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Wednesday, August 23, 2017

It would cut rents

On the Moscow office market experiencing a revival: the tenants, taking advantage of the downturn in economic activity, to review current contracts and looking for better deals.

photo: Gennady Cherkasov

In the first half of 2016 in the capital market of quality office commissioned 174,9 thousand square meters, which is 19% less than the same period last year (in the first half of 2015 was introduced 216,7 thousand sq m) and 67% less than in the first half of 2014. The total volume of quality office space increased in January–June by 1% and amounts to 15.2 million square meters.

Most business centres, commissioned this year, belonged to a class In+. Their share accounted for 62% of the growth proposals. The segment was supplemented with just one large object. In the area of the TTC commissioned a 104 thousand square feet of new space, and in Moscow — 52 thousand sq. m.

Although the activity of developers in the Central business district (CBD) gradually shrinking in the last 2.5 years, the city center remains a leader in terms of quality office space on offer (34%).

The policy of the mayoralty of Moscow, aimed at eliminating protracted in the urban environment, stimulated the resumption of work on some projects, the construction of which was frozen. This, for example, a business centre in the bow, and office and hotel complex in Olympic travel.

“Despite the decrease in volumes of input and, as a consequence, the level of vacancies in the offices of premium class in Moscow does not lose relevance, the trend of conversion of office buildings,— said the Director of the Department of the object NAI Becar Maria Onuchina. Developers seeking to avoid the risks associated with low demand in this market, change the purpose of its objects, translating them to other, more profitable formats. In particular, it will be redeveloped into apartments part of the office space in business centers “Bolshevik” and “Avion”.

The vacancy rate in the office property segment is 14.9%, which is 1 percentage point more compared to the end of 2015. In class A for the first half of 2016 the vacancy rate decreased by 2.4 percentage points to 22.9%, and class — rose 2.1 percentage points to 10.9%. The highest vacancy rate recorded in the South West (30%) and to the West of the capital (29%) outside the CBD.

Following a slight stabilization of the national currency shows the dollar weighted average rental rates amounted to $393/sq m/year for class A, class deals primarily denominated in rubles, reported Colliers International. Accordingly, the rent of such offices has not changed and amounted to 12 565 RUB./sq m/year.

According to the forecast managing partner of S. A. Ricci Alexey Bogdanov, rental rates for office space until the end of 2016 will remain at a low level. “Now in the Metropolitan office market has seen decline in demand and a slowdown in activity by new players in the market”, — said the regional Director of the Department on work with corporate clients and commercial real estate CI in Russia the Belief Zimenkova. According to her, the activity is to review current leases and finding more great deals. “Reducing the asking base rental rates denominated in rubles, according to our estimates, the average for the year 2016 will not exceed 5-7%, and given the rental rates in US dollars will vary depending on changes in exchange rates. In the future, in 2017, we see no prerequisites for a further decline in ruble-denominated lease rates, in 2017, we expect stabilization of the ruble rates in 2016,” — said the expert.

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