Money Growing: An office in a Field

Complicating the situation is the fact that the population of Moscow is attracted to decentralization: top managers are trying to move to cottages and townhouses, and simple managers are even more often compelled to look for habitation in cheaper (by Moscow prices) towns situated outside Moscow.

For the time being, neither should expect their journey to and from work to be short. According to the research department at Knight Frank, by number of modern business centers, the Moscow region lags behind the capital by 6-7 years. And now tenants are even more often paying attention to opportunities in the Moscow suburbs. Moreover, office and business centers are appearing not only at the MKAD and within the borders of the towns situated closest to Moscow, but also in fields on prestigious routes and even as part of the infrastructure of cottage settlements.

Around and near the MKAD

The office real estate market started developing on both sides of the MKAD. The first project outside the MKAD was Krylatskoye Kholmy, which was launched in 2005. Dmitry Kiritopulo, senior consultant in the department for relations with office premises owners at Jones Lang Lasalle (JLL), since then near or at the MKAD there have been numerous new premises, such, for example, as Western Gate, IKEA Business Park, Greenwood, Riga Land, K2. Under the forecast of the department of economic and strategic research at JLL, the share of business parks in the modern office real estate market by 2010 will increase to 6 per cent from 1 per cent in 2006.

In the opinion of Alexander Osipov, head of the consulting department at Astera, the potential tenants of offices outside the MKAD can be subdivided into two groups: if we’re talking about standard office buildings, then it is more likely to be back offices of large companies, undemanding tenants from the IT sphere, and companies whose work does not involve meetings with clients. The second group of tenants are those who choose business parks, i.e. office complexes with additional infrastructure and warehouses: these are Internet shops which require warehouses, or companies interested in additional services which a business park can provide.

Out-of-town business parks attract tenants with the opportunity of receiving quality services at a lower rental rate and at the same time avoiding the center loaded with transport. Kiritopulo considers that the potential target group of tenants are companies with a limited budget, companies which prioritize parking (for example at a ration of 1:25-40) and large areas of 3,000 sq.m and more). Foreign companies, including those that operate in the Moscow region or have manufacturing facilities there are also among the potential tenants.

Osipov considers that business parks have a big future. The concept of business parks enables tenants to individualize. They can rent a separate building, place their trademark on it, decorate whole areas in their corporate style.

At the same time the level of demand for premises located far from the MKAD in towns in the Moscow suburbs, is a little lower, considers Anton Korotayev, a leading analyst at consulting company Russian Research Group. He explains this is simple: in the last few decades the majority of inhabitants of towns located near Moscow have managed to work in Moscow firms. Moreover, solid "regional" companies have tried to organize representative offices in the capital and time is needed for this trend to break.

Not just parks

Gradually, little by little, other formats of office real estate are also starting to develop in the Moscow suburbs and they are already central to country life. The appropriateness of their construction still causes heated arguments. For example, general director of Elite Stroi Sergey Goz considers: having gotten used to clean air and no traffic jams, inhabitants of cottage settlements would agree with pleasure to have an office nearby. However if when choosing a house it is possible to be guided only by emotions, when choosing a place for business dealing, the owner of a company should consider a whole set of factors.

The complexities connected with opening an office outside MKAD, in Goz’s opinion, still outweigh the advantages. It is necessary to get your employees to the place of work, to organize the necessary infrastructure for a functioning office; a bank, telecommunications (phone, Internet, and a fiber-optical cable is desirable). Complexities also arise concerning the feeding of employees. All this leads to an increase in operational charges.

Director of the consulting and research department at MIEL Commercial Real Estate Aydar Galeyev agrees that the large bulk of tenants of business centers in the Moscow suburbs are the proprietors of companies who live near to the premises. The structure of their activity could be anything although locating the main office of a company with large streams of clients, for example an insurance company, would be unfeasible: you may lose potential clients without personal transport.

For example, at one time Uralsib considered the variant of an office in Greenwood business park. The main interest was from the shareholder of the company who lived nearby, despite the fact that adapting the buildings to accommodate a financial organization would require additional expenses.

Director for marketing of the Velich settlement Peter Kirillovsky says that he was repeatedly the witness of conversations, including among which were the inhabitants of the settlement, who were in favor of constructing a business center near to Velich. "This is connected with a desire to create an independent world outside Moscow, to tear all communications with the capital,” considers Kirillovsky. “The majority of Muscovites, especially those with family, do not love the mega city, and therefore leave it."

However it is still too early to talk about the intensive development of this segment, experts consider. Marketing director at Villagio Estate Lydia Grechina believes that the rapid development of office centers located along major roads into Moscow, will not start earlier than in 3-5 years. For this purpose it is necessary that the people who have bought real estate outside the city feature, have got the opportunity to comfortably live, in general having solved the questions of transport accessibility, etc. Only after that will the comprehension arise that it is not obligatory to go into the city center to work, and along major roads situated near Moscow there will be the corresponding high-grade infrastructure. Until then the creation of office centers near Moscow, in scales comparable with the capital, remains exotic.

A few warehouses

When they see the light, in Grechina's opinion, office centers situated near Moscow will develop most likely under two models. The first will be the construction of business centers on major roads - huge business parks measuring tens of thousands of square meters where hundreds of employees will come. Here, considers Grechina, the premises will frequently be used simultaneously as warehouses. Already now large telecommunication companies are looking outside the capital for large areas for the creation of mixed office-industrial divisions serving different routes (Kaluzhskoye, Kievskoye shosse, etc.).

The market research department at Knight Frank also thinks that for many companies it is important to have an office or back office in immediate proximity from warehouse or industrial premises as this makes it easier to manage the activities of the company. And a labor in the regions is cheaper. But according to various surveys, only 15-20 per cent firms are prepared to consider the possibility of renting or purchasing an office in the regions.

Of the existing logistics complexes with business centers Kulon-Baltiyu on Novoye Rizhskoye can be named. In the long term more of such premises will be constructed. For example, Vnukovo Business Park on the 10th km of Kievskoye shosse. By 2010 here there will be a technological park with a high-altitude automated class B warehouse complex. The total area of the project is 650,000 sq.m, with rented office space measuring 200,000 sq.m, and warehouse space measuring 450,000 sq.m. The developer of the project is Vysotniye Sklady.

By 2010 the first phase of the Sheremetyevo Business Park project is planned to be completed on Mezhdunarodnoye shosse, and by 2014 the second phase. The class B complex will be 3-5 storeys high. The total area will be about 200,000 sq.m. The developers of the project are Codest and Millenium Properties.

At the 4th km on Kaluzhskoye shosse within the limits of the A101 project, by 2011 Masshtab will construct the first phase of a class A multipurpose complex with 4-6 floors. The second phase will be completed by 2014. The rented office space here will total 200,000 sq.m. Also on Kaluzhskoye shosse, a bit closer to the MKAD at the 2nd km, Marbleton/Storm Properties will construct an 8-storey class A complex (with a penthouse on the 8th floor) measuring 230,000 sq.m by 2011. The rented office area here will be 100,000 sq.m.

And even closer to the MKAD, near the Dubrovka settlement, Most-Plaza office center, measuring 180,000 sq.m will be constructed. The developer of the project is SKM Group and the project was presented at the most recent MIPIM exhibition in Cannes.

Not the Wild West

However the appearance of large-scale complexes is by no means the only variant that will happen in the Moscow suburbs in the office construction segment. The second model of development is the creation of expensive centers for small representative-type offices, which are under construction and will be under construction near elite settlements and business class housing projects on various major routes and as part of the process of development of the cottage, out-of-town market.

"At the moment the creation of such premises is only rather developed in the West of the Moscow suburbs where the concentration of business processes is as intensive as within the limits of Moscow," considers Kirillovsky. Goz agrees: "Moscow is quickly catching up with the largest cities of the world, which are surrounded by prestigious suburban areas. Rublevo-Uspenskoye shosse is the first such suburb. Now this is the most developed place among the Moscow suburbs from both the point of view of habitation, and from the point of view of infrastructure."

On Rublevo-Uspenskoye shosse, administrative-business center 1 km is already functioning (6 Rublevo-Uspenskoye shosse, area of office premises - 2,500 sq.m.) Nearby, on the crossroads of the MKAD and Rublevo-Uspenskoye shosse, the class A Pallau RB administrative-business center is under construction (1st km of Rublevo-Uspenskoye shosse). The complex will comprise two buildings of 8-10 floors. On the first floor offices will be incorporated into general-purpose premises: there will be a food court, a shopping area and a services area. The whole complex will measure 57,400 sq.m. 26,800 sq.m will be rented out. There will be a five-storey car park for 312 cars, underground parking for 214 cars, and open-air parking for 32 cars. The developer is Ferro-Stroi. The project is expected to be completed by 2010.

Wimm-Bill-Dann is constructing a business center in Usovo, and another class A office building in Zhukovka. Also on Rublevo-Uspenskoye shosse, 12 km from the MKAD, Rezidentsiya business center (21,750 sq.m) was put into operation at the end of last year. On 1st Uspenskoye shosse Lille shopping and office complex has been completed. Its total area is 7,500 sq.m, with rented office area of 4,000 sq.m. "Rental rates of space in such premises are, on average, 20 per cent cheaper than in Moscow," considers Galeyev.

Grand Land, a class ААА office center in Barvikha (as classified by Savant), was designed by Savant for Rublevo oligarchs: of the total 27,000 sq.m of the 4-storey complex, only 8,000 sq.m is rented out. Each worker has not 6-9 sq.m of working space as in Moscow class A centers, but 25 sq.m. The remaining meters will be used for public zones: an atrium, a winter garden, a restaurant. The facade of the building will be finished in wood. According to Raymond Fadel, managing director at Savant Russia, it was rather difficult to get approval for such a façade from the fire services; the wood will possess non-flammable properties and be brought from Germany.

Each VIP zone will have its own lift, which will go down to the 120-space car park, located in a stylobate. The cost of construction, according to Fadel, is 4,000 euros per sq.m without taking into account the cost of the land and the establishing of communication links. At the moment no one else has announced the construction of such expensive centers. And rates here will unlikely be lower than in Moscow. However, according to Fadel, the proprietors will more than likely sell the office premises.

Active construction is also expected to take place along Novorizhskoye shosse, another prestigious western routes. Within the limits of the NovaRiga infrastructural center, which Villagio Estate is building near the Greenfield, Millennium Park, Monteville, Riverside and Sherwood elite settlements, the creation of office premises is also planned. The office feature is expected to be rather small - about 2,000-3,000 sq.m –for small representative offices, which will be rented by the inhabitants of the neighboring settlements. If a deficit of office space will be observed, there is the possibility of expanding the business center by several times.

Within settlements

Another facet of development in office construction is the appearance of business centers directly within the infrastructure of cottage settlements.

It should be noted that it is possible to rent an office in practically any scale settlement, for example in shopping and office centers (in the Korovino and Mechta settlements). It is possible to rent office premises in administrative buildings in which the services of the operating company are located (usually here areas are rented to small service companies). However it is possible to consider specially designed office centers as a specific "direction."

The opinions of experts on the destiny of such premises differ. Kirillovsky believes that their construction is not justified. "It is a mistake that your place of residence being close to your place of work is an advantage. A lot of people consider it not nice to have a country home, a place of refuge, to be neighboring a work place where it is necessary to fight for a piece of bread. People need to separate these places from each other, including with distance," he considers.

Olga Shirokova, head of the consulting department at Blackwood, explains that such business centers are more likely a side benefit of the infrastructure of a cottage settlement, rather than a typical phenomenon. They are focused first of all on the inhabitants of the settlements. The tenants of such premises are mainly companies that want to be closer to their VIP clients – insurers or bankers – or are the inhabitants of settlements who prefer to have offices close to their homes.

Amsterdam business center is located at Rezidentsiya Benilux at the 17th km of Novorizhskoye shosse. Barvikha Club has a social-business center, which, besides a shopping component includes office premises. The Barvikha Village and Pavlovy Ozera settlements also have an office component. Olga Kisarina, marketing director at Urban Group thinks that rather often developers plan the construction of shopping and office centers at the stage of construction and accept applications from potential tenants to rent these premises. Then they select the tenants for the actual, given premises within the limits of a cottage settlement project and as a result office areas are reduced to a minimum. Kisarina explains such construction by the presence of vacant territories on which it is economically feasible to place commercial real estate. For example, a land plot on a road. In addition, a business center will hide the "unpleasantries" (land plots with specific poor characteristics, which accordingly would reduce the appeal and value of the residential premises) of the neighborhood.

At present the majority of office areas are planned in settlements located near Moscow, on the "cottage" routes most developed by developers - Kaluzhskoye, Novorizhskoye, Dmitrovskoye. Practically all the premises that have been announced are at the initial stage of realization, and the majority of developers have yet to define rental rates. Grechina believes they will be $500-$1,000 per sq.m.