MONEY-GROWING: For White Collars

Despite the demand for parking spaces, however, office real estate developers make no attempt to expand parking areas in their new projects, citing economic reasons and complicated engineering and the geological situation in downtown Moscow.

Market-Dictated Standards

Ideally, in addition to creating favourable working conditions for their staff, employers are supposed to ensure the safety of their personal property during the working hours. This applies to the private cars Muscovites drive to the office.

A solution to the problem lies in the development of underground parking lots, included in recent times in almost every modern office center project, as well as on-street parking areas for visitors near office buildings.

“In line with the Moscow City Hall decree ‘On standards and rules of design, planning and development in the city of Moscow’, projects for the development of social purpose buildings must provide a certain quantity of parking spaces,” says Mikhail Gets, head of commercial real estate at Blackwood.

“That standard is based on analysis of the existing and forecasted transport situation in the area and on the composition, capacity and concentration of public buildings, and used to calculate the required number of car spaces necessary for new projects of various functional purposes.”

Swiss Realty Group development director Ilya Shershnev says that so far neither federal legislation on rules and standards nor Moscow city construction standards stipulate any obligatory requirements as regards the availability of parking spaces at business centers. However, there are standards set by the real estate market itself, and when launching new projects developers tend to take them into consideration.

They are also guided by office space classification criteria adopted by the Moscow Research Forum on the basis of international standards that state business centers must have at least one parking space per 100 square meters of space leased, says Regina Lochmele, office properties analyst at Colliers International. Nowadays in Moscow the ratio for class A office buildings stands at one space for 60-130sqm of office space.

The shortage of vacant building plots within the Garden Ring has brought about an increase in class A properties with one parking space per 120-130sqm of office space. Class B office centers usually have one car-space for 60-200sqm of office space. Thus, even if they wanted to, employers would find it very difficult to provide all their workers with parking spaces.

In-Depth Calculation

“Plots allocated for office developments in the city center are for the most part relatively small,” says Elina Zanina, deputy head of commercial real estate and development at Miel-Nedvizhimost. “That is why developers want to make the most of that territory, erecting high-rise buildings to get the best payback. As a consequence, a small land plot often accounts for an enormous number of office properties. Standards require that those kinds of office center should feature an underground car park of at least 3 levels.”

Developers are far from enthusiastic about including underground parking areas in their projects. “Construction of underground parking lots is costly and complicated,” says Katerina Semikhatova, chief spokesperson for Kapital Group. “However, these days it is impossible to attract tenants into a building with no parking spaces available.”

Most class A and B office centers feature 1- or 2-level underground parking areas. Multi-level parking areas are rare in Moscow as their development is too costly. Besides, says Regina Lochmele, underground construction is subject to depth restrictions set by the city town planning authority.

That is why market analysts have praised the solution applied by developers of the class A Gorki Park Tower at 13-15, Leninsky Prospekt. The property will feature a modern 4-level underground parking lot for 279 cars.

The Capital Tower office complex housing Capital Group’s head office is situated on 1st Brestskaya Ulitsa [street] in central Moscow. The class A, 16-story building with 10,000 square meters of office space also has a 4-level parking area for 91 cars.

The cost of constructing an underground parking lot ranges from $500 to $900 per square meter, depending on the engineering and geological situation in the area, says Ilya Shershnev.

With the payback period for the construction of underground parking areas exceeding fives years, most developers reluctantly include them in their projects, Mikhail Gets says. To kill two birds with one stone, developers confine themselves to providing the minimal number of parking spaces required for the building to meet classification requirements.

An example is the business center Galereya Aktyor on Pushkin Square which has an underground parking area with space for only 20 cars or so. Central City Tower at 22-24, Ovchinnikovskaya Naberezhnaya, will have one parking space per 120sqm of office space once the second stage of the parking lot is commissioned.

Parking problems also arise during the redevelopment of older properties. Despite its prime location, the renovated 5,500sqm building at 9/7, Tverskaya Street has failed to attract any buyers or tenants since it was commissioned in early 2004, Noble Gibbons reports. One of the main reasons is the lack of a parking area.

Office complexes further out from the city center have much better parking facilities. For example, the Krylatskiye Kholmy business center has one parking space per 40sqm of leased space, though analysts admit that it is a rare example in the capital.

Problems on the Surface

Street-level parking facilities do not require excessive spending and cost developers considerably less - $50 to $200 per square meter. Yet, developing such a parking area has its problems. “The shortage of car spaces near office centers is linked, first and foremost, to the shortage of land plots, especially within the Garden Ring,” says Elina Zanina. Hence, even class A offices cannot afford parking spaces for visitors.

According to Colliers International, on-street parking areas are typical for B office buildings – redeveloped industrial estates outside the city center. For example, a guarded parking area is available at the Derbenevsky business park near the Paveletskaya metro station.

The worst parking conditions are near class C offices, mostly Soviet-built administrative buildings where cars are parked chaotically along the roadside.

Tenants’ Requirements

According to data provided by Swiss Realty Group, about 45% of the major companies renting space of 2,000sqm and over refuse to consider any offers where underground parking is not available. “We had a case where the client, who wanted to rent 2,000 square meters in a class A business center, rejected an offer despite a generous discount from the landlord, because the property had no underground parking,” says Ilya Shershnev.

Regina Lochmele believes that tenants attach greater importance to the availability of parking spaces in general, including visitor parking, rather than to the type of parking area. “Parking is a considerable marketing advantage for a modern business center,” says Elza Talipova, head of commercial real estate at MIAN Corporation.

But, Mikhail Gets says, in practice most tenants are interested only in stationary parking spaces for their top executives while rank-and-file employees are forced to solve the problem for themselves if there is no street-level parking available in the area. Take, for instance, the Riverside Tower business center that literally drowns in a sea of cars parked by office workers and visitors around its perimeter. The same picture is common for most office buildings in downtown Moscow.

“In order to attract tenants into office buildings with no parking spaces, some landlords divide their premises into smaller office blocks which are in high demand on the commercial property market,” says Maksim Zhulikov, leading commercial real estate expert at Penny Lane Realty. For example, offices in Gostiny Dvor are divided into small blocks and, despite the unavailability of underground and street-level parking facilities, those properties are attractive for tenants, he says.

Rental Rates Soar

The shortage of spaces in underground parking lots directly affects the rental rates that depend both on the location of an office center and availability of parking spaces in the area.

Rental rates for parking spaces in underground parking facilities at modern business centers can run up to $500 per month and are not included in a single package of management services but are paid separately, says Ilya Shershnev.

The Romanov Dvor – 2 and Tower-2000 office centers are the most expensive in terms of parking rental rates - $500 per month. A space at Galereya Aktyor costs 400 euros per month, excluding VAT.

Parking spaces at the office and retail complex at 31, Novinsky Boulevard are available for $300; at Pyatnitskaya Plaza (69, Pyatnitskaya) and Golutvinsky Dvor (69, Yakimanskaya Naberezhnya) they cost $250, and $170 at Cherry Tower (56, Profsoyuznaya).

For most tenants parking space rental rates are too high, so they content themselves with one or two spaces for company executives, says Elina Zanina.

Quite often parking spaces in underground facilities remain vacant. The vacancy rate is high in the underground parking lot at Mosenka Park Towers at 17-23, Ulitsa Taganskaya, as few tenants are willing to pay $350 plus VAT per month for a space.

The developers of the Turchaninov business center, situated in the side-street of the same name, included a 5-level underground parking area in the project, although it turned out that the office tenants did not need more than one level. The empty spaces are now leased out to residents of neighboring houses.

Underground Mirage

“In most new projects the question of parking is decided at the design stage of the project,” says Irina Gerasimova, head of research at Noble Gibbons. As the market becomes saturated with office space developers are forced to examine more carefully the requirements of tenants and to include as many additional options in their projects as possible.

The availability of underground parking facilities, whatever the rental terms are, is a key to success on the commercial real estate market. This is especially true for office buildings under construction in the city center.

“Clearly, this creates additional advantages for potential tenants willing to open an office in the center of the Russian capital,” says Andrei Petrov, head of office real estate at Knight Frank. “All these factors together speak for the professionalism of developers interested in bringing a high-quality product on to the commercial real estate market.”

Experts cite the small class A office center at 19, Barrikadnaya as an example of a successful solution because it will have 90 parking spaces per 5,000sqm of office space, which is twice as high as the minimum recommended ratio.

The class A office building Severnoye Siyanie (Northern Lights) at 24, Ulitsa Pravdy has 25,000sqm of office space, a 164-car underground parking lot and street-level parking for 100 cars.

Municipal authorities in Western capitals, for example, in Paris, try to minimize the shortage of on-street parking spaces by expanding underground parking areas within office centers.

Some business centers in Paris have 4 to 5 underground levels used for parking. But implementing such projects in Moscow depends primarily on the geological condition of the building sites, and then on the developers’ willingness or unwillingness to build such facilities.

According to Cushman & Wakefield/Stiles & Riabokobylko, in 2005 approximately 650,000sqm of class A and B offices will be built in the city. If developers comply with parking space requirements, it is quite likely that in one year alone Moscow will have about 6,000 convenient parking spaces, which means 60 kilometers of Moscow’s streets will be freed from parked cars.