Money Growing: Office Sale

The crisis has arrived on the real estate market in Perm. The number of transactions has fallen. In the opinion of market participants, as a result of the crisis numerous intermediaries between sellers and buyers will suffer foremost.

Constructers are looking for opportunities for development. Popular measures are reducing personnel, freezing future projects, reducing prices, and also selling projects. All the more so as the authorities of the Perm region have no special programs planned to support the commercial real estate market.

According to general director of Stroipanelkomplekt and deputy of the legislative assembly of the Perm region Viktor Suetin, the concept and program of development for construction in the region from 2008-2012 is currently being considered by the regional parliament. “But these documents have been scheduled and do not take into account the crisis. And, of course, the authorities will first of all pay attention to the problems of housing construction. Regional authorities are still gathering information on the real estate market. I have not yet seen any real money directed at supporting the field of construction in Perm," Suetin told Vedomosti.

Although the Perm authorities have announced that they are prepared to invest in the construction of infrastructural objects. According to the deputy head of Perm Anatoly Makhovikov, the local government "is ready to support investors regarding the development of social infrastructure." For these purposes in 2009, 3 billion rubles will be allocated from the city budget. However, these changes first of all will concern builders realizing projects in the sphere of residential real estate. Despite the crisis, many experts are not inclined to dramatize the situation, and a number of companies still consider Perm a potential platform for investment.

End-of-season sale

Office real estate should feel to the full all the consequences of the economic crisis, considers Regina Davletshina, head of the Consulting project at Perspektiva. To reduce costs Perm businessmen are getting rid of staff and freeing up rented areas and moving into less expensive offices. In connection with this in the segment of small and medium sized businesses active migration has started: enterprises are changing spacious offices in prestigious business centers for less expensive ones. Moreover, representatives of large businesses are also saying goodbye to such offices.

For example, according to Vedomosti, investment group Vitus is considering selling eight floors it owns in a 14-storey building in the center of Perm at 50 Ulitsa Lenina or a share of them to foreign investors. According to Vedomosti, there are a number of potential buyers interested in purchasing the areas. General director of Vitus Sergei Brovtsev, when questioned by Vedomosti about the sale of the building, answered: "Everything has its price and if we get a good offer why not sell the premises."

The largest regional operator in the real estate market – Perspektiva – has also decided to sell a number of buildings belonging to it and use the obtained funds to repay debts. In particular, the Mirabella store at 53 Sibirskya ulitsa has been put up for sale. The premises are up for 195 million rubles. Perspektiva has also already sold another premises – Pokrovsky Passazh business center at 63 Ulitsa Lenina. The total area of the 4-storey building is 2,185 sq.m. The company has sold offices measuring from 20 sq.m at a price from 99,000 rubles per sq.m. The building was bought by investment group Vitus together with a partner from Perm, whose name has not been disclosed. According to Brovtsev, it was a good opportunity for the company to obtain good real estate premises.

According to research recently carried out by the sociological department of operative research, Pokrovsky Passazh is recognized by the people of Perm as the most prestigious business center in the Perm region. Now it has been sold to pay off debts, an investment banker that wished to remain unnamed told Vedomosti. Now Vitus owns 50 buildings, Brovtsev has confirmed, and investment company Finansovsky Dom has 50 more. Sources close to the management of Vitus had said that the purchase of Pokrovsky Passazh could cost a partner 200 million rubles. Brovtsev says that the asking price "was close to its real price," but the price of has not been disclosed. Meanwhile Vitus intends to complete the construction of a class B business center at 10a Ulitsa Klary Tsetkin, in the Sverdlovsk area of Perm. "Now we are working on the schedule for the last stage of construction, and I hope that we will complete it at the beginning of summer 2009. The majority of the premises in the business center have already been sold to buyers from Perm," says Brovtsev. Another commercial real estate premises belonging to Vitus is the Rechnik shopping center and an office complex on Ulitsa Ordzhonikidze in the Leninsky area of Perm, which are both for sale. The total area of the buildings in the complex is 8,113 sq.m. The adjoining land plot is 0.6 hectares. The primary cost of the complex, including reconstruction projects is 330 million rubles. However all possible offers from buyers are and will be considered and discussed. According to Brovtsev, there have been no offers yet.

previously Vitus considered the possibilities of reconstructing these buildings and reprofiling them into an in office center and residential real estate. General director of Vitus Alexei Chernov has announced that the project is interesting and at the same complex. Rechnik is located on the bank of the river Kama. This is one of a few places in the center of Perm where real estate premises are close to the river (in most cases industrial enterprises are located along the river. - Vedomosti) and the railway station. Vitus intended to create a unique project for the city on the place of Rechnik and even ordered the concept of reconstruction from consulting company BridgeHead (Moscow). The cost of the research is included in the sale price of Rechnik.

In general, in October 2008, according to Perspektiva, the sale price of offices fell 0.33% to 80,050 rubles per sq.m. In difficult economic conditions, sale and purchase transactions fade into the background and renting becomes the most important. The average rental rate of offices is 829 rubles per sq.m and has grown since the beginning of the year by 25.99%. Although the average rental rate for offices on offer since September 2008 has decreased by 1.59%. There are examples of the rental rate decreasing. For example, in the Avangard business center, constructed by Kansulting-servis, rent rates start from 800 rubles per sq.m a year. In comparison: there are class C premises at 14 Ulitsa Ordzhonikidze for the same price. On Ordzhonikidze, in turn, rental rates are also starting to fall by up to 500 rubles for the first month of rent. General director of construction group KD Group Andrei Gladikov notes that his company (specializes in the market of housing construction) intends to sell a number of small office premises. “As we operate with small areas, I don’t think we will have problems selling commercial real estate, as there are interested buyers in Perm," he is assured. At the same time Gladikov says that tenants in his premises are not paying rent. "The situation is not critical, but there is such a trend. In any case we negotiate with the debtors and we find a solution," he says.

A car park instead of a shopping center

At the moment the majority of the premises of top shopping centers are filled. However experts think that in the near future there may be a certain outflow of retailers from shopping centers. "It is clear that the consumer market is shrinking, and some retail companies will leave shopping centers. A share of the areas will remain vacant, while the others will be filled with retailers who have waited to enter shopping centers,” Davletshina does not doubt. “At the same time there will be difficulties with tenants at new shopping centers."

Trest Perviy will construct two shopping centers in the Ordzhonikidzevsky area of Perm: Kolibry at 12 Ulitsa Kabelshchikov, with an area of 2,750 sq.m, and the area of the second is still not known for certain. Experts agree that these shopping centers will find it difficult to find tenants, except for anchors, due to the crisis, as the purchasing power of the inhabitants of this area is low.

Since the beginning of 2008, according to Perspektiva, rental rates in Perm shopping centers have increased 16.7%. Famous developers have also postponed construction. For example, the financial-construction company that belongs to State Duma deputy Yury Borisovts does not plan to start the construction of the third phase of the Kollizei shopping and entertainment center in the near future. Makromir planned to construct a shopping and entertainment complex and residential complex on the place of the hippodrome in the industrial area of Perm. But the company has faced difficulties. In close proximity to the land plot bought by the company there is a Tuberculosis clinic and so construction of housing in this area is not possible. In connection with this the owner of the company Andrei Rogatchyov has said that he suspects the management spent the money. In his opinion, the cost of the 96 hectares of land in Perm (about $200 million) exceeded the market value 10 times. "For the Perm hippodrome with a tuberculosis clinic on the territory it’s hardly likely someone would pay more than $15-20 million," cites Rogatchyov. As a result Makromir has frozen the project. Now Makromir plans to build a car park on this land plot and has already applied to the administration of the city. Mayor of Perm Igor Shubin thinks that this temporary refusal to construction in favour of car parks may become a significant trend in the near future. This is because developers want to obtain any profit from funds invested in the purchase of a land plot. Having considered this trend, the authorities have reduced the period for considering applications for land for car park. According to Makhovikov, the decision to spend two sessions of the commission per week on the procedure of allocating land plots in order to speed up the process has been taken. Some areas of the consideration process that are regulated are also planned to be given to the local administrations. In particular, questions connected with the accommodation of car parks will be transferred to local level.

Nevertheless a number of companies regard Perm as an attractive city for investment. In particular, SDM, a group from Samara has shown interest in the region. However, no specific intentions of the group have been disclosed. Negotiations between the local administration and the IKEA, Castorama and McDonalds chains on opening outlets in the territory of the Perm region have not stopped. These negotiations started a long time before the economic crisis and none of the companies have defined the exact location of their outlets in the territory of the city.

Growth point

For a long time developers have been announcing numerous logistics centers, however only a few have been realized. But the logistics business, despite the crisis, in comparison with all other segments of commercial real estate is growing. Mai has put the class A Gigant logistics center measuring 4,200 sq.m into operation. The volume of investments in the premises was 200 million rubles, only 70% of which were loans from banks. The company also plans to build the second phase of the logistics terminal measuring 6,000 sq.m. At the moment there is demand for warehouse premises – the just put into operation terminal has been 60% filled already. The main tenant is Sunfruit-Trade, which is engaged in the sale of Dario juice. However, Mai’s premises do not seem so impressive in comparison to the grandiose plans of other players. The company controlled by a deputy of the legislative assembly of the Perm region Konstantin Okunev, plans to construct a large class A logistics center. Sever, which is part of Dobrynya group, plans to construct a 250,000 sq.m complex 14 km from Perm. The investor has bought a 50-hectare land plot along which in the near future the new national Perm – Yekaterinburg highway will pass. However there are also those who are leaving the logistics business. PSK-Logistika has announced that it plans to sell a class B industrial-warehouse complex in Perm, located near the Moscow – Yekaterinburg highway. The area of the premises is 8,200 sq. with a capacity of 8,000 pallet places. However, according to some market participants, the company is selling the warehouse to construct a new one on its place new. The reason is obvious: the logistics market in Perm has been extremely poorly developed, and now, it seems, investors are turning their attention here.