Guiding Lines: The Larger the Better, But Gradually

In an attempt to keep up with the developers, tenants and buyers are trying to rent or acquire larger properties. Last year, that figure exceeded 10,000sqm.

Developers are encouraged to take up increasingly large construction projects due the active demand for office space. (In 2005, the vacancy rate in the class A sector stood at only 2.5%.)

Large companies who buy entire developments for their own use, too, generate high demand for office space. Last year such acquisitions were made by the United Metallurgical Company (Aquamarine-1 Business Center) and Sibur (Gold Tower).

Another factor is the rapid development of industrial estates that began after city hall approved the target-oriented plan for the reorganization of Moscow’s industrial zones for the period 2004-2006. The Town-planning Department (of the Moscow government) is working on 59 industrial zones – or 12,000 hectares, i.e. practically half of all the industrial territories in the capital.

Relatively affordable loans play a role, too. Raising financing is no problem today, according to real estate analysts. Companies active in other business sectors are willingly joining large construction projects.

The names of those projects match their scale – technology parks, business parks, multifunctional zones, commercial districts. Or, at the very least, business centers.

The company Borodino has launched construction of the 60,000-square-meter Borodino business center, estimated to be worth $80 million, on Rusakovskaya Street, on the site of a former confectionary plant that has been moved to a new location outside Moscow. The first phase will feature an office center; the second phase is to be a hotel.

The Promsvyaznedvizhimost company has begun construction of the Delovoi Kvartal Novospassky Dvor business park on Derbenevskaya Embankment. The projected size of the project is over 100,000sqm; the projected investment is over $120 million.

Developers are beginning to build multifunctional facilities – projects where there are three or more property types that are subject to different levels of demand, according to the Urban Land Institute classification.

So far, Moscow only has one full-fledged ‘mixed-use’ – the World Trade Center on Krasnopresnenskaya Embankment.

Another, no less grand format is the technology park. It took 18 months to design a technology park on the territory of the AMO ZiL plant and have it approved by government bodies. The project entitled Nagatino I – Land has already entered the construction stage. The park, measuring over 1 million square meters, will be developed on a 32-hectare site, will feature offices, hotels and apartments, a retail and leisure center, a sports center, restaurants and an exhibition hall.

The management company Moscow Business Incubator that oversees and finances the project was set up by a Moscow city hall initiative. The first stage of the project, including six office buildings and two parking areas, is estimated to be worth $240 million.

The prospects of the largest project – the 1,000-hectare Bolshoi City – remain vague for the time being. Development on such a scale requires substantial resources and, to a considerable degree, government support, as the area is currently divided among a variety of enterprises, including some that are federally-owned.

The average height of office facilities is also growing, which is mainly down to the skyscrapers built within Moskva City. Gorod Stolits, or the City of Capitals, by Capital Group, will feature a 73-storied Moscow Tower and a 62-storied St. Petersburg Tower. In addition to offices those buildings will house sports facilities, a movie theater, boutiques, restaurants and cafes.

Another “couple of giants” are the Federatsia complex, measuring 423,000sqm in total, with Tower A standing at 93 stories high and Tower B at 62 stories. The complex includes offices, supermarkets, conference halls, fitness centers, cafes and restaurants. Yet another giant – Severnaya Bashnya (Northern Tower) – is slated to be commissioned by the development firm of the same name this year. The building includes 3 blocks measuring 135,000sqm in total.

Marketing surveys by development companies suggest there will be high demand for these large facilities. Although it is clear that once a large number of large-scale developments enter the market, the competition will intensify. Then, the quality will determine the choice, which means that some of those projects will have to be either downgraded or overhauled.

It is no coincidence that virtually every large development project is being phased in gradually so that their owners have time to adjust promptly to the rapidly changing market requirements.