Guiding Lines: Money and Prestige
The majority of business centers that have been put into operation in the first half of 2008 have been located in the center of Moscow although experts are observing the benefits of the displacement of construction of new premises outside the MKAD. It’s interesting why the marketing experts of firms make comments with pleasure to journalists on the condition of the Russian market using the conclusions and findings of their foreign colleagues from other national markets, but cannot agree on the state of it? Do the interests of the firms prevail?In the first half of 2008 more than 700,000 sq.m of space was put into operation in the office market in the Moscow region – almost all companies agree on this. But of them, according to GVA Sawyer, in the first quarter 440,000 sq.m of offices were classes A, B+ and В-. At Becar Realty Group they calculate the share of class A and B offices at about 320,000 sq.m. The difference is 30 per cent. The disputes between market participants over the principles of the classification of buildings have not ceased, despite periodic assurances about reached agreements.
The actual total volume of areas new on the market was approximately 56 per cent of that planned for the given period. "This is due to the fact that the deadlines of commissioning the majority of premises were pushed back," explains Roman Sokov, director of the consulting department at Becar Realty Group. The main share of office space that has entered the market is in class B business centers and represents 58 per cent. The share of new offers in class A business centers is 42 per cent.
According to Mayfair Properties, rental rates in the first half of 2008 increased 8-10 per cent. As Pavel Yanshevsky, partner S.A. Ricci / King Sturge, notes, rental rates are overestimated in many projects. Class A business centers are increasingly appearing on the market and in which at the time of delivery there are vacant areas. "The percentage of vacant areas grows every day and now, according to our data, in class A premises reaches 6.1 per cent," he complains.
A significant event in the office real estate market so far in 2008 was the commissioning of the West Tower in the Federation complex (80,800 sq.m). The building measures 243 m tall, and is one of the tallest in Moscow. The complex includes office premises, apartments, a hotel, a swimming pool and a SPA zone, restaurants and clubs. In the opinion of Andrei Bushin, general director at MIEL Commercial Real Estate, "the advantage of the class A business center Business Centre Solutions (total area – 28,000 sq.m, rented area – 18,000 sq.m), constructed in the area of Dinamo metro station (Teatralnaya Alleya), is a successful location, as there is both access to Leningradskoye shosse and the Third Ring Road. But in class A office complex Brent-City (24,400 sq.m) on ulitsa Dubininskaya near Paveletskaya metro station there are not enough car parking spaces. Parking is allocated at a rate of 1 parking place per 120 sq.m of rented space, and there should be 1 space per 80-100 sq.m, notes Bushin. Sergei Volochkov, director of the commercial real estate department at Mayfair Properties, thinks that although the quality of the construction of multifunctional complex Neglinnaya Plaza (76,000 sq.m located on Trubnaya Ploshchad) meets world standards, the project is weak; it also has problems with parking. A second problem is that there are many premises under construction in the surroundings of the complex and consequently access to it is difficult, the expert considers. In Sokov’s opinion, the RigaLand business park (on Novorizhskoye shosse, 7 km from the MKAD) has a set of advantages even though it is located far from the center of Moscow. Among the advantages of the project are the presence of multi-storey car parks above and underground, low rental rates (from $380 per sq.m a year), high quality premises, developed infrastructure (a modern hotel, a congress center, banks, shops, a cafe, restaurants, a fitness center), and good transport accessibility.
Among premises put into operation in 2008 were Mercury City Tower, a class A multipurpose complex on Krasnopresnenskaya naberezhnaya (total area – 158,528 sq.m), Well House, a complex on Leninsky prospekt (165,000 sq.m), and Solutions Business Park, a class B office center on Varshavskoye shosse (64,160 sq.m).
The main feature of the premises pout into operation is their location in the central part of Moscow. Although experts at CMI Development distinctly observe the benefit of the displacement of construction of new office areas further from the city centre. Especially in the West. For example, one of the most successful office complexes – Chiswick Park (138,000 sq.m) - is located 8 km from London, and Stockley Park (232,000 sq.m) is 24 km from the British capital. Among the key factors of their success are their rental rates, which are 2-4 times lower than offices in the city centre. In Moscow in the city centre the average rental rate for office premises in new, quality business centers is about $1,000 per sq.m a year, and outside the MKAD are $450 per sq.m a year.
Having carried out detailed analysis, analysts at CMI Development have results that show that expenses on a project in the central part of Moscow are 30-40 per cent more than decentralized premises, and the cycle of realization of such projects are 1.5 years shorter. The profitability in both cases is approximately the same level due to a much lower price to enter a project in the Moscow region. Although the net profit is considerably higher in the center of Moscow due to higher rental rates and sale prices.