GUIDING LINES: Editor’s Note. Moscow Office Bane Boosts Business Parks

A business park is a property comprising several office buildings with an integrated infrastructure such as a common security system, parking areas, and catering outlets run by a single management company.

Sometimes, such projects include offices, industrial properties and warehouses, which means businessmen can produce goods and hold meetings at the same venue. The format is convenient for small and medium-size businesses. Rental rates at business parks are usually lower than in class B offices in the city center.

The annual rental rate at a business park may be as low as $300 per square meter while the cost of renting space within the Garden Ring (downtown Moscow) runs up to $500. The business park format is widespread in Europe and the US where they are usually built outside the city center but close to major motorways, and tenants are offered space at lower rates.

In the US, however, the format was adopted, primarily, for the convenience of office workers to save them time on traveling to work. In Moscow business parks began to emerge as the result of an acute shortage of office space and vacant construction plots.

The number of available construction plots has been falling disastrously low in the capital. For example, there will be no new office buildings near the Kurskaya, Baumanskaya, Krasnyye Vorota and Komsomolskaya metro stations. That is why developers and investors welcome any opportunity. However, not every site is suitable for construction of office properties.

For instance, a future office building must have convenient access roads. That is why industrial estates located close to major motorways are a good option. There are enterprises in Moscow with a total space of about 50 million square meters that could be redeveloped. Small and medium-size businesses account for most of the demand in the low cost properties. And, while the market is experiencing a shortage of class C offices, business parks are being filled.

A tenant is more likely to opt for a class C property within an organized territory than an office in an obsolete Soviet-era building.

Moscow city hall has adopted a plan to remove industrial enterprises from the city, and aims to vacate some 2,000 hectares of land across the city. Today the firms who were quick to join in and secure deals in hundreds of thousands of square meters of factories and plants are making healthy profits.

Having developed a business park a company may sell or lease it out retaining the rights to it. For example, the Vizavi investment firm has opted for the latter course and even registered the Vizavi Office Park trademark. The total commercial property space at the Vizavi Office Park exceeds 500,000 square meters. On average, the rate of return on the construction of properties for sale amounts to 20-30%, and 12-13% for properties built for lease.

With business parks emerging in areas that were previously not used for office properties, new business zones are being formed. Earlier Moscow’s Central Okrug [district] had the highest concentration of office space. Now, the situation is changing with clusters of offices growing in other parts of the city. A process of decentralization has begun on the market.

Examples of office parks and future business zones – in addition to the Moscow City International Business Center and Zamoskvorechye – include the territory of the ZIL car plant on Nagatino Island (1 million square meters at the initial stage phase, 6.5 million square meters in total), Krylatskiye Hills (57,000sqm), Paveletskaya Business Zone (26,000sqm), Derbenevsky (25,000sqm), and Avrora Business Park (over 40,000sqm).

Some of the major players in the office sector involved in such projects are Forum Properties, Vizavi, ALM-Development, and Rosbuilding.

Lately, companies involved in other sectors of the economy and foreign investors, too, have shown interest in business park projects. For example, the Rostik Group restaurant chain recently announced the acquisition of the Glass Institute near the Third Ring Road where it intends to build several class B office buildings.

Another example is the international investment corporation Huamin, which plans to launch the development of the 200,000-sqm Huamin Park on Vilgelm Pik Street, in north-east Moscow, spending $300 million on the project. The project has already been endorsed by the public town-planning council under the Moscow mayor.