Guiding Lines: New Administrative Resource


Office standards are traditionally developed by market operators themselves. But the Yekaterinburg government, it appears, does not share the opinion. Not long ago the local city administration announced its plans to set up a special work group under the city public services committee – one of the units within the city administration. The newly established board is tasked to exercise control over the city’s office sector. The group will count all the existing properties, issue certificates for new developments and award a certain class to each and every property.

The city hall reports that its goal is to bring order to the city market. Officials voice concern over the correlation of volumes of class A, B and C offices. Market operators complain that hitherto each landlord himself decided, which ranking his property deserves. That is why it was hard even to determine the exact volume of office stock. Class C offices make up the lion’s share – nearly 70% of all office space in Yekaterinburg, according to local media reports. Vacant class A and B offices are quite difficult to find. Although, according to deputy chairman of the public services committee, Mikhail Usoltsev, developers have been planning construction of class A space as part of their projects since last year. But so far none of the proposed top class office properties has appeared on the market.

A recent survey by independent Yekaterinburg-based analysts has revealed that out of 2.7 to 2.9 million square meter of office space in the city only 85,000 to 90,000sqm meet class A or B standards. Still, it is too early for the government to panic. There is hardly anything extraordinary in such correlation, judging by western practice, they say. Class C offices, or Soviet-built properties, do not grow obsolete fast. Class A and B projects are only beginning to emerge. As to class A properties included in many projects of future buildings, as suggested by the Yekaterinburg official, their prospects are doubtful. In line with the classification adopted by the Big Four in Moscow built-in properties or annexes rarely meet class A standards. Yekaterinburg has demand chiefly for class B properties. Class A offices are not as popular as local officials think.

Perhaps the demand for class A will grow in 2008 after the long-awaited Yekaterinburg City business center is commissioned by the Urals Mining Company and Renova Stroi Group’s project is launched. Both projects will provide a total of 500,000sqm of class A space. But some of the players are wary of those projects. The competition in the class A segment is non-existent. New office centers let space at the rate of 850 to 1,400 rubles per 1sqm per month. One of the possible scenarios of further development on the market suggests that class A office rents will skyrocket after Yekaterinburg City is launched, merely because would-be tenants will see what for they are offered to pay more.

The work group established by the Yekaterinburg administration comprises representatives of technical inventory bureaus, the Urals Real Estate Chamber (UPN), executives of design bureaus and real estate agencies and government officials. The office space inventory, already launched in the city, is to be finalized soon. The measure is aimed at establishing the exact volume of offices in the city and the state they are in. Besides, the group is set to develop a special training course for commercial property managers. But the key goal lies in developing the office classification, such as already adopted in Moscow. The preliminary results of the group’s efforts have revealed that class C offices make up 85% of the local office property market, some of those properties fall short even of class C standards and may be rated even lower, as class D. After the inventory is complete the work group will inform each landlord of his property’s true rating.

Yekaterinburg’s initiative to register all office properties in the city does not seem unfeasible. Moreover, such measures are even useful. Counting all office buildings in Yekaterinburg, which is much smaller than other Russian cities with multimillion population, is not that difficult, after all. Similar moves are being taken in Kazan, and even in St. Petersburg. The idea of launching a school for property managers is also quite useful. But as to the office classification, the question remains whether local operators will be satisfied with it and whether Moscow-based developers, pursuing projects in the region, will accept the local standards.