Money-Growing: The Best Is Yet to Come

The first centers of business activity outside downtown Moscow emerged on Krasnopresnenskaya Embankment, near the Voikovskaya metro station, as well as along the stretch between the Belorusskaya and Novoslobodskaya metro stations where modern business centers were built in the late 1990s.

The area around Novoslobodskaya still has not taken on the shape of a submarket, although it is attractive in many ways. Market analysts predict a great future.

The Novoslobodsky commercial district – dubbed NOV by real estate analysts – lies in the north of Moscow, between the Garden Ring and Sushchyovsky Val, which is part of the Third Ring Road, and takes in part of the Butyrsky district of Moscow.

Its western border runs along 1st Tverskaya-Yamskaya Street and Leningradsky Prospekt; the eastern border is Prospekt Mira. The NOV district is not unlike a tetragon with several large streets – Novoslobodskaya, Dolgorukovskaya, Sovetskoi Armii (Soviet Army), 1st Tverskaya-Yamskaya Streets and Olimpiisky Prsopekt – crossing through its territory.

The NOV commercial zone comes under the jurisdiction of several district administrations. Some parts belong to the North Administrative Okrug (district), such as the area around the Savyolovskaya metro station; others belong to the North-East Okrug (Mariina Roshcha).

Mariina Roshcha – the district between Sushchyovsky Val and Krestovsky Bridge – is famous for its large production facilities and bus depots. The landmark Rizhsky Vokzal train station, designed by Yuri Dideriks and built in 1899, can also be found there.

In 2000, a transport and pedestrian flyover was opened in the area, helping to increase the traffic capacity of the Prospekt Mira and Sushchyovsky Val Streets, ease congestion on Rizhskaya Square and link the Rizhskaya flyover to Savyolovskaya, the okrug authority reported.

Butyrsky District, which is part of the North Okrug, is also remarkable for its developed transport infrastructure. There are three metro stations in the vicinity (Savyolovskaya, Dmitrovskaya and Timiryazevskaya), three suburban train stations (Timiryazevskaya, Ostankino, Moscow-Savyolovskaya) and the Savyolovsky city train station.

NOV’s proximity to the city center is one of the key factors that could influence the development of class A and B office properties in the area, market analysts believe. There are at least 12 large office centers in the NOV zone. Landmark office developments, such as Chaika-Plaza, Meyerkhold, Dukat III and Amber Plaza, were built in the area over the past few years.

Prime office properties appear mostly in the vicinity of metro stations, says Maxim Zhulikov, a leading commercial property expert at Penny Lane Realty. Of course, there are many class C properties in the district, as well, but they are to be found more often on the territories of former industrial estates, some distance from the larger thoroughfares.

Office construction in Novoslobodsky lacks uniformity. The area can be divided into several zones of business activity and areas with the largest number of modern office complexes.

Class A and B office development has been especially active on the section of NOV where Tverskaya runs into Tverskaya Zastava Square, near the Belorussky train station, and in the area of Lesnaya and Novolesnaya Streets and the Lesnoi side-streets. That part of NOV is considered to be the most prestigious. 4th Lesnoi Lane was chosen as a venue for the development of Capital Plaza commissioned by Capital Group in 2005.

Another sought-after location is the area around Novoslobodskaya Street, near the Novoslobodskaya and Mendeleyevskya metro stations, where the Novotel hotel, as well as a number of new office centers and mansions redesigned for office use are situated.

The area between the Olimpiisky Prospekt and Prospekt Mira avenues has also taken on the shape of a commercial zone where offices were first offered for rent on the premises of the Renaissance Hotel in the 1990s. In those days they were considered to be high quality, as Moscow still had no criteria for prime office space.

Back in 1992, Renaissance Hotel was letting out about 2,000sqm of what was presented as top class properties for office use, Jones Lang LaSalle experts report. These days they have been downgraded to class B and are still available on the market. The 5,000-square-meter office and shopping center Olympic Plaza was built near the Prospekt Mira metro station in 1998.

Tikhvinskaya, Novosushchyovskaya, Dolgorukovskaya and Shchepkin Streets are also well known to office market operators. NOV includes Gashek and 2nd Brestskaya Streets. To the north lies Butyrsky Val that turns into the less prestigious Butyrskaya Street more suitable for cheaper offices.

On the whole, the NOV area is suitable for office development and popular with tenants, market analysts say. Its share on the Moscow office market is still small, but its popularity will grow, holds Vlad Portnov, head of office real estate at Praedium.

Novoslobodsky ranks 6th among the 10 most popular commercial zones of Moscow, says Portnov. When assessing the rating of the district it is necessary to take into account the highest and best value factor (the streets Lesnaya, Chayanov and Tverskaya Zastava Square), he adds.

On the whole, the northern stretch of the Third Ring Road has the highest concentration of office properties in the area accounting for nearly 25% of the submarket. The area ranks second in the capital after the territory within the Garden Ring. Inside NOV, the section between Tverskaya and Novoslobodskaya accounts for some 24% of the class A offices while the Prospekt Mira area has only 1%.

Andrei Petrov, head of office real estate at Knight Frank, believes that NOV is quite popular both with developers and tenants. Though rents are high, the vacancy rate for class A properties is low (5.4%). About a dozen office development projects have been launched on the territory of late.

But, in the opinion of Maxim Zhulikov, Novoslobodsky’s development is proceeding at a slower pace than one would expect given its proximity to the city center. It has good transport links, but sites for building are limited. In terms of prestige it ranks fifth after the city center, Zamoskvorechye, Smolenskaya Square, Krasnopresnenskaya Embankment and Kutuzovsky Prospekt, he says.

When It All Began…

Before Novoslobodsky, Moscow saw the emergence of such business zones as the Belorussky train station area (where the Parus office center was built) and Krasnopresnenskaya Embankment (Bagration Bridge) had been shaped, says Maxim Zhulikov.

NOV’s first landmark properties were raised in the late 1990s and early 2000s. In the opinion of Sergei Kollegov, general director at Prime City Properties, one of the first quality developments to emerge in the area was the company’s mansion at 17/1 Dolgorukovskaya Street (925sqm). Today the property is rented by Eurasholding. The company has two more properties in the neighborhood – 15/4 and 15/5 Dolgorukovskaya.

The office building at 19 Dolgorukovskaya (450sqm) was built in the early 1990s. Much later, at the beginning of the 2000s office development began on Novoslobodskaya Street and it has been turning into a modern business street ever since.

In 2001, the 45,000-square-meter Meyerkhold center was built at 23/29 Novoslobodskaya – a joint project by the Meyerkhold Theater and Interros. The property features offices, shops and the theater.

Properties built here over the years from 2000 to 2004 include Sadovaya Plaza at 7/9 Dolgorukovskaya Str. (19,286sqm, Enka, 2002); Chaika Plaza VII (12,438sqm, 2002–2003, Plaza Gruppa); the office and retail center Safari Center (3 Novoslobodskaya, 6,500sqm); a class B property at 24/2-11 Novoslobodskaya, 7,500sqm, on the premises of a former industrial facility redeveloped by ALM-Development; a building at 16–18 Novoslobodskaya (13,009sqm, built in 2004 by MGSN and purchased by Sberbank in 2005).

Top class offices in Novoslobodsky District include the Garden Ring business center at 2/4 Krasnoproletarskaya (3,512sqm), where the anchor tenant is Caterpillar; a building at 2 Novolesnaya (14,000sqm) built by Rus-Import-Komplekt in 2005; and Amber Plaza at 23 1st Shchemilovsky Proezd (15,200sqm) by Litnium Investments Ltd, according to Prime City Properties.

The first developers in Novoslobodsky were Interros, Enka, Chaika Plaza Construction and Sistema-Hals, says Andrei Petrov.

The early 2000s saw the development of Hals Tower at 23, 1st Tverskaya-Yamskaya (2002, 14,155sqm), Panorama Center at 8, 2nd Brestskaya (2003, 28,200sqm) and Parus at 23, 1st Tverskaya-Yamskaya (2002, 14,906sqm).

Maxim Zhulikov cites Sadovaya Plaza, the Chaika office centers and Amber Plaza as examples of prime office developments. Amber Plaza took years to build and had great difficulties in attracting tenants because properties there were initially only offered to foreign firms. That is why the development failed to produce a sensation on the market. But it went down in history, nonetheless.

“Developers have succeeded in leasing out or selling practically all the projects in that commercial zone,” says Zhulikov. Andrei Petrov agrees that all the class A and B developments in NOV have been more or less successful. The only exception, perhaps, is Dukat I at 9-10 Gashek Street that was put up for sale quite a long time ago, but still has not been bought. Dukat I is home to Citibank’s offices.

Jewels in the Crown

Every part of Moscow has its own points of interest. Novoslobodsky, too, has its masterpieces of property development. One of those is the Meyerkhold center. The development required a lot of effort from its authors and took a long time to build, Sergei Kollegov says.

In 1998, while the center was still under construction Russia was hit by a financial crisis. Nevertheless, in 2001 the development was completed. Properties were let out slowly, Vlad Portnov says. Nowadays, Meyerkhold has 8,900sqm of office space, rented out at $650-700 per square meter per year.

The 9,000-square-meter Golden Age property at 18-20 3rd Yamskoye Polye Street is considered to be a success by Knight Frank’s experts. As for the latest projects to arrive on the market, Knight Frank predicts the Dukat III business center at 6 Gashek Street (53,000sqm) will also be successful The property is due to be commissioned by the end of the year.

One more new property, slated to be commissioned in the 2nd quarter of 2006, according to Knight Frank, is the Hermitage Plaza, leased out by Colliers International. Hermitage Plaza at 2/4 Krasnoproletarskaya Street is a class A business center, situated next to the Hermitage Garden, on the outer side of the Garden Ring, Colliers International has reported.

The complex features two buildings linked with an internal terrace. The first building is an 8-storied development of 24,000sqm; the second has three stories and a total space of 2,300sqm. The terrace will feature a winter garden and there will also be an underground car park for 280 vehicles.

The plaza is situated next to the historic manor house of the Russian aristocratic family of the Ostermanov-Tolstoys. The new center is being built by Forum Properties and will be run by Forum Properties Management. The offices on the second to seventh floors of the first building are being let out in blocks of 3,300sqm at $650 per year (operating costs will amount to an extra $110). The 8th floor features penthouses. Offices in the second building are offered in blocks of 755sqm and larger. The term of lease is seven years. Parking spaces will cost $325 each per year.

Capital Plaza, built by Capital Group in 4th Lesnoi Lane, has been practically filled with tenants. Market analysts speak highly of the project. Today, there are some 12,000sqm of vacant space in the building, while most offices – 37,000sqm – have already been occupied, Maxim Zhulikov says. The company Regus rents 4,587sqm, Unilever 4,491sqm, and LG 4,023sqm, according to Knight Frank.

Maxim Zhilikov, though not involved in the Capital Plaza project as a broker, admits that it is a well organized project, from the construction materials to the layout. “Even if there are some faults, they are insignificant,” he says. “For example, some may not be happy having a filling station across the street from the entrance.”

Capital Plaza is a U-shaped building with an atrium in the middle which provides the interiors with natural light. Offices are let at $600-680, VAT and operating costs excluded. The offices on the top floor are more expensive.

Colliers International, the broker for tenancies at Capital Plaza, reports that rental rates there stand at $620-700 per square meter per year; operating costs are $100 per square meter per year; a parking space in the 3-level underground parking area costs $250 per month. Offices on the upper floors offer magnificent panoramic views of the center of Moscow. Large open plan offices of up to 3,000 sqm make it possible for tenants to change the layout in accordance with their preferences.

If you drive from Lesnoi up Butursky Val Street and on to Sushchyovsky Val, the solid frame of one more new building under construction will catch your eye. It is a future business center – the first office development project by the Delovoi Tsentr (Business Center) company – at 18 Sushchyovsky Val.

Maxim Zhulikov says the property will be the best in the area, offering prime office space to tenants not quite as affluent as those renting space at Capital Plaza. Nonetheless, the size of the complex will exceed the total size of Meyerkhold, any of the Chaika centers, Sadovaya Plaza and Olympic Plaza combined.

The 22-story building of 35,000sqm will feature an enormous underground car park, panoramic glazing, four-pipe ventilation, efficient planning of the elevator shafts, and, most importantly, a direct approach road from the Third Ring Road and the Garden Ring.

“I visited and inspected the building though I have not yet become acquainted with the developers. I think, perhaps it would be interesting to take part in that project in the capacity of a consultant,” Zhulikov says. Another property of the same class is the office center at 14 Kozhevnicheskaya Embankment, in Zamoskvorechye district, which falls slightly short of class A status, being a redeveloped facility, not a new building.

Close-Up View

Plaza Gruppa headed by Umar Dzhabrailov was one of the first developers to arrive in NOV. That happened in 1997, the same year that Dzhabrailov founded the company.

Experts polled by Vedomosti agree that Dzhabrailov’s Chaika office centers were the first quality office developments in the area. In those days, professional developers were rare and their knowledge of property management was rather vague.

Plaza Gruppa was founded, first and foremost, as a management company. After it succeeded in managing the Radisson Slavyanskaya business center the company was entrusted with the implementation of such major projects as the business centers on the premises of the Rossia Hotel, the shopping and leisure mall Okhotny Ryad and the business and retail complex Smolensky Passazh. After that Plaza Gruppa launched construction of a number of Chaika office complexes. Some of them were built in Novoslobodsky.

The first Chaika Plaza at 15/1 Zubarev Lane (18,000sqm) was commissioned in 1998, with offices ranging in size from 50 to 500sqm. Chaika Plaza I, built next to Prospekt Mira within a five-minute walk of the Alexeyevskaya metro station, sported a state-of-the-art air conditioning system supplied by the U.S. firm York. The offices were let out fully decorated and ready for use. Chaika Plaza II was built in 1999, not far from NOV, at 28/1 Tishinsky Lane (8,4000sqm including 4,845sqm of office space).

Expensive Offer

The Novoslobodsky district is becoming an expensive commercial zone. The average weighted rental rate for class A property on the section between Tverskaya and Novoslobodskaya stands at $735 per square meter per year; near Prospekt Mira the price is $685, according to Knight Frank. Class B offices were let at $550 per square meter per year in 2005.

Similar rents are charged in the prestigious district of Taganka and along the eastern stretch of the Third Ring Road. The rates in the Presnensky district are somewhat lower ($644). The highest rates – $919 on average – are traditionally charged within the Boulevard Ring.

A quality class A office near the Mayakovskaya metro station may cost a tenant at least $700 per square meter per year. For example, in a new office building with a total space of 31,000sqm and offices rented in blocks of 660sqm and more, the cost of renting one square meter can run up to $840, brokers report. Moreover, turnkey offers are rare these days as developers and landlords leave it to the tenant to fit out their properties. Decorating costs in the class A sector run up to $300 per square meter and higher.

Finding a cheap office in NOV is not easy. Offices rented at rates below $400 per square meter are rare. Penny Lane Realty, for instance, is offering a 230-square-meter property near Belorusskaya, on Elektrichesky Lane, at $450 per square meter per year. The office for rent occupies the fourth floor of a typical 5-story office building equipped with a video surveillance system and round-the-clock security.

An office and retail complex next to the Rizhskaya metro station has a 2,000-square-meter office available for rent at $350 per square meter per year. Regarding the sale offers available in NOV, Penny Lane is selling a 6,100-square-meter office building near the Mendeleyevskaya metro station for $8 million. The building is a 6-story parking facility meant for car salons. A parking lot for visitors is situated on the adjacent territory.