MARKETBEAT RESULTS 2016

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OFFICE SECTOR

The Offer

  • By the end of 2016, the total market volume of the quality office real estate in St. Petersburg has exceeded to 2.5 million sq. m.
  • 215 000 sq.m premises were commissioned in the quality office estate segment in 2016, which is comparable with 2014 indicators.
  • The total volume of the new office centers of class A amounted to 129 500 sq m, in В/В+ class new proposal amounted to 85 500 sq. m.
  • By the end of 2016, the market structure for positioning class of the office space has not changed significantly: class A share by the end of 2016 increased for 2 percentage points and amounted to 43% or 1.09 million square meters; class B/B+ share amounted to 57% or 1.45 million sq. m.

Commissioning of the new office premises

Key office projects commissioned in 2016

Name

Class

Useful area

Nevskaya Ratusha (2 phase)

А

53 000

Fort Tower

A

26 000

Viktoria Plaza (2 phaze)

В+

27 000

Business center in Expoforum project

А

22 000

Business center, Uralskaya , 4

В

16 000

Megapark (2 phaze) 

В

18 000

Moyka, 74 (Adamant)

А

20 000

L27

А

8 500

Arsenalnaya , 66

В

7 500

Perco

В

7 000

Nevka

В+

5 000

Business Palazzo

В+

5 000

Offer structure according to the office center class

Perspective offer

  • According to the plans of the developers, the overall gain of the quality office space by 2016 should be amounted to 250 000-270 000 sq. m, however the timing of commissioning of some projects to the market was postponed to the beginning of 2017.
  • The negative trends of the national economy have a significant impact on the office sector of St. Petersburg, primarily on the developing of the new projects. The reason is the limitations of debt of financing. Thus, in 2017-2018, the office market may face with lack of quality offer.
  • According to our forecasts, within 2017, 170 000 square meters of office space will appear on the market, which is lower than figures in the current year.

Key office projects, planned to be commissioned in 2017

Name

Class

Useful area

Sofiyskaya , 8

В

28 000

Melnik*

(delay from 2016)

В+

18 000

Ligovskiy, 266*

(delay from 2016)

А

18 000

Senator on Chapaeva (2 phase)

А

18 000

Graffiti*

(delay from 2016)

В

15 000

Krasnogvardeyskaya square, 3

В

12 000

Ponomarev Center

А

12 000

Geographical offer structure

  • By the end of 2016 geographical structure of the quality office space offer has not changed.
  • Strengthening of Moskovsky district market share is continuing.
  • Major projects launched in 2016, opened in Moskovsky district. By the end of 2016, about 20% of all new offer is concentrated in this business cluster.

Demand

  • By the end of 2016, the total volume of net absorption amounted to more than 190,000 sq. m, which is comparable to the figures in 2014.
  • The relatively high rate of net absorption is due to the fact that many projects by the time of the market entry had around 100% of occupancy rate.
  • In the total amount of absorption, oil, gas and energy companies consistently remained active. The biggest transactions were concluded by the structures of OJSC "Gazprom", as well as IT companies.
  • Up to the end of 2016 and in the beginning of 2017 we expect the number of large transactions with the total area from 30,000 to 40,000 sq. m.

The structure of demand according to the  industry sector of the  tenants

Key transactions of 2016 (rent)

Tenant

Office center

Useful area

StroyGasConsulting

Flandria

33 000

Oil and gas industry company

Renaissance business park

30 000

PAO Gasprom

Fort Tower

26 000

IT company

Megapark

12 000

IT company

 IPG Estate transaction

Smolenskiy

9 000

PAO Gasprom structure

Novgorodsky

6 600

Epam Systems

IPG Estate transaction

Magapark

6 600

Epam Systems

Light House

3 500

Confidential client

Nevka

3 000

СК Ресо

IPG Estate transaction

Peter Service

2 000

Key transactions of 2016 (selling)

Purchaser

Office center

Total area

PAO Gasprom structure

Mezon Plaza

35 000

Zenit bank

Alfa

10 000

Alfa Group

Formida

9 400

Jet Brains

Univers

6 400

Telecommunication company

Fort Ross

5 000

Vacancy rate

  • The vacancy rate in the high quality office centers on the basis of 2016 has decreased, despite of the level of new entry.
  • Weighted average vacancy was about 9%, which is one of the lowest values in the history of surveillance of the market of quality office space.
  • By the end of 2015 the vacancy rate in class A amounted from 12% to 16%. The vacancy rate in the class B also decreased and amounted to 5.5% vacancy in the class B was 7%.
  • We expect that current vacancy rates will decline against the backdrop of high demand and limited commissioning of the new premises.

Dynamics of absorption and vacancy rates

Rental rates

  • The average declared rental rates for office space for 2016 showed the increase if to compare with the end of 2015. So, rental rates increased by 7% for class A; in the segment of B class rates rose up to 5%. Currently, average rental rates for class A amount to  1 477 rubles per sq m per month, including VAT and operating expenses.
  • In the B/B+ class rates amount to 1 022 rubles per sq m per month, including VAT and operating expenses.
  • The geographical distribution of average rents and vacancy rates is presented on the map.

Trends and forecasts

  • The key feature of the last year in the commercial real estate segment was the fact that many new facilities  appeared on the market with the high occupancy rates. According to our estimates, developers have adapted to the macroeconomic situation and have found more rational approach to the launching of the new projects.
  • We expect that in the first half of 2017, the demand for quality office space will exceed supply. Likely the situation when the projects underwent the commissioning in 2017, will hit the market with 100% occupancy.
  • Rental rates will show moderate growth against the background of declining quality supply.
  • During 2016 there is a tendency to the construction by a built-to-suit system. Several large companies from different sectors are in search of land for the construction of large business centers of class A for their own needs.
  • IT sector companies prefer renting space without any  finishing, rates for such premises is  lower for 15-20%, making  finishing works by their own expense with the assistance of well-known architectural firms. According to our forecasts, at least 5 such kind of offices will appear next year,  with space from 2 000 to 20 000 sq. m. Finishing  quality and execution   of the architectural ideas will be on par with the best Western models office implementation, which according to our estimates, will increase the interest of the large tenants from another economical segments to the planning of the interior space of the office.
  • Because of the high rates of absorption and lack of the quality offer, some companies will change the usage of their property from shopping moles and hotel complexes to office centers .

RETAIL SECTOR

The Offer

  • Two quality shopping malls with total leasing area 88 000 sq. m. were commissioned in 2016. So that by the results of 2016 the range of high quality retail real estate reached up 3.9 million sq. m.
  • On the basis of the perspective construction, the proposal in 2017-2018 will not significantly increase. From the major projects planned to be commissioned in 2018, we can note "Hollywood“ trade complex , with the total area of over 100,000 sq. m.
  • The results of 2016 and also a forecast for the next year, indicate to the saturation of the real estate market of St. Petersburg. According to our opinion, new  major  projects will not be implemented and  the struggle for the purchaser will be held by renovation of existing projects.
  • So, by the results of 2016, “Adamant“ company was partially renovated "Balkan" and "Nevskiy" shopping malls. After partial reconstruction "South pole“ shopping mall, developed by FORTGROUP  company, was opened. After the re-conception "Capitol" shopping Mall was launched in August, and now  it is working in the format of "discount".

Dynamics of the new premises commissioning

Key retail projects, commissioned in 2016

Name

Address

GLA

Oxta Moll

Shaumyana pr, 4

78 000

 «Porrt nahodka II»

Teplovoznaya str, 31

10 800

Key events of the retail real estate market

  • Federal grocery retailer Lenta has purchased the facilities of the Finnish operator K-rouka.
  • International hypermarket network "Auchan" and hypermarket network operator DIY Leroy Merlin format has announced their plans for the development.
  • IKEA is planning to realize the third Mega shopping mall project in the Lomonosovsky district of the Leningrad region.
  • Russian brands of fashion-segment are continuing their development. The activity of international brands has decreased significantly.
  • From new brands entering the market the most remarkable are : Fashion House, O bag, Elis, Jil Sander, Navy, Swank, Veta, Valentino, Brusnika, Eres.

Occupancy rates of shopping centers

  • The overall market vacancy rate at the end of 2016 reached a level of 9%, which is about 300 000 sq m of vacant space in absolute terms. It should be noted, that the obsolete shopping malls with sub-optimal location and an outdated concept have the main volume of the free spaces.
  • However, due to the limited amount of available space within successful shopping facilities, coupled with decreasing amount of the new input, a key retail operators continue to look for opportunities to open outlets in the most successful projects.

Trends and forecasts

  • According to our forecasts the vacancy premises in aging shopping malls will increase in the next year also because of the implementation of the new projects to the market.
  • Many retailers are reducing or curtailing development plans, in 2017 development activity  will preserve the format of the online grocery stores and domestic fashion statements segment.
  • The demand of the gallery operators will continue to focus around the most successful projects with high traffic and a professional concept.
  • The trend of reduction in development activity will maintain and strengthen.
  • Rental rates for space in the gallery of successful trading objects will incrementally demonstrate moderate growth: strong operators of the gallery will strive in the most successful complexes with modern concept and high permeability.

Dynamics of vacancy rates

Rental rates

  • By the end of 2016 fixed rental rates decreased significantly. More and more contracts are concluded according to the % scheme of turnover .
  • By the end of 2015, average rental rates dropped for 10%. However, for the 2016 rates increased for 5%.
  • The maximum rates level was observed in the most successful shopping malls with a wide range of entertaining functions and with a significant pool of gallery operators.

Street retail

  • By the end of 2016, the street retail segment became relatively stable. Primarily due to the continuing trend of active development in the catering sector. Many network operators have implemented their development plans during 2016.
  • During the 2016 more than 100 new catering facilities were launched within the Saint Petersburg market, which comprises over 80% of total withdrawn facilities.
  • The structure of the street retail market by tenants profile remains stable.
  • By the results of 2016 vacancy within the street retail segment remained at the level of 4-5% with no significant fluctuations. Liquid facilities exposure period does not exceed 2 months.
  • Rental rates also remained stable. Maximum rates give the owners of the premises at the Nevskiy and Bolshoi Prospekt (P.S.).
  • The level of the tenant rotation decreased at the end of 2016 if to compare with the end of the same period of the previous year – 7.5% against 9.8%.
  • We expect the preservation of the main trends in the street retail segment in the first half of 2017.

The structure of demand for street retail premoses

Rental rates in key trade corridors

Trade corridor

Rental rate,
Rubles/
sqm/month

Nevsky prospect

6 000 - 12 000

Bolshoy prospect PS

2 500 - 9 000

Moskovsky prospect

1 500 - 6 500

Sadovaya street

2 000 - 5 000

Vladimirsky prospekt

2 500 - 6 000

Sredny prospect VO

1 500 - 4 000

6-7line VO

2 000 - 4 000

Kamennoostrovsky prospect

2 000 - 8 000

Liteyiny prosect

2 000 - 7 000

Zagorodny prospect

1 500 - 5 000

Vosstaniya street

2 000 - 6 000

Komendantsky prospect

1 800 - 4 500

Leninsky prospect

1 000 - 5 000

Veteranov prospect

1 000 - 4 000

Prosvesheniya prospect

1 500 - 5 000

Engelsa prospect

1 200 - 4 000

WAREHOUSING SECTOR

The offer

  • By the results of 2016, the total size of the warehousing market increased by 180 thousand sq. m. and reached the level of 2.6 mln. sq. m.
  • More than a half part of the warehouse market consist of the projects which are giving for rent, so this mean they are speculative. The distribution between 5the speculative projects and warehouses used under for personal needs amounts from 55% to 45%.
  • Warehouse development in 2016 has significantly limited the construction of speculative facilities. The demand for leasing of speculative warehouses is low –more space stays free
  • By the end of 2016 the share of built-to-suit projects and warehouses built for the needs of the of the owners confirmed in the new proposal. More than 80% of newly introduced objects are implemented according to the this schemes.

Dynamics of the new commissioned premises

Perspective offer

  • From the announced in 2016 perspective projects we can note the following:
  • The project consisted of 3 warehouses with total area around 70 000 sq.m., in the Maryino industrial zone , developed by admiral company.
  • A joint project of "Yulmart" and "Pulkovo Airport companies in the frames of the special economic zone "Aeropolis" according to which. implementation of 15 000 sq m of warehouse space is planned to be developed.

Key warehousing projects commissioned in 2016

Name

Industrial zone

Total area

Аrmada Park, 2 phase

Shushari

28 000

А Plus Park

Shushari

70 000

А Plus Park

Shushari

11 000

«Ulmart»

Piskarevsky pr

19 000

Wurth

Shushari

14 000

Тerminal

kubinskaya

5 300

Demand

  • By the end of 2016 the vacancy rate has decreased to the decline in the share of the newly commissioned high-quality speculative warehouse complexes.
  • At the moment vacancy in quality warehouse complexes stay at the level of 6%.
  • The structure of demand has not changed significantly. By the end of 2016, the company's of FMCG segment whose share in the total volume of transactions exceeds 50% will retain the activity. Also activity growth of the manufacturing companies was observed in 2016.
  • Logistics segment decreased activity up to 19 % of the total transaction.
  • Manufacturing companies show the very big activity. Different variants of transactions are discussed: as a long-term lease and purchase option of the premises.

The structural demand  according to the tenant industry

Typical tenant demand in 2016

  • Manufacturing companies. Rent applications: premises with an area of 800-1500 sq m, dedicated power 100-200 KWt, the availability of the crane usage.
  • Manufacturing companies. Purchase applications: premises with an area of 3000-5000 sq m, dedicated power 500-1,5 MWt
  • Requests for the rental/purchase of warehouse space 1 500 – 2 500 sqm, good transport accessibility.

Key transactions 2016

Tenant

Warehouse

Leasing area

Delovie linii

А Plus Shushari

12 000

Torgovy Dom Petrovich

MLP Utkina Zavod

11 000

Decatlon

А Plus Shushari

10 000

Marvel

Megapark

12 000

Uysta

Osinovaya Rosha

8 500

Banking structure

Troitsky Logopark

7 000

GK NEK

MLP Utkina Zavod

6 000

STA Cargo

AKM Logistik

4 000

Rental rates

  • Average rental rates in the dollar equivalent reach up to $60 per square meter per year. The weakening of the ruble rate has decreased significantly the dollar rate. Rates in dollars are not nominated on the market. Contracts with the rates pegged to the USD/EUR exchange rate, in a very small quantity present the market.
  • Rates stay in the range of 4 000-4 100 rubles per sq. m. per year excluding VAT and operating expenses in the ruble equivalent.
  • Manufacturing companies consider the rental rate not above 300-360 rubles per sq. m. per month, including VAT, while utility costs paid separately.
  • By the end of 2016 rental rates showed growth in the range of 4-5% due to a shortage in the market of speculative warehouse projects.

Dynamics of rent rates and the vacancy

Trends and forecasts

  • We expecting the implementation of the new projects with total volume about 100 000 sq.m.
  • The growing trend of reducing the share of speculative projects in the implementation of quality systems in built-to-suit segment.
  • Minor fluctuations in rental rates in the direction of growth, stabilisation of jobs by reducing the amount of typing speculative warehouses.
  • Manufacturing companies and companies in the FMCG segment will retain the high level of demand for quality projects. Rotation of the production companies associated with the recent increase of commissioning of the industrial sites for residential development and other functions, and the increase/reduction of production volumes.
  • in the period of unstable economic situation industrial parks are trying to find the new and effective solutions and adapt to the current needs of the manufacturing companies. For example, "Marino" industrial Park together with "A Plus development" plans to develop a new product for manufacturing companies to create a speculative manufacturing cluster in the industrial Park. Manufacturing premises of a new standard will be offered for rent with the possibility of future purchasing.

HOTEL SECTOR

The offer

  • By the end of 2016, total number of rooms in the quality hotels of Saint Petersburg reached the amount of 17.7 thousand rooms.
  • 5 hotel projects were commissioned in 2016 with the total room volume of 566 numbers, at the same time implementation terms of some projects were postponed to early 2017.
  • The level of the quality hotels commissioning gradually reaches the record level recorded in 2008-2010, due to the upcoming football world Cup.
  • By the end of 2016, the maximum share in the total capacity the of quality offer belongs to the 4* hotel segment - 51,3%. 16.5%, 3* hotels segment takes 32.1% share.
  • Offer structure shows the trend for stabilization of 4 * segment and the growth of 5 * segment

Dynamics of the new commissioned rooms

Perspective offer

  • In 2016 a significant increase of the profitability of the hotel segment in St.Petersburg has strengthened the interest of the investors for the construction of new facilities. The following hotels which are operating by the brands which are new in the St. Petersburg market are planned to be constructed: Jumerah, EliteWorldHotels and LotteGroup.
  • According to the announced terms, we expect commissioning of the hotels with the total amount of rooms amounted from 1,7 to 1,8 thousand up to the end of 2018.

Offer structure according to the hotel class

Key hotel projects, commissioned in 2016

Name

Category

Room capacity

Hampton by Hilton

4****

207

Best Western

4****

107

М19

3***

81

DOM Boutique Hotel

3***

60

Avet Park

3***

27

Demand

  • By the end of 2016 according to forecasts of Investment and strategic projects committee the city will attract more than 7 million people, and the share of foreign tourists will increase in compare with 2015 and will reach the number of 3 million people.
  • St. Petersburg tops the ranking of the most visited cities in Russia. For the second year Petersburg is recognized as the best tourist destination in Europe and receives the award of world travel awards - a prestigious world award in the travel industry. This fact has a positive impact on the tourist flows to St. Petersburg. Оccupancy rate

Dynamics of the tourist flow to St. Petersburg

Оccupancy rate

  • The average occupancy rate of St. Petersburg hotels at the end of 2016 showed a significant increase and reached 68%.
  • In the high season the occupancy rate in the most popular hotels can reach up to 95-100%.
  • Changing the demand structure on the hotel market in the terms of increasing the share of domestic tourism in 2015 led to the change of occupancy of the hotels within their price range. Due to the depreciation of the ruble against the dollar and the Euro, hotels high price segment has become more affordable for foreigners.
  • Significant impact on the high rates of occupancy also was increased by the tourist traffic from China, as a consequence of running the visa waiver program for tourist groups.

Dynamics of occupancy rate of St. Petersburg hotels

Financial terms

  • ADR indicator (average daily rate per room) shows an increase in the market average by 8.5% and amounted to 7 200 rubles.
  • For the 5* hotels the average rate in 2016 was 11 300 rubles, which is for 8.5% higher than in the previous year
  • For the 4* hotels ADR indicator increased for 7% and reached the level of 6 700 rubles.
  • The smallest increase in the average rate recorded in the segment of 3* hotels and amounts to 5%. At the end of 2016, the rate for this category was 3 750 rubles.

Room tariffs dynamics

Trends and forecasts

  • The hotel segment of the commercial real estate market of St. Petersburg showed the highest rates of return over the last 5 years that has led to sustained interest from investors and developers for development of projects in this sector.
  • The program of hotel industry development of St. Petersburg has started which was created by the Investment committee of St. Petersburg, according to which tourist flow should grow up to 7.3 million people. In addition, a targeted program is developed , which is designed to stimulate development of 3*** hotels.
  • Significant increase of the number of tourists visiting Saint Petersburg is expected in the 2017-2018 years, because in these years Confederations football Cup and the World Cup will be held. The increase in occupancy will be short term and tied to the dates of the events.

IPG.Estate’s specialists have over 10 years’ experience in the commercial and residential real estate industry.

Our company is one of the leaders in the real estate sector at the Russian and European market.

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