Moscow Office Market – Results of 2011

9 Dec, 2011, Moscow

At the Round Table devoted to Moscow Office Market hosted by the development company Hals-Development, the leading consulting companies - Cushman & Wakefield, Jones Lang LaSalle, Colliers International, Knight Frank, S.A. Ricci - finalized the results of 2011.

Among the most striking trends, all the participants noted the high demand for class "A" and "B" office space, a number of major transactions in the commercial leasing, as well as tenants by the growth of IT companies and banks. Deal of the Year in the rental market of office real estate transaction has become the Hals-Development with Mail.Ru Group, hiring the Tower "A" in the business center Sky Light. Also Hals-Development has become a company who has passed the maximum amount of space in 2011.

Sergey Kalinin, the President of Hals-Development has noted that the 2011 was an interesting year in its multi phases. It began with rising activity, when companies’ sentiments for future were positive and the confidence in a stable development was rising. This was a “window” when business started planning expansion and considered new office expansions. But during the fall the sentiment changed with a feeling that the crisis might happen. This influenced businesses that are now holding back on office expansion plans. Despite that unstable situation the Hals-Development management acted commercially and secured large office transactions. In October 2011, Danilovskiy Fort Business Center (19 914.4 sq. m. GLA) was fully leased to Sberbank. In December the largest office transaction on the market was closed in Sky Light business center with Mail.ru Group renting almost 30 000 sq. m.

Mikhail Mindlin, Associate, Office Agency at Cushman & Wakefield has added more information on the largest deals of the year. “This year the IT sector was very active in terms of deal size – Mail.ru Group deal of 29 932 sq. m. in Sky Light business center and Kasperskiy Lab renting 29 840 sq. m. in Olympia Park. In the banking center the largest deals were closed by Rosselhosbank in Alfa Arbat Center (27 450 sq. m.) and Sberbank in Danilovsky Fort (23 863 sq. m). Two of the deals in the TOP-5 large deals were done by the Hals-Development”, – Mikhail Mindin says. The expert also has noted that the office market is now potentially on the peak of a real estate cycle, which happens to be quite short in Russia – 4 years from 2007 to 2011. According to Mikhail, the market activity will be moderated during the next 2-3 years, with the next peak expected in 2014.

Alexey Bogdanov, Director of Commercial Real Estate, the SA Ricci partner, has confirmed the trend of growth in demand among tenants. "The demand for office space in 2011 on dynamics is approaching the pre-crisis indicators: for the first three quarters of 2011 about 650 thousand sq. m. of office space were leased and purchased by the users, which is comparable to the pre-crisis fertile quarters of 2008”, - the expert says.

Olga Pobukovskaya, the Director of Office Property Department Colliers International has noted that apart from IT companies and financial institutions, natural resources sector, as well as construction and pharmaceutical companies were the most active tenants in 2011. The majority of office tenants were Russian companies (accounting for 72% of the total amount of office deals). Lease deals prevailed in the gross office property take-up (81%).

“During 2011 we've been witnessing the realization of the forecasts concerning future decentralization of Moscow office real estate market”, - Alexei Efimov, the National Director, the Head of Corporate Solutions Group, Jones Lang LaSalle, Russia & CIS states. – “Moreover, it’s worth noting that in 2011 the annual volume of office leases and acquisitions will reach 1.7 billion sq. m. It reflects a sufficiently high business activity that can be compared with the pre-crisis level”.

The expert has noted that this year several areas have attracted the largest demand of potential office tenants and customers. Leningradskoe Highway was the most successful one. Among the other popular objects are also offices in Moscow City and Kutuzovskiy Avenue/ Mozhayskoe Highway districts. As for the southern direction, tenants prefer class B and B + offices.

Alexei Efimov has also predicted that trend of decentralization would amplify in the future, supported by the lack of completed high quality premises and office projects in the Central Administrative District. As a result, office space located outside the TTR will gain more popularity.

Nikola Obajdin, the Associate Director of Agency Services, Offices at Knight Frank Russia and CIS has noted that since 2006 the rate of supply of the new office projects is now at its lowest, while the take up rate for the quality class A and B business centers is rather high. As for the expert’s opinion these are the exact factors which have influenced the rental rates that have strengthened over the past 1-1,5 years reaching $1100 - 1200 in the prime sector. As for the class A business centers, the rental rates have stabilized here in the range of $750-850 per sq. m. over the second half of the year. “We can hardly expect any drastic changes in the nearest future as there’s still uncertainty going on in the economy right now. This is the effect of the world financial markets, the volatility that can be most recently observed on the Russian real estate market”, - Nikola Obajdin concludes.

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