Money Growing: Tested on Itself

"The image of the company first of all should be assessed by its work, i.е. completed projects, but the site of the office plays a significant role in all spheres of business. An industrial company, for example, can be located in any area. If it makes good quality products, the location of the office will not affect the reputation of the company. As for legal and consulting companies and banks, an atmosphere of prestige and comfort is of course important. As they say, we are first judged by our clothes. For new clients the first impression about a company is created by in which building the company is located," Sergei Gipsh, managing partner at Colliers International, says. When selling a difficultly sold product such as a service, quality and office location essentially influence the image of the company, Elina Zanina, deputy director of the management of commercial real estate and development holding Miele, agrees. "In 90 percent of cases the attitude of clients towards a company is formed by the first impression of visiting its office, which can tell a lot about the company. As a rule, modern well-kept premises testify to the success of the company. The client expects his wishes and problems will be met with attention, and all rendered services will correspond to a high level of service," Yekaterina Khokhlova, PR manager at New Quality, says.

The Main Requirements

According to Gipsh, traditional offices of consulting companies, which serve the top segment of the market, are located in the central part of the city. "It is clear that it would be desirable to optimize all parameters: to have a magnificent location, a specific floor with a view of the river, excellent transport accessibility, abundant parking places, including for visitors, high ceilings and good ventilation. Class A premises by default correspond to many of these criteria," he says.

Another matter, according to him, is that the current level of rental rates is high (on average in Moscow class A and B offices are rented for $700-800 per sq.m per year excluding VAT and operational costs - Vedomosti) and that any company will look for a compromise between the desired quality and the payment for it. "But we would not risk choosing a building constructed by a nonprofessional developer," adds Gipsh.

The set of standard requirements can change a little depending on the segment in which the company works. "The basic and most important requirement which we gave for a premises was a location in the center of Moscow and its professional management. Our building has the unique presence of empty car parking spaces. Blackwood renders services in a high price segment, therefore potential clients should have convenient access to the company's office," says Konstantin Kovalev, managing partner at Blackwood.

According to him, organizations whose focus is on a luxury product and their potential consumers, aspire to be located closer to the center to provide security, a presentable view of the office, and high quality finishing. Companies working in other segments prefer transport accessibility. "In an effort to accommodate the largest number of employees and economize with budgetary funds renting an office in a location with good transport accessibility is most effective. But this location will more than likely be far from the central part of the city," says Zanina.

Besides the main requirements connected with transport accessibility and the location and quality of buildings, each consulting company has additional criteria on which it assesses this or that premises. "For us the presence of an open space is important as the concept of our business lies in the communication of employees within the company. Therefore our office combines an open plan area where the majority of employees work, and a closed office system for the top management of the company," says Kovalev.

According to Khokhlova "a premises should have a reception zone and several conference rooms equipped with modern technology for presentations."

"For us it is essential to have our own building with a fenced courtyard and parking. Therefore the optimum offer was a detached building which is only used by our company," Vyacheslav Shiryaev, general director of Vesco Group, says.

Only Rent

Although each consulting company puts forward different requirements for a premises, all advisers are uniform in their belief: an office needs to be rented, not bought. This is first of all explained by the specificity of the line of work of companies.

"The choice to rent or buy depends on the long-term and short-term development strategy of the business, the proposed budget and working funds. The possibility of an organization to invest in the construction of a building of its own more often than not says something about the long-term plans and solidity of the company. Therefore large companies prefer to own their own office. At the same time owning real estate needs to be considered as assets and not only as accommodation for its office. At any stage of development of a company office premises can become cramped. A new office can be rented, and the property that is owned by the company can be rented out,” says Zanina. However the majority of consulting companies have gone the other way.

"I am deeply convinced that it is currently more advisable for consulting companies to rent a premises, rather than have their own property. Large international consulting companies grow fast and often not always at predicted rates, developing new directions, services and departments. Renting allows for flexibility, to arrange office space according to the needs of the business. In a lease agreement it is possible to consider the possibilities of connecting areas nearby or renting a larger area, handing over to subtenants free areas and then taking them back when needed after say 5-7 years," says Gipsh.

According to Kovalev, purchasing an office is the least favorable type of investment in real estate, and for consulting companies brings little benefit. “The purchase of a high quality office will set you back a significant sum. It is more profitable to direct these funds to the realization of new projects, for example, instead of purchasing an office our company opened a development section,” Shiryaev agrees. According to Roman Sokov, director of the consulting department at Becar Commercial Property Moscow, "the cost of a premises is high, and the recoupment of such a purchase can stretch for 10-15 years. If the company has sufficient free capital that can be spent without serious consequences then the decision to purchase office premises is probably well taken. However experience shows that more often a company spends money on the development of the business with greater readiness and that is why the majority of consulting companies, as well as many other companies, rent office areas," says Sokov.

According to Ilya Shershnev, director of development at Swiss Realty Group, the exception to the general rule is a situation when it is an office in which the company plans to make super-exclusive finishings, which will cost several thousand dollars per sq.m.

Ways to Search

First of all a consulting company can rely on its own skills and connections. "We rented all our premises independently," says Shershnev. Sometimes when searching for an office the company is ready to carry out separate research. "Long before moving we carried out comparative analysis of the office premises market, gathered the opinions of all the department directors, made a forecast by the number of employees in each department and estimated the necessary number of conference rooms, servers and parking spaces. We also stated in which areas of Moscow we would like to be located," Gipsh says.

Frequently advisers consult competitors for help. "Now it is absolutely easy for consulting companies to address each other, for example, when one is interested in an exclusive project of another. There are many forms of co-operation between the competing companies, they all search and choose what's best for themselves, of course, but it doesn't mean that the end result of cooperation will be one of their own projects," Kovalev says. According to Zanina, Miele's first premises was selected by Colliers International.

Another way of searching for premises is what experts call the use of personal connections. "Vesco Group's office premises was found and rented by means of personal connections between the commercial department and a private builder. This is the main difference in the selection process of an office between market professionals and other companies. Real estate agencies and advisers and developers have a broad circle of active contacts through which they can more effectively find a premises and buy it or rent it on special conditions," says Shiryaev.

It is this route that Z-Realty took not so long ago. "We consulted known realtors to whom we were ready to pay a commission fee, and they searched for a premises for us as an external client. As a result one our partners offered us the premises in which we now sit," Vyacheslav Aksenov, managing partner of the company says. "Usually consulting companies rent from 100 to 500 sq.m. In such cases a database of large brokers doesn't help much, as frequently it is a question of either sub renting, or that a premises has become free because someone has moved out.

Lastly, some consulting companies prefer to use premises belonging to their main partners or shareholders. For example, Main Street, belonging to restaurateur Arkady Novikovu, occupies a premises at his restaurant on Vozdvizhenka.

Indicative Examples

According to Shiryaev, on the Moscow consulting market "settlement zones" of companies have been formed. "Consultants of the top four companies, founded by foreigners, have settled in modern class A office buildings, and the companies of the second echelon prefer the historical center, and consider even class B premises. The fact is that Russian companies are engaged in the whole spectrum of the market, for example out-of-town real estate, and large advisers are exclusively narrow specialists. The style of western companies dictates to them to be located in class A premises. Russian market players care less about the class of a building: for them a larger parking area and a convenient location within the Garden ring is important," Shiryaev explains. Other market participants confirm this.

"Colliers International's office is located in the Avrora business park on Sadovnicheskaya Nabarezhnaya in immediate proximity to the Garden ring and Paveletskaya metro station. The contract was concluded three years ago. At the time the contract corresponded to market rates, but over the last three years the market of renting class A office premises has significantly changed, rental rates have grown, and therefore it is now possible to consider that we even have a certain discount," says Gipsh. According to him, Colliers has worked for many years with development company Forum Properties (the developer of Avrora business park).

"Moreover, we are the exclusive consultants for the project of this business park. Nevertheless we drew up a list of all the business centers, which we could potentially be located in, then reduced it to a shortlist, which Avrora made it onto. And already when we were holding negotiations with the owners, we had decided that this office complex would be one of our priority projects. An additional plus was the fact that the office of Colliers International was going to be in a complex promoted by our company," added Gipsh.

Consulting companies of the second echelon really prefer buildings of a slightly lower class, but in the very historical center. "Blackwood's office is located at the corner of Volkhonka and Znamenka, obliquely from the Kremlin. From the windows there are open views of the Kremlin and the Christ the Savior cathedral, plus you can sometimes catch the pleasant smell of chocolate from the Red October chocolate factory," Kovalev says. According to Shershneva, Swiss Realty Group rents four office premises in Moscow, one of which is in the building that belongs to Enka and another is in the central administration of the diplomatic corps building.

Some Russian consultants prefer not simply premises of class B in the historical center, but separate private residences. "The office of Vesco Group is located in a rented 4-storey building in the Taganka area. The building was reconstructed in 2005, and today corresponds to a class B+ premises. The rental rate is $650 per sq.m. per year without additional charges," says Shiryaev.

According to him, a significant role is played by image in the real estate market, therefore the majority of leading players prefer modern business complexes, or separate private residences. "The latter variant is more convenient, as it practically excludes the chance of strangers being in the office premises and substantially increases safety. And a secured court yard solves questions about parking whereas in a business center the number of spaces to park is limited," he added.

However premises in the historical center usually don't allow for expansion if needed. "When our company entered the Moscow market, we searched for office premises for a long time. Initially the decision that it should be in the historical center of the capital was accepted. Therefore, when a free area in Ilyinka business center was offered to us, with open views of the Kremlin, we immediately accepted. However in such a prestigious location there aren't enough free areas. Our company is actively developing, the volume of projects on which we work is increasing, and consequently, and the number of employees is constantly increasing, and there is need for expansion which is already impossible in our premises," says Sokov.

Hunting to Change Places

Because old office premises cannot contain all employees any more, consulting companies often forget how much hassle it is to move, and start looking for a new office. "Our search took a long time, it started in 2003. However eventually our requirements changed: the initial idea was accommodation of large size office, but with low rental rates, but in due course the management came to the conclusion, that it was necessary to pay a little more in rent and have a smaller area. The first result of the search was the rent of space in Mosenka Park Tower business center, but during the development process the company moved to a more spacious office on Nikoloyamskaya," Zavina says.

Consulting companies name increasing staff numbers as the main reason for moving. "We currently occupy a significant part of a 6-storey building, and periodically we should rent new premises. We have already thought about the possibility of moving to Moscow-City but while to us it is not becomes absolutely close, we shall keep for the building because such kind from a window and such parking in Moscow to find difficultly," says Kovalev.

According to Khokhlova, another reason for looking for new premises is a desire to unite all offices under one roof. "We plan to move within 2007 and the principal cause is to unite several offices of the company into one newer building as our contract has run out in our current building passed in a category In, and we always would like to be in one of the best buildings of city. Therefore we shall shortly conclude the necessary contract. We also consider an opportunity of rent in one of buildings in "Moscow-city," says Shershnev.

Besides necessity in arises in case of division of the company. Last year, according to Aksenov, about 10 new consulting companies appeared in the Moscow real estate market each of which searches for office. For these reasons real estate market consultants are constantly in search of new premises for themselves.