustrate how theoretical strategic tools can be used in a real business situation to identify new business innovations and to assess how close the theory is to reality. The strategy theory undoubtedly provides useful tools for assessing current situation and identifying new opportunities. Elements of Five forces, basic supply – demand analyses, Value creation model, ERRC (Eliminate, Raise, Reduce, and Create) grid, reluctant customers and non-customers issues are theory tools used in the analysis. The analysis consists of macro and micro examination of the current commercial property industry situation in Moscow, and formulation of new opportunities in the office property sector of the industry based on the above analysis. The description of the real estate investment market in Russia In the situation of global market economic crisis, investors are becoming more risk averse and switching investment portfolios in favor of core assets like gold and real estate. Investments in property market in Russia in 2011 demonstrated 46% year on year growth with the highest volumes of 7 bn USD (See Exhibit 1 Investment volume dynamics), of which the commercial real estate sector accounts for about 95% (See Exhibit 1 Investment by sector). 2011 in Russia was remarkable by the rising number of foreign capital investments, which comprise around 45% of the total investment volume (See Exhibit Investment by investor origin). The reason for this is potentially high demand almost on all sorts of commercial property. Retail and office segments usually dominate the sector investments having 40% of total investment volume each (See Exhibit 1 Investment by sector). Moreover, the deal size increased in 2011: the number of deals exceeding 100 mn USD increased to 33% of total number of deals compared to 23% 2010. The market sector prime yields in Moscow stabilized at 9% in office and 11% in warehouse sectors in 2011 from the recent highs of 11.5% and 14.5% in 2009 (See 1 Exhibit Prime yield dynamics in Moscow) reaching pre crisis levels achieved by the market in 2007-2008. Historically, the office sector in Moscow has been the most attractive for ...Download file to see next pagesRead More
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