Moscow market preliminary results of 2009 and forecast for 2010

10 Dec, 2009, Moscow

Cushman & Wakefield Stiles& Riabokobylko has announced preliminary results for 2009 and company’s outlook for 2010. Volume of investments into commercial real estate has reduced by 62.9% compared to 2008. Rental rates have decreased by 30%-45% depending on a sector. New construction was the only indicator with the positive trend during 2009. In 2010 we expect correction of the main indicators after significant downfall in 2009.
There was a limited demand for commercial real estate in the beginning of 2009. Tenants became active in all the sectors (office, retail, and warehouse) in the second half of the year. Take up for offices has reduced by almost 3 times. Only 600,000 sqm were leased in 2009. Lease extensions and renegotiations were common on the market. However these types of deals do not decrease total volume of vacant space. Inclusion of such deals into take up can give wrong idea of occupational market.
Rental rates. The office market was the most vulnerable as it was the first to react to the economic crisis by the maximum rental rates fall (40%-45%). Rental rates for Class A warehouse space showed 30% decrease.
At the same time market supply has grown. Vacancy rates in warehouses and retail exceed 10% while it reaches 18.2% for Class A office space.
Despite complicated economic environment new construction was high in 2009 which is comparable to that of 2008. Quality office stock has increased by 1,5 mn sqm, retail stock – by 590,000 sqm, warehouse stock – by 565,000 sqm.
Yields growth up to 13% and more was recorded for all the segments in the beginning of the year. They remained unchanged during 2009. Yields’ compression although insignificant (0.25%) is forecasted in 2010.
There are still a huge number of opportunities for business development: reasonable rental rates, well located quality vacant blocks, costs’ reduction for real estate management and others.
Growth of investments into commercial real estate is expected in 2010. Offices will remain the most attractive; about 70% of investments will be concentrated in the sector. Vacancy rates are likely to decrease in retail (by 4%) and warehouse (by 7%) in 2010. However vacancy rates in offices will raise by 3%. New construction will remain high, 1,2 mn sqm are announced for delivery next year.
Denis Sokolov, Partner, Head of Research, Cushman & Wakefield Stiles& Riabokobylko, commented: “Next year we expect occupier market recovery accompanied by 30% take-up growth. However this increase will hardly provide sufficient level of demand. We believe demand and supply balance will return to the office market in 2011-2012”.
Lada Belaychuk, Deputy Head of Research Department, Cushman & Wakefield Stiles& Riabokobylko, said: “Currently commercial real estate market is likely to be a market of expectations rather than of tenants (as it is being considered). Next year occupiers considering the market bottomed out will be in a hurry to close deals. Both existing and under construction space will be in demand. Developers can start to increase rental rates actively. Will this lead to a chain reaction and a new round of rents increases - depends not only on the balance of supply and demand, but on the macro-economic factors affecting the expectations”.

For additional information please contact Research Department at Cushman & Wakefield Stiles& Riabokobylko.

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