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OVERVIEW
MAIN POINTS• Thedeliveryofnewspaceinthefirsthalfof2011wasatitslowestlevelinsevenyears:growthintotalsupplyofClassАandB
officespaceinMoscowwasjust3%(about330,000sqm).
• TherewassteadygrowthofdemandinbothsegmentsduringH12011.Overalldemandgrewby20%comparedwiththefirst
halfof2010(y-o-y)toalevelof430,000sqm.ItwasalmostequallydividedbetweenClassesАandB,whilein2010nearly
70%ofleasedandpurchasedspacewasinClassA.
• Shrinkageofnewsupplyandincreasingdemandisforcingdownthevacancyrate.Thisstateofaffairswillendureincoming
yearsdespiteincreaseoflendingavailableforofficeprojects.NewClassAprojects,thatmaybeannouncedsoon,willcome
ontothemarketnosoonerthan2014andthevacancyratewillcontinuetodeclineuntilthattime.
• RentalratesforClassАandBspacehavebeenrisingbrisklyforthelast12months.Growthinthefirsthalfof2011was7%in
ClassАand4.5%inClassB.
H1 2011OFFICE REAL ESTATE MARKETMoscow
Knight Frank
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H1 2011OFFICE REAL ESTATEMARKET Moscow
Supply
TotalsupplyofClassАandBrentalspaceinMoscowinthefirsthalf2011was11.5millionsqm,representinganincreaseof3%fromtheendof2010.Thisisthelowestgrowthrateinthelastsevenyears(theratehastraditionallybeen5-10%)thatcausesbythefallofconstructionvolumesduringthecrisisaswellasthechangesofpoliticalforcesinMoscow.Reviewandcancellationofinvestmentcontracts,changeofleaseperiodsfordevelopmentsites,abanonconstructioninsidetheThirdTransportRing,recentlyannouncedchangestothecity’sgeographicalboundaries,andpossibletransferofsomeadministrativestructuresoutsidethecity.AllofthesemeasuresareintendedtoimproveMoscow’sinfrastructureinthelongtermprospective,buttheyhaveinevitablyledtorevisionofplansbydevelopers,sothatprogressofcommercialrealestateprojectshassloweddown.
Increaseoflendingforcommercialpropertydevelopment(about$700millioninH12011comparedwith$780millioninthewholeof2010)andimprovementofdebtfinancingtermsmakeitprobablethatnewprojectswill
beannouncedtowardstheendof2011andinthefirsthalfof2012.Thesearelikelytobedecentralisedprojects,withthedeliverydatesin2014-2015.
OFFICE REAL ESTATE MARKET
Key indicators Class A Class В+ Class B-
Totalstock,millionsqm 11.52
including,millionsqm 2.19 6.31 3.02
Changefromtheendof2010,% +6% +3% +2%
CommissionedinH12011,sqm 329,400
including,millionsqm 125,100 159,400 44,900
Vacancyrate,% 14.5 19.2
Changefromtheendof2010,p.p -3p.p -1p.p.
Baserentalrates**,$persqmperannum 600-1,100(950-1,300**) 400-600 260-400
Changefromtheendof2010,% +7% +3%
OPEX,$persqmperannum 110-210 80-120 50-95
*ExcludingOPEXandVAT(18%)
**AveragerangeofrequestedrentalratesforpremiseswithapremiumlocationSource:KnightFrankResearch,2011
Kirill StarodubtsevManagingPartner,KnightFrank
«In the first half of 2011 we saw the continued recovery of the real estate market. Demand for Class A and B office space shows the steady growth, the amount of leased and purchased office space have closed to the pre-crisis meanings. However, the decline in new supply becoming more noticeable - reducing of the construction volumes in 2009-2010 concurred the change of political course in the capital. A ban of construction in the city centre, the review of investment contracts and other initiatives had a significant impact on the market of office space. Already there are signs of shortage of quality projects in Central business district, causing by an accelerated growth in rents for premium space». Legend
2TsvetnoyBlvd
www.knightfrank.ru
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Demand
About210,000sqmofClassAofficespacewasleasedandpurchasedinH12011,representinganincreaseof15%y-o-y.ThemaximumClassAtake-uplevelof1.2millionsqmwasrecordedin2007,whenthenumberofleaseagreementsforqualityofficespaceinMoscowwasalsoatanall-timehigh.Leaseagreementsareusuallyconcludedforaperiodoffiveyears,soanumbertenantsneedtomakedecisionin2011whethertorenewcurrentcontractsortoexpandtheirspaceormovetonewpremises.ThisisoneofthereasonsforcurrenthighlevelsofdemandforClassApremises.Andacceleratedgrowthofrentalrateshasspurredtenantsthatmakenewagreementsthisyeartoselectpremiumspacewithgoodlocationwhilecommercialtermsforsuchbuildingsarestillaffordable.UnprecedentedlylowratesofnewsupplyreducedthevacancyrateinClassAbusinesscentresfrom17.4%attheendof2010to14.5%bymid-2011.
LeaseandsaleofClassВofficespaceinH12011wasabout300,000sqm,whichisnearlyathirdmorethaninthefirsthalfof2010.Take-upofClassBspaceexceedednewsupplyforthefirsttimesincethestartof2010.GrowthofdemandinClassBwassteady,incontrastwith
Class
B
Class A
Source: Knight Frank Research, 2011
Объем предложения в сегменте класса B в 4,3 раза превышает предложение класса А. Вакантных площадей в классе B в 6 раз больше
Вакантные площади,14,5%
Вакантные площади, 19,2%
Класс А
Класс B
Vacancyrate
19.2%
Vacancyrate
14.5%
Объем ввода новых офисных проектов в 2011 г. станет одним из самых низких с 2005 г.тыс. м2
Class B supply is 4.3 times greater than Class A supply. Vacant spaces is six times higher in Class B
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
02003 2004 2005 2006 2007 2008 2009 2010 2011 F 2012 F 2013 F
*Forecast is based on the plans of developers of the projects and can be changed
Source: Knight Frank Research, 2011
thousand sq m
The delivery of new office projects in 2011 will reach the minimum points since 2005
Class A Class B
Banks / Financial organisations
Energy / Mining industries
Business services
Advertising / Media / Marketing
Electronics / IT / Telecommunications
Manufacturing
Pharmaceuticals / Medicine
FMCG (fast-moving consumer goods)
Other
Source: Knight Frank Research, 2011
Demand for office space in H1 2011 was diversified
10%
8%
7%
5%
5%
8%
27%
20%9%
The key projects delivered* in H1 2011 and projects expected to be commissioned by the end of the year
*Completedbuildings,whichhavereceivedthestatementofconformitySource:KnightFrankResearch,2011
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H1 2011OFFICE REAL ESTATEMARKET Moscow
thesituationinClassАwheretransactionshavebeenlargerandgrowthrateshavefluctuatedfromquartertoquarter.AveragetransactionsizeinClassBwasabout2,000sqminH12011,whichissignificantlylowerthan3,400sqminClassA.Dealsinexcessof5,000sqmareonlyhalfasfrequentinClassBcomparedwithClassA.Generally,post-crisisrecoveryofdemandforofficesinthelowerClasshasbeenslowerthanforpremiumoffices,butClassBdemandisnowquickening.LargeavailabilityofspaceisonereasonforrelativesluggishnessofClassBdemand:thereisnearlysixtimesmorevacantspaceinClassBthaninClassA.
Key transactions in H1 2011
№ Company Area, sq m Address Property
Lease
1 Grinatom 13,500 8PaveletskayaEmb AFInaPaveletskoy
2 Morton 11,520 8PreobrazhenskayaSq Preo8
3 GroupМ* 10,800 2TsvetnoyBlvd Legend
4 OEK 10,770 14SerebryakovaPassage SilverStone
5 RenaissanceCredit*10,680 Building1А,12DvintsevSt Dvintsev
Bld1,8PresnenskayaEmb CapitalCity
6 SchneiderElectric 8,680 Bld1,12DvintsevSt Dvintsev
7 CreditEuropeBank* 7,620 12/16OlimpiiskyAve DiamondHall
8 TNTExpress 6,800 Bld2,3Passage№607 NovayaRiga
9 RussianDevelopmentBank 6,100 79SadovnicheskayaSt Progress
10 Pfizer 5,800 10PresnenskayaEmb NaberezhnayaTower
11 Transaero 5,500 13ZubovskyBlvd ParkKulturyHouse
Purchase by end-user
1 Confidential 28,120 1VasilisyKozhinoySt ParkPobedy
2 VTB 16,000** Bld1,13KrasnopresnenskayaEmb Federation,WestTower
Investment purchases
1 Promsvyaznedvizhimost 37,000 1ArbatSt AlfaArbatCentre
2 Aliv-M 12,200 Bld2,50A/8ZemlyanoyValSt Sadko
3VTBCapitalTPGCapital
shareintheproject5LesnayaSt29LesnayaSt
WhiteSquareWhiteGardens
*KnightFrankisconsultantofthedeal
**Approximatearea
Source: Knight Frank Research, 2011
thousand sq m
thousand sq m
Take up Delivery
0
50
100
150
200
250
0%
5%
10%
15%
20%
25%
30%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 F Q4 F
Class А
2010 2011 2010 2011
0Q1 Q2 Q3 Q4 Q1 Q2 Q3 F Q4 F
50
100
150
200
250
300
350
0%
5%
10%
15%
20%
25%
30%
Class B
Vacancy Rates
Increasing demand in Classes А and B against the background of low delivery, so vacancy rates are declining
www.knightfrank.ru
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Commercial terms
Growthofdemandandlowlevelsofnewsupplyhaveledtohigherrentsinbothsegments.Rentalrateshaverisenby7%inClassАand3%inClassBsincethebeginningoftheyear.Asbefore,growthhasbeendrivenbypremiumprojects:rentalratesforClassАpropertywithcentrallocationhaverisenby15-20%.
Thepresentmarketsituationwillcausefurthergrowthofrates.WeexpectrentsforpremiumClassАpropertiestoriseby20-30%infull-year2011.Ratesforproperty,whichisremotefromthecitycentre,mayriseby10%.
Forecast
Themarkethasenteredaconfidentgrowthphaseinthelast12months:therehasbeenrapidincreaseoftake-upandrentalratessincethestartof2010.InClassAofficesegmentthisprocessoccursmorerapidlyastenantshurrytomakenewagreementswhilecommercialtermsarestillrelativelyfavourable.ClassAsupplyshortageisprobablecoming12-18months,andapartofdemandwillshifttoClassBoffices.Weexpect15-20%annualgrowthofdemandinthecomingthreeyears.
Demandgrowthisdrivenbyexternalpoliticalandeconomicfactors:recentinitiativesbycityauthoritiestolimitconstructioninsidetheThirdTransportRingandoveralluncertaintyaboutprospectsforcommercialrealestateconstructionhaveledtoreductionofnewsupply.Undertheseconditions,availabilityisreducing.Atthesametime,researchbyKellyServicesandAntalRussiashowsthattenantcompaniesareplanningtohiremorestaff(staffincreasesofupto40%areexpectedin2011alone),sothatcompanieswillbeforcedtoexpandtheirofficespace.
Source: Knight Frank Research, 2011
$ per sq m per annum
Rental rates are growing steadily
Class A Class B
0
100
200
300
400
500
600
700
800
900
1000
I кв. II кв. III кв. IV кв. I кв. II кв. III кв. IV кв. I кв. II кв. III кв. П IV кв. П
2009 2010 2011
Класс А Класс В
$/м2/год
0
100
200
300
400
500
600
700
800
900
1,000
I II III IV I II III IV I II III F IV F
2009 2010 2011
Source: Knight Frank Research, 2011
thousand sq m
Demand is likely to grow by 15-20% per annum in the next few years, due to administrative events in Moscow and growth in staff numbers of tenant companies
Take up, Class А Take up, Class B
200
400
600
800
1000
1200
1400
1600
1800
2000
2003 2004 2005 2006 2007 2008 2009 2010 2011 П 2012П 2013П
Объем поглощения площадей, класс А Объем поглощения площадей, класс B
тыс. м2
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 F 2012 F 2013 F
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H1 2011OFFICE REAL ESTATEMARKET Moscow
GLOSSARY (THE KEY DEFINITIONS)
Term Definition
Base Rental Rate TherentalrateamountexcludingoperationalexpensesandVAT.
Business Park Acomplexofbuildingswithlow-densitydevelopmentandlargegroundparking.Itsusuallocationisoutsidethecitycenterwithgoodaccessibilitytomainhighways.
Business-сentre Apropertywithhigh-qualityofficepremises,widepooloftenantsandcentralizedmanagementsystem.
Commissioning TheobjectiscommissionedafterthestatecommissionandthereceiptofOperationPermit.
DeveloperAcompanythatconductstheconstructionofarealestateproject,providesfinancingorattractsfinancialresources.Alsothecompanyprovidesfurtherimplementationofspacedeveloped(sale,lease).
Free-rent period Atimeperiodthatisfreeofrentalpaymentss
Lease AgreementAnagreement,whichisconcludedbetweenatenantandalandlordandgivesarighttothetenanttotemporarilypossessorusethepropertyforthecertainchargecalledarentalfee.
LOI (Letter of Intention) Preliminaryagreementbetweenalandlordandatenantthatconfirmstheintentionofthepartiestoconcludealeaseagreement.Itcontainspreliminarytermsthatwillbeincludedtotheleaseagreement.
Loss factor
Multifunctional complex Apropertywiththreeormorerealestatecomponentsofdifferentfunctions.
OPEX (Operational Expenses)Moneyexpendituresallocatedfortheoperationandmaintenanceoftheproperty.Theyusuallyincludepropertytaxes,insurancepayments,managementandmaintenancecostsofproperty,utilities.
Pre-lease agreement Aleaseagreementthatisconcludedduringtheconstructionphaseofthebuilding.
Rentable AreaAreaavailablefortheexclusiveuseofthetenant,forwhichthetenantwillpayrent.Includescommonareassuchaslobbies,restroomsandhallways.
Rental Rate Theamountofmoneypaidbythetenantfortherentalofofficespace(persqmperannum).
SubleaseAleaseinwhichtheoriginaltenant(lessee)subletsallorpartofitspremisestoanothertenant(subtenant)whilestillretainingaleaseholdinterestintheproperty.
Take-up Theamountofunitsoccupiedduringaparticulartimeperiodinagivenmarket.
Total Area Totalareaofabuildingmeasuredontheoutersidesofexteriorwalls.
Total Stock AlloccupiedandvacantClassA,B+andB-officespaceforaspecifictimeperiod.
Useable Area
Itisthetenant’srentablearealesscertaincommonareassharedbyalltenantsoftheofficebuilding(suchascorridors,storagefacilitiesandbathrooms).Itisappliedforthelocationoftheworkplaces,equipmentandfurniture.Theareaismeasuredontheinteriorsidesofbuildingwallsincludingthemeasurementofstructuralcolumnsandarchitecturalprojections.Itdoesn’tincludecommonareas.
VacancyThenumberofunitsorspacethatisvacantandavailableforoccupancyataparticulartimeperiodwithinagivenmarket(usuallyexpressedasavacancyrate).
Vacancy rateThepercentageoftotalofficestockthatisvacantandavailableforoccupancyataparticulartimeperiodwithinagivenmarket.Itiscalculatedbydividingvacantspacebytotalspace.
%100)_
_1( ∗−
arearentable
areauseable
OVERVIEW
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Saint PetersburgNikolai Pashkov [email protected]
KyivMikhail [email protected]
Marketing, PR, and Market ResearchMaria [email protected]
EstablishedinLondonmorethanacenturyago,KnightFrankistherenownedleaderoftheinternationalrealestatemarket.Withofficeslocatedglobally,KnightFrankisabletoprovideafullrangeofservicesintherealestatemarketallovertheworld.
TogetherwithNewmarkCompany,KnightFrank’sstrategicpartner,thecompanyencompasses209officesin47countriesacrosssixcontinents.
KnightFrankhasbeenasymbolofprofessionalismfortensofthousandsofclientsallovertheworldfor113years.After13years,KnightFrankhasbecometheleadingcompanyinthecommercial,warehouse,retailandresidentialrealestatesegmentsoftheRussianrealestatemarket.Morethan500largeRussianandinternationalcompaniesinRussiahavealreadymadeuseofthecompany’sservices.
KnightFrank’semployeesareprofessionalconsultantsinvariousfieldsconnectedwithrealestate,suchasrentandsaleofproperties,selectionofproperties,attractionofinvestments,consulting,valuation,marketresearch,marketingandprojectpromotion,propertyandassetmanagement.
Weofferthefullrangeofconsultingservicesnotonlyfordevelopersandowners,butalsoforrealestateusers;bothlegalentitiesandindividuals.Now,thecompany’sstaffconsistsofmorethan330employees.
ThisandotherKnightFrankoverviewscanbefoundonthecompanywebsitewww.knightfrank.ru.
© Knight Frank 2010
Thisoverviewispublishedforgeneralinformationonly.Althoughhighstandardshavebeenusedinthepreparationoftheinformation,analysis,viewsandprojectionspresentedinthisreport,nolegalresponsibilitycanbeacceptedbyKnightFrankResearchorKnightFrankforanylossordamageresultantfromthecontentsofthisdocument.Asageneralreport,thismaterialdoesnotnecessarilyrepresenttheviewofKnightFrankinrelationtoparticularpropertiesorprojects.
ReproductionofthisreportinwholeorinpartisallowedwithproperreferencetoKnightFrank.
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