Guiding Lines: To Ban or to Restrict

That letter will, of course, be answered, either in a televised statement or by way of a new decree by Moscow city hall containing a mysterious word rendered in black and white – to “restrict”. Not to “ban” but to “restrict” as the latter word is far more meaningful and easier to understand for a builder.

The idea of the prefecture is hardly new. The legal act restricting construction of office facilities measuring over 5,000sqm within the city center is in force but for some reason remains unenforceable. Why is that so? It is enforceable but it does not apply to all.

The CAO administration proceeded from a “similar” document when it cancelled permission to carry out the development of a 10,000-square-meter office center in Kolokolnikov Pereulok [side-street] near Tsvetnoi Boulevard metro station by the firm Kontus.

“How could they do that? How on Earth? There is no place for such an arbitrariness in the most humane and just city – the city of Moscow,” the bureaucrats fumed, ignoring the fact that those documents had been signed by themselves or their colleagues. Moreover, when the fate of the future complex was decided, the city officials ordered to downsize the development not to the “legal” 5,000sqm but to 8,000sqm.

That is why the feeling persists that the new town-planning act will not bring about many changes to the city’s urban planning policy. The document is unlikely to offer any answer to the question who will be allowed to build, what and where.

One should not hope that Yuri Mikhailovich [Luzhkov] will wake up one morning after all, kiss his dear wife and say: “You know what, Yelena Nikolayevna [Baturina], beginning tomorrow don’t you dare build offices in central Moscow. Build apartments and hotels and that will make everyone happy.”

This is unlikely to happen. And if someone is allowed, that means others are allowed too. That is why “restrict” is better than “ban”. The main thing is to find an approach to a bureaucrat, with whom it is hard to establish a contact, but not altogether impossible. That the builders know how to do that is beyond doubt.

“We did our best but the outcome is still the same” is the main principle the majority of Russian government officials are guided by in pursuing their initiatives. Suffice it to recall the city hall’s plan for hotel development, which the CAO prefecture is set to stake on as well.

In line with the plan adopted several years ago the government allotted plots for hotel construction, but in the end those plots were used for construction of properties for other uses – apartments, offices, only not hotels. Will not the pattern repeat itself again?

It should be remembered that the development of most major commercial properties is planned for years ahead; long before those projects are launched considerable amounts of cash flow into them, that is why the task of restricting construction in downtown Moscow is hard to fulfill, if not impossible.

In the period of 2007 to 2008 alone, construction of as many as 320,000sqm of offices, including 90,000 class A and 230,000sqm class B properties is planned in the city center, according to Jones Lang LaSalle. For example, the third phase of the Akvamarin office center (in Russian: “Aquamarine”), measuring 33,000sqm, on Ozerkovskaya Embankment, or Romanov Dvor III (5,800sqm).

Making forecasts plans even for only two years ahead in these circumstances makes no sense, as the government will have changed by that time. And, who knows what the future government will move to restrict? But then, seriously speaking the idea of restricting non-residential development is not that bad. The initiative is likely to win support of some investors and many would-be tenants. To begin with, the problem of transport accessibility faced by most centrally located office complexes outweighs all of their advantages.

According to statistical reports, availability of convenient entry driveway is one of the key criteria of choice for potential office tenants. Secondly, soaring rental rates ward off would be tenants. (According to JLL, Moscow ranks 2nd in Europe in terms of the cost of base rental rate in the city center). Thirdly, city is running out of vacant building sites. Also, it should be remembered that the city center is becoming increasingly non-residential which is wrong as that disrupts the balance as compared to other parts of the city.

Take a stroll through downtown Moscow on winter evening, for example take Malaya Bronnaya and walk along Patriarshiye Ponds. It is eerie. Not only because it is cold and late, but because there is no-one in the street. All office workers have gone home.

But then there is another side of the coin concerning the restriction. With Russian economy growing crowds of international firms are entering the market. A centrally located office, preferably as close to the Kremlin as possible is, perhaps, their key requirement, despite skyrocketing rents and lack of parking spaces.

Vanity is what the owners of prestigious centrally-located properties successfully stake on. As early as today management companies operating some of the Moscow office centers, such as Di Fronte de la Casa and Baltschug Plaza, arrange widely-publicized tenders, inviting bids from potential tenants and thus pushing up the prices. The offers are few but the demand remains high. Once new office construction is restricted such tenders will become common and who knows, perhaps, in near future Moscow will leave not only London, but also Tokyo and Hong Kong behind in terms of the size of office rents. Only that superiority will be somewhat dubious.

Perhaps, it could make sense, instead of imposing restrictions on office development in the city center, to create incentives for investors so as to make them interested in the development of different properties in different locations, for example, by offering cheaper plots in other parts of Moscow and the countryside (the Moscow Region).