In-depth: Together is not so cramped

For buyers of elite apartments the most important thing is the status and privacy of a premises, and therefore dwellers are not always prepared to be neighbors with commercial premises. And tenants of commercial premises very often face problems of the frequent impracticality for business dealing of premises in a residential building. Is it possible to combine these two formats without a loss to either?

Problems of combining

Even within a single project premises differs in terms of liquidity, and the difference in price often does not bring expected results to the developer. According to inquiries at Welhome, a client capable of paying $10,000-$20,000 per sq.m for housing prefers quieter apartments with good views, and such apartments by definition cannot be located on the ground floors of a building. A specificity of the segment is that apartments on ground floors do not have high demand, even when offered at a lower price. Therefore developers allocate part of residential premises for commercial premises.

At first glance potential tenants and buyers of the commercial premises will get the most advantages from combining residential and commercial formats in elite premises. A deficit in the supply of high quality office and shopping premises in the Central Administrative District means that demand for quite small premises in elite residential buildings is rather high from companies whose audience is tenants of these buildings.

First of all such premises attract store operators who focus on the luxury segment, and tenants requiring a representative office. As a result there is the impression that the problem of combining formats mostly concerns the other interested party – the people who live in elite buildings for whom being neighbor to commercial organizations may cause a number of inconveniences. However in practice both groups may experience a number of complexities if the concept of a project is not thoroughly and precisely thought out.

For people who live in elite buildings the problems are quite clear. If the first floor of a building is allocated for offices, the owners of apartments will be burdened with a constant flow of employees of the companies-tenants. The work of an office is almost always connected with the necessity to receive visitors and therefore there is a great risk that the parking, the courtyard and the entrances to the building will be filled with the cars of the employees and clients of the company.

And if the first floor premises of an elite residential complex is rented to a store operator the situation may probably be even worse. Streams of buyers circulating all day are an unacceptable neighborhood for a person who has spent at least $1 million on an apartment.

However even for the potential commercial tenants not everything is so smooth. The builder of an elite complex who is focused first of all on the realization of residential premises and not specializing in commercial real estate, only when necessary allocates the ground floors of the building for offices or shopping premises. Therefore the characteristics of the premises – post spacing, the depth of the level, the height of the ceilings, the safe load on overlappings, communications – may not match the requirements of a commercial premises. The maintenance service of a building, as a rule, will also be focused on a residential format and does not always correspond to the service which tenants of commercial premises are accustomed to.

Commercial purpose premises in elite residential buildings can essentially differ from premises in business and shopping centers, which affects the efficiency of their realization and use.

Reaching harmony

In order to exclude possible complications when realizing a project, developers need to follow a number of rules and methods to smoothly combine residential and commercial formats.

First of all this involves the competent selection of tenants according to the needs of the residents of the building. This may be fitness centers, beauty salons, restaurants, medical centers, etc, which form an infrastructural component of the residential premises and do not cause discontent for the buyers of elite apartments. However, it is necessary to consider the risks of the inflow of external visitors.

There is another variant of effectively combining formats, which I would call “corporate.” This assumes the possibility of residing and working in the same building and should be precisely focused on a specific customer at the stage of construction, otherwise the realization of the project may be delayed. There have been such projects in the practice of Welhome. For example, an elite private building, where on the first floor there was a bank, and on the next two levels a penthouse for its owner.

But such projects are rare on the market: recently the commercial component has been the dominant factor in combining residential and office formats for "corporate" purposes. Examples are the apartments in the business centers of Moscow International Business Center Moscow-City, Barkly Plaza, etc.

In an elite residential building it is important to reduce the volume of commercial premises to a minimum and wherever possible to isolate these premises from the residential component. In an ideal scenario the entrance to offices or the shopping zone should be on the street, and the entrance to the residential premises should be through a courtyard. In any case the commercial premises should have a separate entrance and its own parking.

There shouldn’t be a high number of tenants of the commercial premises and therefore it is better to realize large commercial premises. Finally, for there to be the necessary demand for the commercial premises it is necessary to consider the requirements of potential tenants in terms of the premises’ characteristics at the construction stage.

Practice and theory

Today the number of elite residential complexes that have commercial premises within their structure is 25 per cent of the Moscow elite real estate market. In the long term the share of such premises will increase by 8-10 per cent a year in proportion to the realization of new premises.

The total volume of commercial premises in elite residential premises, according to Welhome, is 30,000-35,000 sq.m. On the Moscow primary market of elite real estate commercial premises are offered in 15-20 residential complexes. Those with the largest commercial component are Imperial House on Yakimansky pereulok, Arbat residential complex on Novy Arbat and Shokolad on Teterensky pereulok. In most residential complexes the area of the commercial zone is around 700-1,500 sq.m.

The market of commercial real estate in elite premises is represented by non-residential premises of various purpose located on the ground floors of buildings. On average they take up approximately 25-30 per cent of the total area of a residential complex.

It is interesting that developers of multi-format elite premises do not hasten to sell the commercial premises. At first glance it would be easier for a developer to get rid of non-profile assets, but the volume of premises offered for sale in this segment is 43 per cent, and the other 57 per cent are offered for rent. Apparently, some developers consider the commercial premises as an opportunity to make extra profit from business diversification. However it is worth noting that the share of premises for sale in this segment is more than on the commercial real estate market.

In general large-volume premises are offered: premises from 500 sq.m make up more than 50 per cent of the segment, premises from 250 to 500 sq.m make up around 30 per cent and premises from 150-250 sq.m make up around 10 per cent.

In 90 per cent of cases the tenants of commercial premises are offered the maintenance services of the residential complex – the average cost of which is about 5 euros per sq.m a month.

The price and rental rate in the segment are formed the same way as on the market in general, i.e. depending on the characteristics of the premises and its location. The highest sale price of commercial premises in elite premises, according to Welhome, is on Arbat and Ostozhenka: $17,800 and $16,000 per sq.m accordingly. The most expensive premises are offered in the Chistiye Prudy complex on Podsosensky pereulok and in Ostozhenka Park Palace on Korobeinikov pereulok.

The highest rental rates we have secured are on Zamoskvorechye and Аrbat: commercial premises in elite buildings located in these areas will cost $1,800 and $2,000 per sq.m a year respectively. In terms of rental rates the leaders are the Arbat residential complex (27-29 Novy Arbat) and Onegin on ulitsa Malaya Polyanka.

Sale prices essentially depend on how ready the premises is, but on average the figures are quite comparable to prices in business and shopping centers.

Despite all the complexities related with combining various formats of real estate within the concept of elite residential buildings, such premises more recently are more often coming onto the market. Therefore the task for developers, advisers and realtors is to turn these complexities into advantages.

In competently managing these tools all interested market participants win: builders, tenants of commercial premises and residents. For some it’s the rational use of the premises and reduced commercial risks, for others it’s conditions for effective business dealing, and for yet others it’s comfortable and private living.

The author is the head of the design consulting and analytics service at Welhome. The article was written specially for Vedomosti. Material under the heading "Point of View" does not necessarily reflect the opinion of the editorial team.