Guiding Lines: When in Rome…

Three leading Moscow consultants – Knight Frank, Colliers International and Jones LangLaSalle – launched their offices in St. Petersburg and brokered a number of major deals. Knight Frank has been especially successful on the banks of the River Neva. In 2004 to 2005 the company acted as a consultant for the project Marine Fa?ade and penned the concept for the comprehensive development of industrial territories of the Baltic Plant and Severnaya Verf shipyard. Furthermore, the consultancy carried out an independent appraisal of three bids for the New Holland Island redevelopment. Later Knight Frank was named the official consultant for the project Gazprom City by the company Gazprom Neft Invest. Colliers International is a consultant for dozens of office projects across the city and has brought several Moscow-based retail operators to the city, with the Azbuka Vkusa chain among them. Jones Lang LaSalle conducted a marketing survey of the local office market at the request of the city authority.

Having secured a foothold on the new market, those three companies now claim leadership in the region. All of them have announced creation of the St .Petersburg office market research forum, tasked to elaborate a new classification for the local market of office properties. The new classification will build on the revised set of classification criteria, approved by Moscow Research Forum. The office classification devised for the Moscow market will undergo certain changes, which will affect primarily the quality of properties under reconstruction and location.

Introduction of new classification criteria inevitably brings about certain alterations and re-evaluation of rents. When back in 2003 Moscow Research Forum divided all properties into three categories – class A, B and C - owners of offices that fell short of higher standards set for class A were unhappy. On the one hand, only centrally located properties situated within the Garden Ring could be rated as prime – class A – properties. On the other, even if situated in immediate proximity to the Kremlin a property faced imminent downgrading, if, for example, it were not equipped with foreign-made lifts. Needless to say that both upgrades and downgrades directly tell on the marketing policy of property consultants and leasing agents, and on the size of rents. Hence, it is no coincidence that precisely consulting companies moved to share their market data and adopt uniform standards for the office sector. By late 2005 the office property market had been going through major changes and the so-called Big Four real estate advisory firms laid down a new set of classification criteria for office real estate. This time utmost importance was attached to the quality of engineering systems, whereas requirements as to location have been all but removed from the list of criteria, however important they were in early stages of the market. In line with the new criteria proposed by office property consultants a property may be rated as class A as long as it is situated near a metro station and there are no dumping grounds in the vicinity. But due to stricter requirements set for engineering systems many properties have been downgraded. According to experts’ estimates, such downgrades may result in immediate slump in rents by $150 per 1sqm. Considering that properties are categorized by the same group of consultants, a downgrade is similar to a verdict.

Moscow consultants’ move to elaborate their own classification criteria for the St. Petersburg market is a landmark event, indeed. To begin with, this move means that Moscow operators have finally come to feel at home on a new market. Moscow-based developers and investors arrived in the Northern Venice earlier; now time has come for property consultants. Secondly, introduction of new classification implies that previous standards have been recognized obsolete. Today, St. Petersburg properties are classified in accordance with a set of standards developed by the company Becar for the Guild of Commercial and Industrial Real Estate Managers and Developers. That is why it is quite clear why Becar views Muscovites' initiative as a challenge and has rebuked the Big Four for failing to invite local office market operators to take part in this work. Veterans of St. Petersburg's market do not deny that the city does need a new set of criteria of office property classification but refuse to accept Moscow's suggestions blindly.

Entering a new region is one thing, but imposing one's own rules there is quite another matter.