Results of 2017: Office market review

Supply

  • According to the results of 2017 the total market volume of the quality office space exceeded 2,6 mln sq.m.
  • 165 000 sq.m. GBA or 140 000 GLA of quality office space put into operation in 2017, which is the lowest index from 2013.
  • The total volume of class A business centers put into operation amounted to 75 000 sq.m. GBA and 90 000 sq.m. GBA in class B.0
  • Supply structure has not changed significantly according to the class of business center. For the beginning of 2018 class A share amounts to 44%, class B – 56%.

Key office projects commissioned in2017

Name Class GBA
Polis B+ 28500
Renaissance Business Park (put into operation with tenant) A 26500
Senator Chapaeva, 2 stage A 22000
Reforma B 19000
Graffiti B 17000
Oktyabrskaya emb.,10 B+ 13000
Ponomarev center A 12500
Ekaterininsky A 7500
Senator B/ Morskaya A 6500
Nevka B+ 5200

Dynamics of office spaces put into operation

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Supply structure by classification of office centers


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Perspective supply

  • Асcording to our forecast аround 200 000 sq.m. of the office space will be put into operation in 2018
  • Commissioning of «Lakhta multifunctional complex» headquarters of Gazprom will be the most significant event of the office market next year.
  • By our estimates, office spaces for the time being rented by Gazprom, that will be released due to its moving to headquarters, will be occupied by other structures of gas sector.
  • The total volume of put into operation A class business centers will amount to 150 000 sq.m., a new proposal in В/В+ class will exceed 50 000 sq. m.
  • It is planned to start construction of the second part of Lakhta center project with the area around 170 000 sq. m. and 88 height in 2018.
  • The commissioning of 100 % occupied projects will continue as a tendency in 2018.
  • A number of projects implemented in 2018 will be commissioned for sale.
  • Commissioning of the several business centers in Moskovsky and Admiralteysky districts are announced for 2018. Moskovsky district continues to strengthen its leading position geographical structure supply.

Geographical supply structure

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Key office projects commissioning in 2018

Name Class GLA
Lakhta center A 130000
Nalichnaya, 44 B+ 20000
Premier Liga (3 part)  B+ 15000
Riverside A 12000
Grani  A 9000
Avatar B+ 8500

Demand

  • By the results of 2017, the total net absorption volume of the quality office space amounted to 120 000 sq. m., which is comparable to the results of 2011.
  • The decrease in absorption is primarily connected with the small amount of commissioning of the new spaces and also with the lack of the large office blocks with an area more than 1000 sq.m.
  • By the results of 2017 due to the decrease of the oil and gas sector activity absorption structure changed towards the increasing of IT sector transactions share.
  • Moskovsky district stays as the absolute leader in the frames of geographical absorption structure

Requested area demand structure
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Key transactions IPG Estate (lease)
Tenant Transaction area Object
EPAM 2100 Business center «Megapark»
«Peterburgskiedorogi» ltd  1400 Business center «Polis»
СKB Kontur 1100  Business center «Gelsingforssky»
 Edisoft  1100  Business center «Gelsingforssky»
UBRiR 700 Business center Renaissance Plaza
Medpace  500 Business complex Bolloev center
Key transactions in2017(lease)
Tenant Transaction area Object
Lesta 7800 Faberzhe square, 8
BIA Technologies 4950 Moskovsky prospect, 94 
Confidential 2600 Мoskovsky prospect, 151
Gazprom Subdivision 2600 Business center in the Moskovsky district
Biocad  2200 Passage business center
Confidential 2050 Renaissance Pravda 
SGK  2050 Business center in the Moskovsky district
 
  • By the results of 2017 investment activity in the office segment has grown – a number of important deals were closed.
  • The main market players such as Raven Russia, Jensen Group. Senator increased their assets.
  • According to our estimates, objects are sold at a rate below the market. In the crisis period, the purchase of objects can be practiced by the players who have their own assets or easy terms in banks. Companies understand the profitability of buying the finished assets in such circumstances.
  • In addition to the key market players end-users show their activity on the market as well, companies buy office property for their own use.

Key transactions 2017(sale)

Object Transaction area Customer
Business center «Aeroplaza» 33000 Jensen Group 
Business center «Kellerman» 22000 Raven Russia 
Business center «Severnaya stolitsa» 22400 Senator 
Business center «Nevsky, 38» 12600 Senator
Business center «Premium» 11000 Raven Russia 
Business center «Sistema» 8200 Dieta - 18 
Business center, Moskovsky prospekt., 139 5200 Trikolor TV

Demand structure by sector

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Vacancy rate

  • The vacancy rate in the high class business-centers as of the end of the year 2017 demonstrated decrease.
  • The average vacancy rate was 8.3% against 9% of the year 2016. The vacancy level decrease tendency strengthens amid a backdrop of new projects commissioning level decrease.
  • Vacancy level in the A class amounts to 9% against 12% by the results of 2016. Vacancy level in B class decreased as well and amounted to 5%, by the results of 2016 the B class vacancy was 5.5%.

Absorption and vacancy level dynamics

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Rental rates

  • Against a backdrop of quality office spaces’ deficiency, the average asking rental rates in the office segment increased significantly in the year 2017.
  • Asking rental rates for A class increased for 8%; in the segment of office real estate B class rates increased for 12%.
  • For the time being the average level of the rental rate for A class is 1,620 rubles for sq.m. per month, including VAT and OpEx. The asking rates are within the range in between 1,550 – 2,200 rubles for sq.m. per month.
  • B/B+ class rate – 1,200 rubles for sq.m. per month, including VAT and OpEx. The asking rates are within the range in between 1,000 – 1,600 rubles for sq.m. per month.

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Rental rate dynamics
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Trends and forecasts 

  • The tendency to put into operation the objects with a high level of occupancy continued to develop in the year 2017. According to our estimates, this tendency will also be relevant in 2018, to avoid the risks, developers will implement their projects only after subject to sign the lease agreements.
  • According to our forecasts, the demand for the quality office space in the first quarter of 2017 will exceed the supply. There is a probability that the objects with the commissioning term shifted to 2018, will enter the market with 100% occupancy rate.
  • Against the background of high absorption and lack of the quality offer, the tendency of reformatting of the retail and hotel properties for the office functions continuously grow.
  • Rental rates continue to demonstrate the moderate growth amid a backdrop of reducing quality supply.
  • The share of the oil and gas segment in the demand structure has decreased for the first time during the last 5 years. This is due to the commissioning of Lakhta center project - new headquarters of Gazprom, which is planned to be open in 2018, the second part of the object construction is already announced to start soon.
  • Due to the reduced activity of oil and gas sector, IT companies returned to the first place among the tenants in the demand structure.
  • The demand for fit-out services is increasing in the office segment, mostly it is consumed by international and Russian, particularly IT-companies. The companies mentioned above prefer to rent shell & core spaces with the rates reduced by 15-20% and perform fit-out works at their own expense, involving architects for the design project.
  • Investors became more active in the office real estate segment in 2017, e.g. Senator business centers network has conducted an active policy for business–centerspurchasing.By our estimates, investment activity in the office market will continue its growth in 2018.
  • Due to the deficiency of quality office spaces with large area, large companies show interest for purchasing business centers for their own needs as well.
  • Large companies are also considering offers for purchasing of 10 000 – 30 000 sq. m. land plots for construction of the business centers by the built-to-suit scheme.The query is mostly focused on the Moskovskiy and Central districts of the city.
  • The high demand for the quality spaces in the B class motivates landlords of C class objects to renovate their spaces in order to increase their proficiency and profitability.
  • Notwithstanding the deficiency of quality office spaces, a number of major players are revising their development strategy and plans for the projects implementation in the office segment. Thus, Gals-development company, that has obtained Nevskaya Ratusha business quarter in its assets list, for the time being is planning to construct a multifunctional complex on its territory (apartments are considered to be the main function). EKE Group company purchased a land plot on the Ligovsky prospect, previously belonged to Raiffeisen Evolution, the company intends to construct residential property there.

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