Review of construction sector in Azerbaijan (January-March 2014)

According to the Azerbaijani State Statistical Committee, the construction work totaling 1.603.5 billion manat was conducted in Azerbaijan in January-March 2014. The volume of construction work increased by 6.5 percent compared to the same period of 2013.

Some 65.2 percent of the total volume of construction work accounted for primary construction, reconstruction and expansion, 18.6 percent - overhaul, 2.4 percent - current repair and 13.8 percent - other construction work. Some 80.1 percent of the construction work was carried out by non-state construction companies.

Main indices of construction sector in Azerbaijan in January-March 2014

Source: State Statistics Committee

The construction market restoration started in March like in 2013 when commissioning of housing exceeded two million square meters per year in Azerbaijan for the first time in the history. Commissioning of housing increased by 47.2 percent in March compared to February.

Around 150,700 square meters of housing were commissioned in March compared to 102,400 square meters in February. Some 373,600 square meters of housing were commissioned in 2014 which is by 0.8 percent less compared to the same period of 2013 (370,700 square meters).

The expected growth in property prices will hit 8-10 percent in Baku during the year. According to MBA Group consulting company's forecasts, the rise in prices will continue in the long term and will continue until 2018. The practice shows that the market prices increase by an average of 8-12 years, followed by a period of decline (within 3-5 years). Another reason is the continued growth in the income of the population investing in real estate. The combination of these and other factors determines the growth in housing prices and gives reason to believe that this trend will continue.

Russian investors still show their interest in the real estate market (most of these investors are compatriots living in this country).

The flow of proposals from Russian investors was huge three or four years ago, but then fell sharply. This year, we have been observing Russian investors' restored interest in Baku's property though not so great as last year.

Secondary housing market

According to MBA Group consulting company, the prices increased by 2.01 percent on Baku's secondary market in March. As of March, the cost per square meter of secondary housing in the capital amounted to $2,032. As for the primary market, the square meter of such housing increased by 2.54 percent during the month and cost $1,213.

The expansion of demolition operations carried out in the capital affected the rise in prices. Primarily, a large number of buyers appear on the market as far as the demolition operations increase. The demand is also increased. Thus, the dynamics of prices is being changed.

In particular, this concerns the Absheron and Garadagh districts of Baku, where a lot of housing is being built. If one talks about the activity of buyers, the sales are mainly concentrated in the Absheron district and Yeni Yasamal settlement.

Primary housing market

The growth rate of prices on the housing market is more than the prices on the real estate market by almost one percent in January-March 2014. According to MBA Group consulting company, the common market prices increased by 10.45 percent in the first quarter.

The prices on the housing market increased by 11.28 percent, in particular, on the primary housing market - by 5.85 percent. The rise in prices observed for the last three years led to a decline in the market activity. The activity on the primary housing market increased by 0.45 percent in March compared to February, but it fell by 9.33 percent compared to the same period of 2013.

Commercial housing market

According to Azerbaijan Property Solutions consulting company, rendering the services in the commercial and trade real estate, the volume of office area will increase by 13.97 percent or 56,400 square meters in Baku.

As of late 2013, there were 404,000 square meters of quality office area in Baku. Seven office buildings with a total rentable area of ​​approximately 140,000 square meters were commissioned in 2013. More than half of the buildings, commissioned in 2013, are located in the coastal zone of Baku. This coincides with the general trend in demand. The tenants are often willing to take offices along the Seaside Boulevard or on adjacent territory.

The vacant area level (Class A) hits 24 percent; Class B - 15.4 percent, the specialists of the company said. The office area market intensified in 2013, and the supply outstrips demand in all classes.

Some 120,000 square meters of the office area volume fall to class A. Despite the significant increase in office area in 2013, the level of rental rates in the A and B business centers was not changed. The exposure period of office area increased by 50 percent and reached 12 months.

North Tower in Port Baku complex rented by British Petroleum Azerbaijan was the largest transaction on Baku's office market in 2013, the report said. The contract area volume hit about 19,000 square meters. The average base rental rate for Class A office areas excluding VAT and operating expenses is 489 manat per square meter per year, while 280 manat in Class B.