Guiding Lines: Profitable Relocation

One of the main trends of the office market is the process of decentralization in the construction of new business centers, business parks and techno parks outside the center of Moscow, to near the MKAD and the closest towns in the Moscow region. According to CB Richard Ellis, in the first half of 2008, 48 per cent of the total office space to be commissioned was in the zone between the Third Transport Ring Road and the MKAD (in 2007, this figure was around 30 per cent). The most significant projects to enter the market in the first half of the year were the first phase of Riga Land Business Park (7th km of Novorizhskoye shosse) with a total area of 36,200 sq.m, Profiko business center (1-3 Ulitsa Krylatskiye Holmy) measuring 25,800 sq. m, Yuzhnyi Port business park (12a 2nd Yuzhnoportovy proezd) with a total area of 25,100 sq. m, etc.

Among the largest projects announced in 2008 is the construction of 3 million sq.m of commercial real estate and 1 million sq.m of business class residential real estate on 150 hectares (at he junction of the 41st km of the MKAD and Kaluzhskoye shosse). The investors are the owners of the construction goods market “Mill" where construction will be conducted. Glavstroi also plans to construct an office and residential complex with an area of more than 400,000 sq.m on a site measuring 34.5 hectares at the junction of Borovskoye shosse and the MKAD.

As well as decentralization the structure of demand for offices is also changing, and demand for space outside the Garden Ring and the Third Ring is forming an increasing share. According to Colliers International, rental rates for class A office premises located in the center of the capital are $1,400-$2,500 per sq.m a year (excluding VAT and operating costs), and outside the center are $900-$1,400 per sq.m. Rates for class B+ offices in the center of the capital rarely fall below $1,100 per sq.m, and outside the Third Ring it is possible to rent premises for $900 per sq.m and less. Previously tenants could save money by concluding a preliminary rental contract (for example, in 2006 53 per cent of transactions were concluded under such contracts, and in 2007 – 25 per cent) but in 2008 this situation changed: the share of contracts concluded at an early stage of construction has fallen by up to 17 per cent. Experts say that developers now prefer to sign rental contracts at later stages of construction at higher rates, especially in the center of Moscow where the percentage of new office premises entering the market is falling but demand is growing. According to CB Richard Ellis, the share of vacant premises in the zone between the Third Ring and the MKAD is 10 per cent, outside the MKAD is 12 per cent, and in the city centre is only 3 per cent. The exception is Moscow-City where there are 13 per cent of vacant premises.

Sale prices of office buildings differ even more. According to CB Richard Ellis, asking prices in the Central business district vary from $16,000 to $20,000 per sq.m, while premises on the periphery are only $5,000-$15,000 per sq.m (depending on the location, quality and stage of construction of the premises).

Research on the distribution of concluded transactions in different zones of Moscow in the first half of 2008 shows that in the zone between the Third Ring and the MKAD 46 per cent of deals are concluded, outside the MKAD 15 per cent are concluded, between the center and the Third Ring 25 per cent of transactions are concluded, and in the center only 14 per cent are closed. The largest rental transactions in the beginning of 2008 were also concluded in business centers located outside the center (В and C class buildings). And TNK-BP rented 37,000 sq.m of space in Zapadniye Vorota class A business park on Ulitsa Belovezhskaya, and Video International has rented 21,088 sq.m in class B Riga Land business park (7th Novorizhskoye shosse). The possibility of renting demanded premises under favourable economic conditions is more often becoming more important than a prestigious place in the center for tenants.