Money-Growing: A District Named ZAM


Beginning in the mid-1990s Zamoskvorechye saw rapid development of prime residential and office properties. Zamoskvorechye has taken on the shape of a submarket fairly quickly, almost simultaneously with the central district. However, its resources are far from being exhausted.

The commercial zone of Zamoskvorechye was formed by the early 2000s and included in the city map by market consultants. The northern borders of this office district -- dubbed ZAM by real estate analysts -- run along the Moscow River embankments Bersenevskaya, Sofiiskaya and Raushskaya; the western border is Mamontovsky Lane; the eastern border is Kosmodamianskaya Embankment. The southern part of ZAM stretches from the Garden Ring, taking in a small area between Kotelnicheskaya Street and the Moscow River, according to Colliers International (Colliers Int.) and Cushman & Wakefield / Stiles & Riabokobylko (CWSR).

The city district of Zamoskvorechye runs along Kozhevnicheskaya, Letnikovskaya, Dubininskaya, and Korovy Val Streets, along the western fringe of Serpukhovskaya Square towards Novospassky Bridge and Kozhevnicheskaya Street. In other words, the borders of the official Zamoskvorechye district almost fully coincide with those of the ZAM submarket. Located within the city’s Central Administrative Okrug, Zamoskvorechye is subordinate to the CAO prefecture.

Zamoskvorechye’s status of an independent commercial district ranking second after the city center according to all criteria is well-deserved. “Nowadays, Zamoskvorechye is one of the few central locations enjoying the reputation of a business district with fairly clearly defined borders,” says Andrei Patrushev, chief spokesman at Knight Frank.

“We divide Zamoskvorechye’s commercial area into three main zones: Paveletskaya Square, embankments and the district of Yakimanka. In the long-term, we also anticipate the emergence of a new business area within ZAM, on the sites of former industrial estates near the Tulskaya metro station.”

Zamoskvorechye’s offices have always been in demand. If a tenant could not afford an office at the very heart of the capital he was usually offered Zamoskvorechye as the district closest to the Kremlin, popular with tenants, and not as expensive as the Boulevard Ring.

Ordynka, Polyanka, Pyatnitskaya, Ozerkovskaya are streets and embankments that are deemed attractive not only in terms of their historical value; they are also commercial streets with business centers built in the early 2000s. For example, there is the Central City Tower considered among brokers, consultants and developers to be rather successful in terms of a variety of criteria.

Quality office buildings first appeared in the area back in the mid-1990s, Blackwood realty reports. 1994 saw the development of offices built for Sibneft by ST-Group, says Marina Gutsalyuk, research analyst at Cushman & Wakefield / Stiles & Riabokobylko. That is why Zamoskvorechye reflects not only the history of the capital; it reflects the history of Moscow business as well.

Pride and Glory of Zamoskvorechye

A relatively small district of Zamoskvorechye includes many remarkable sites. It is fascinating to see how the creations of very different ages in Russian history blend with each other. They include the flagship of the Russian confectionery industry Rot Front, the knitwear manufacturer Paninter, and also the Paveletsky train station.

In the years of Soviet rule, Zamoskvorechye was one of the city’s industrial hubs, with the Parizhskaya Kommuna factory on Shlyuzovaya Embankment and a worsted textile mill on Ozerkovskaya. These days, industrial facilities are being withdrawn from the area in line with Moscow city hall’s decrees No. 1473 of Aug. 5, 2005 and No. 1947 of Oct. 23, 2003, as well as many other acts on the relocation of industrial estates and rezoning of territories.

Plots earlier occupied by plants and factories are now being taken over by multifunctional developments featuring offices and shops. The International House of Music was built on the Krasnokholmskaya spit, as part of the Krasnyye Kholmy project. Rapid office development is taking place on adjacent territories.

At the same time, a large number of historic buildings are to be found in the quiet lanes and side-streets of Zamoskvorechye. Among them are the building of the Asadullayev House in Maly Tatarsky Lane, now operated by the Tatar national and cultural autonomy; the church of Mikhail and Fyodor of Chernigov on Pyatnitskaya Street; and the 19th century manor house at 6 Aristarkhovsky Lane, leased out by the city to the Russian Mill society that promised to renovate the building.

Office Era

Class A office projects in ZAM account for some 24% of the total volume of office space, according to Knight Frank. Along the entire stretch of the Garden Ring that figure nears 42% and within the Boulevard Ring it is 12%. In the western part of the Garden Ring class A offices make up only 11.5%, and some 6% in the north.

Zamoskvorechye has seen a number of large, modern, conveniently located and expensive office developments over the past few years. One of them is the 13,600-square-meter Golutvinsky Dvor, built in 1999 at 2a/3 Yakimanskaya Embankment (class A).

LG Electronics, Vneshtorgbank, GlaxoSmithKline Health Care, and Societe Generale Vostok opened their offices there as soon as the development was completed, Irina Gerasimova, head of research at Noble Gibbons in association with CB Richard Ellis, says. “In addition to the high quality of construction, a successful layout, state-of-the-art engineering systems, its advantages include unique views of the river and the Peter the Great monument,” she adds.

Other landmark projects are the Central City Tower, opened in 2005 at 20 Ovchinnikovskaya Embankment (24,500sqm, class A) and Legion-1, built 2004 at 40 Bolshaya Ordynka (45,940sqm, class A).

Offices at Golutvinksky Dvor are rented at $540 per square meter per year (excl.VAT), according to Knight Frank. Central City Tower rents offices at $735-825, Legion-1 - $653-813.

The opinions of most market analysts on when the first-ever professional office center was built in ZAM concur, though in certain aspects they vary. Regina Lochmele of Colliers International believes that it was the Riverside Towers (52,600sqm) complex developed by Enka on Kosmodamianskaya Embankment in 1996. She also mentions Paveletskaya Plaza I and Paveletskaya Plaza II built by Enka on Paveletskaya Square in 1997-1998.

Mikhail Gets, head of the commercial property department at Blackwood, also mentions Riverside Towers, rated as class A building when it was opened, but since downgraded to class B, and Mosenka-3 at 24/27 Sadovaya-Samotyochnaya (1995).

“Over the past years the district was dominated by the redevelopment of old mansions, which now shape the class B office supply in Zamoskvorechye,” says Marina Gutsalyuk. “Then, the first class A buildings began to emerge.” Along with Enka’s developments, she mentions Alexander House (class A, 1998) on Malaya Yakimanka as one of the first modern office buildings in the area.

In the mid-1990s a number of office buildings that may be rated as class A were erected in the districts of the Yakimanka and Golutvin side-streets, says Antonina Lairova, senior analyst at Prime City Properties.

Along with Alexander House and Golutvinskaya Sloboda, they were the redeveloped mansions at 10/6 3rd Golutvin Lane, 1/8, 4th Golutvin Lane, 4/4 Yakimanskaya Embankment, 42, Bolshaya Yakimanka, as well as the office buildings Kadashevskaya Sloboda at 32, Kadashevskaya Embankment (3,500sqm) and the 7,500-square-meter Energy House at 16 Raushskaya Embankment.

Irina Gerasimova believes that the House of German Economy was one of the first professional office buildings developed in the area, at 5-7 1st Kazachy Lane in 1997 for a number of German firms who opened their representation offices in Moscow. A complex of three buildings at 14 Kadashevskaya Embankment built in 2000 is currently occupied by the European Commission, Commerzbank and BASF, Gerasimova reported. “Many buildings in the area have a great advantage – they face the river and offer remarkable views,” she says.

At the turn of the century, more sophisticated office developments emerged in ZAM, Prime City Properties reports. New offices were built at 14 Kadashevskaya Embankment (4,500sqm), at 40/1 Bolshaya Ordynka (4,628sqm), and 40/2 Bolshaya Ordynka, now occupied by DaimlerChrysler’s head office (6,360sqm).

How Much?

Office rents in Zamoskvorechye have always been slightly lower than in the CBD, or the Central Business District. Tenants used to turn to ZAM as an alternative to the city center when in search of class A offices because about three years ago they could still be found in both the city center or in Zamoskvorechye, while in other districts of the city prime offices were still rare.

Developed public amenities and proximity to metro stations – Polyanka, Novokuznetskaya and Tretiakovskaya – made the area popular with office tenants, consultants believed. Besides, the district is rich in historic monuments, mansions, churches and art galleries.

Being at the same time a prestigious residential area, Zamoskvorechye is popular with top executives of leading companies who rent or buy apartments here so they can live close to their work. Zamoskvorechye is one of the most sought-after locations for headquarters and representation offices. It is worth noting that most of ZAM office tenants are large conservative companies, such as banks, industrial concerns, insurance firms, Knight Frank analysts report.

All those factors affect office prices. The situation has changed noticeably, especially in recent years. With the demand for office space in the area growing, rents are running high nearing the level of rates charged within the Boulevard Ring. While in 2001 the average annual rental rate for class A offices in ZAM stood at $422 per square meter (VAT and operating costs excluded) this year it has already reached $622. Some offices are rented out at $800 per square meter – offices rented at such a rate can also be found in the side-streets near the Kremlin.

Zamoskvorechye has always appealed to both residents and commercial firms, holds Marina Gutsalyuk. Historically, Zamoskvorechye became the home for successful domestic and foreign firms. ZAM’s advantages include proximity to the Kremlin, the Garden Ring and the Third Ring Road, a developed transportation network.

A variety of factors have played a role in the development of the district: its favorable location, lengthy embankments, developed transportation network, a large supply of building plots, industrial estates, and in particular, developed public amenities, restaurants, hotels, banks, etc.

Mikhail Gets agrees that ZAM has in fact taken the lead among the city’s commercial zones, being second, perhaps, only to the Moscow City business center. Successful new office projects developed here have affected the rental rates in the area. According to Gets, the average rental rate for class A offices in ZAM now stands at $730-750 (VAT excl.); class B properties are rented for $540-550.

Five years ago, new properties were rented at $470-500 per square meter per year, Irina Gerasimova says. In early 2005, offices at Legion-1 business center were offered for 500-630 euros per square meter, depending on the floor level.

On the whole, class A offices were rented at $550-600 per square meter on average, in 2005 – at $700-850, according to Colliers Int. Class B rates stood at $350-400 in 2001, and $500-650 this year. Sale prices in ZAM are soaring. For example, a rundown 800-square-meter mansion requiring serious renovation work could be offered for as much as $500 million.

Available for Rent

The number of tenancy deals effected in Zamoskvorechye remains very high. Vesco Realty, for example, is offering properties in the second phase of the Aurora Business Park still under construction on Sadovnicheskaya Naberezhnya, at a rate of $297 per square meter per year. The building is slated to be commissioned only by the year’s end. Offices of 400sqm and larger at the recently commissioned Aquamarine on Ozerkovskaya are rented out by the same company for $570.

Properties of 300sqm and larger at Central City Tower are currently leased at $675 per square meter. Penny Lane Realty also offers several lots in Zamoskvorechye on its official website. In particular, offices of 186sqm and larger in a class A office and residential estate near the Tretiakovskaya metro station, Tolmachyov Lane, are rented at $800.

A class A business center on Zatsepa Street, built in 2004, offers approximately the same rates, but for a property of 340sqm. At the same time, offices at a class B office center not far from Paveletskaya Square are rented out at $420-600 per square meter.

Consultant’s View

Property analysts report the redevelopment of mansions is underway; developers are directing their efforts at the development of former industrial estates; dilapidated buildings are being put up for investment tenders. Commercial property developers are focusing on the Garden Ring area, Bolshaya Ordynka, along Sadovnicheskaya Street, Kadashevskaya and Shlyuzovaya embankments.

A large area of attraction is the so-called island between the Moscow River, Bolshoi Kamenny Bridge, Vodootvodny Canal and Baltschug Street. The territory abounds with old mansions and factory buildings.

ZAM’s popularity rating is high, according to a survey of the first half of 2005 by Knight Frank. The total space of class A offices leased in ZAM is nearing 320,000sqm, according to the report, while the same figure for the entire territory within the Garden Ring now stands at approximately 550,000sqm. The average weighted rental rate for class A in Zamoskvorechnye stands at $737 per square meter, VAT excluded.

Office construction is on the rise in the district, chiefly along the Moscow River embankments. Historic mansions redeveloped for office use are available for sale at $3,500-6,000 per square meter, whereas the sale price on the Golden Island is expected to exceed $10,000, according to Blackwood.

City Hall’s View

City hall, it seems, on the contrary, does not want to build up Zamoskvorechye with office centers. The first step outlined in the town-planning program for the development of the area till 2020, adopted in 2002, envisages reconstruction of industrial facilities on Ozerkovskaya Embankment and near Vodootvodnoi Canal.

In line with the plan, sites previously occupied by industrial facilities are to be used for mainly housing development. Paragraph 1.3 of the act restricts office development in the area. By the year 2020, city hall expects the 429-hectare district to have about 12 hectares of parks and recreation areas, not more than 83 hectares of industrial, communal and warehouse properties, 68 hectares of streets and thoroughfares, while housing is to account for at least 1 million square meters.

The first industrial enterprise withdrawn from the district was the Stimul plant at the intersection of Bolshaya Tatarskaya Street and Klimentovsky Lane. The site was replaced by a block of flats.

The Golden Ring project devised by the city hall several years ago is gradually taking shape, too. For example, Klimentovsky Lane has already become a pedestrian zone. Recently, the government issued a decree “On priority measures for the comprehensive development of… public amenities along the pedestrian Zamoskvorechye Sightseeing route.”

That route, marked No.13 in the Golden Ring plan, will run through Bolshoi Moskvoretsky Bridge, Sofiiskaya Embankment, Faleyevsky Lane, Bolotnaya Square and Bolotnaya Embankment, Luzhkov Bridge, Lavrushinsky Lane towards Bolshaya Ordynka and Klimentovsky Lane. The project is estimated to be worth approximately $3 billion, according to the mayor’s office.

Season’s Novelties

Two major office centers were completed and commissioned in the Zamoskvorechye commercial district in the first six months of 2005: the first phase of the Central City Tower by Perm Financial & Industrial Group and the Aquamarine complex (15,000sqm, class A) at 28 Ozerkovskaya Embankment, on the site of the Krasnokholmsky worsted textile mill.

One of the developers of the project is the company Stroiinkom-K. In accordance with Moscow city hall’s order No. 1473 of Aug. 5, 2005 the new concept of that part of the industrial estate envisages development of multifunctional complexes in the area; by 2008, at least 66,000sqm of residential, hotel and office properties will have been built here, in line with the plan.

Also, as part of the plan for the redevelopment of the industrial zone, the second, 12,000-square-meter, phase of Aquamarine is to be built by Stroiinkom-K at 35 Bolshaya Tatarskaya Street by early 2007.

The city hall has placed Stroiinkom-K in charge of the work to demolish and redevelop the site earlier occupied by the worsted textile mill, and for the design and construction of the business center. The mill itself is to move to the town of Losinoostrovsky, near Moscow, where the Monino textile mill is based. According to Knight Frank’s reports, Aquamarine III is also planned.

Legion Development plans to raise a 10,000-square-meter office complex, Legion II, at 13 Bolshaya Tatarskaya, on the site currently occupied by a plant producing hydraulic machinery, Antonina Lairova reported. Blackwood said the plant is to be relocated in 2006, vacating a site where Legion will develop some 100,000sqm of multifunctional properties. Legion has been active in office development in Zamoskvorechye for several years now.

In 2004, the company commissioned a 30,600-square-meter complex of buildings at 40 Bolshaya Ordynka. Legion had bought out the project from another leading developer – Sistema Gals – and saw it through to completion.

The 25,000-square-meter New Baltschug business center is to be built at 9 Sadovnicheskaya Street. The developer is Dial Stroi Invest, NG/CBRE reported.

The second phase of Central City Tower at 22-24 Ovchinnikovskaya Embankment (14,000sqm) is also at the planning stage. By the year’s end Forum Properties is expected to complete the second stage of the Aurora Business Park at 82 Sadovnicheskaya Street (42,900sqm).

Blackwood has reported that PIK Group plans the development of a 172,000-square-meter facility on Mytnaya Street, featuring 95,000sqm of residential properties and 35,700sqm of offices and shops.

The site of the Moscow fittings factory at 8/4 Kozhevnicheskaya Street will be used for the construction of offices and a hotel, with a total space of 110,000sqm, by 2008.

One of the long-term projects in the area envisages construction of a 60,000-square-meter class B+ business center at 12 2nd Kozhevnichesky Lane, by Gorizont. The development is not likely to enter the market before 2010.

Where Resources Are Buried

Knight Frank’s research analysts believe that industrial facilities near the Paveletskaya, Tulskaya and Serpukhovskaya metro stations, as well as the embankments of the Moscow River and the Vodootvodnoi Canal, offer good prospects for commercial development.

The cost of office construction in that commercial zone stands at $1,000 to $1,200 per square meter for class A buildings, and $700-900 for class B (the cost of land excluded).

As Zamoskvorechye district chief Sergei Noskov has reiterated in numerous interviews, the time has come to bring some order to the area. The district has many rundown dilapidated buildings awaiting reconstruction; many territories like the old warehouse facilities are being used ineffectively.

During the Soviet era Zamoskvorechye developed as an industrial estate abounding with industrial plants, factories and storage facilities. In fact, even the House of Music as well as the entire Krasnyye Kholmy project was built in what was once a giant industrial zone.

Some of the dilapidated blocks of flats in the district will be torn down, according to the district administration. The first to go will be the residential estate at 12-16 Bolshaya Ordynka. Altogether, the administration plans to dismantle or redevelop about 110 buildings. The residents of 25 apartment buildings will be resettled.

The major obstacles impeding the build-up of ZAM are inconvenient approach roads to the buildings, narrow streets, and the remoteness of some areas from metro stations. ZAM has many ancient mansions and historic monuments, though such buildings are more suited to class B offices; redeveloping them as class A offices is extremely difficult, says Mikhail Gets.