Guiding Lines: Class Disagreements

At the end of 2006 there was a conference of the research forum, though the information above barely reminds us that it took place. The appeal "Let's keep up with the times!" seemed premature. Empty columns in the consultants' tables can of course quite logically be explained by the new recalculations of all class A and B offices under the new standards - the process is labor consuming and long. Up till now 60% of class B buildings have been considered. But a more amazing fact is that consultants do not share a coordinated position. The new classifications have been accepted however everyone calculates the parameters of the office market as if neither the conference, nor the new standards exist.

After processing the four tables the divergences between the companies, and also their positions on the market and their style of work has became evidently visible. The quickest response came from Cushman & Wakefield/Stiles & Riabokobylko (C&W/S&R) which appeared to be a supporter of urgent transition to the new classification system. Evidently it is not very important for them that in their table there are only two parameters - rental rates and operational costs - which don't give a very full picture.

Probably, the rest will be added in due course. Only Jones Lang LaSalle (JLL) could calculate the parameters on total area, forecasts on increases and other indicators for new B+ and B- classes on time. It managed this as it used indexes that are only presented once a quarter.

Colliers International and CB Richard Ellis/Noble Gibbons (CB RENG) appear to be conservative and cautious and only covered classes А and B, like always, not covering B+ and В- in the tables. But it's nothing to be embarrassed about; all columns in the tables are filled. Colliers International originally justified its parameters by joining the subsections B+ and В- in column B. To separate, for example, the share of vacant areas in class B + and B- office buildings is not indicative. Besides the indexes of Colliers International have to correspond to material, which its analysts prepare for quarterly accounts where currently only class A and B appear. CB RENG honestly admitted that it simply did not have the resources to collect all the indexes, having divided segment B into two parts. But class A tables in both companies are labeled A new, as well as at JLL. Buildings in class A new are those that fall under the class A category and conform to the classification standards of 2006. The top "Four" managed to recalculate class A buildings, of which in Moscow there are not so many. Here again C&W/S&R distinguished itself by calculating both new and old class A business centers and separating them in the A new category.

The theory, apparently, is far from practice. For example, will it be possible now for consultants to convince developers and owners of business centers, especially new buildings, that their buildings are considered B+ not B, or A new instead of A? Will it be possible for the owner to convince his potential tenant that the office is this or that status? In fact often there is a situation where the consultant selling a building on the market, will advertise it as class A, as he works for the investor. But competitors wouldn't classify the same business center above B+ or B. And all this despite the existing classification. The Country Park business center in Khimki can be used as an example.

The owner is convinced that the building is class A, while one of the top "Four" companies, not connected with the project, is convinced it's class B+. It is a disputable subject. Especially when the office is located in the Moscow suburbs. There is no specific classification for a region. Therefore any business center is assessed there by the same measures as in the capital. But what about the main characteristic of real estate premises being location, location, location? Although, on the other hand, a new building in a town situated in the Moscow region could be considered high class when compared with those offices that have already been built there? Or for example - the complex on Dvintsev street. The consultants that the project belongs to give the premises a high class. Others skeptically say that in the Marina Roshcha area a building can be class B+ at best.

Although experts say that under the new classifications location will not be a decisive factor in defining the status of an office. Now the technical and design features of a building are much more important. And the location will affect only the level of rental rates. An opposite example is the Novosushchevsky business center, which the developer persistently insisted was class B premises. Meanwhile foreign experts, under many parameters including its location valued the building in a higher class.

Whether the market needs such strict classifications, which toughen the requirements to engineering systems, construction characteristics, patterns of ownership and the management of a building, is up to market players. For example, in New York it's much easier: de luxe is considered an office located in the best location and with the highest price. But Moscow consultants usually explain their approach to classification in the capital to the fact that the market is still young and requires strict frameworks. Therefore there is a mismatch in recent time among consultants which misleads other market players. By the middle of the summer the four leading consultancies promise to have all buildings in Moscow reclassified. We hope that they will agree at least among themselves.