ILM has summed up the results of the 3rd quarter of 2014 in the Moscow office real estate market. 2014 will be a record year for new construction in the past 5 years, while the level of vacant space in class A business centers has reached its maximum, exceeding the crisis figures for 2008–2009.
According to ILM analysts, in Q3, 2014, the total supply of quality office space in Moscow reached 16.5 million square meters. The largest supply of vacant premises is observed in class A facilities, where the indicator has reached 24.5%, which exceeds the level of crisis values for 2008–2009.
In Q3, 2014, 452 thousand sq. M. entered the Moscow office real estate market of office space. In the first nine months of 2014, a total of 966 thousand square meters were commissioned, which exceeds the volume of new construction for the same period of 2013 more than doubled.
The largest new office facilities introduced in Q3 2014 are: Phase I of the ComCity business park (Alpha phase with an office area of 107,000 sq. M) and Lotos business center (with an area of 88,200 sq. M.) Located in Southwestern direction. This confirms the strengthening of the process of decentralization of new construction and its inherent in today's Moscow market. More distantly business districts continue to develop.
It should be noted that by the end of 2014, more than 600 thousand sq. M. are stated to commissioning are scheduled such large objects as: “OKO” towers (116,280 sq. m, MIBC “Moscow-City”) and “Evolution” (80,500 sq. m., MIBC “Moscow-City”), business -centre "Vereiskaya Plaza III" (76,900 sq. m., Vereyskaya st., 39, p. 33). The second phase of the complex “Sirius Park” (62 500 sq. M, Kashirskoye shosse, 3), MFC Vodny (61 570 sq. M, Golovinskoe shosse, vl. 5) and others. According to analysts ILM, 2014 will be a record year for the volume of new construction over the past 5 years.
The main share of new construction (about 70%) falls on areas outside the Third Transport Ring. As for the expected facilities in the Central Administrative District, 80% of the area falls on the Moscow-City MIBC. Thus, the cumulative volume of new proposal will exceed 1 million square meters. m, which will increase competition between business centers and allow potential tenants to choose high-quality office space for attractive conditions.
In Q3, 2014, the highest value of net absorption, which shows the change in office space occupied by tenants, for a certain period, is still preserved in Class A facilities, where this figure is 278 thousand square meters. m, which is 52% of the total absorption. The value of net absorption in class B + objects also increased to 228 thousand square meters. m as of the end of September. All this testifies to the fact that high-quality premises continue to enjoy maximum demand.
As the head of the research and analysis department at ILM, Ekaterina Volkova, said: “The interest in high-quality business centers in the current situation is primarily due to the opportunities that have opened up to tenants for agreeing on comfortable conditions for renting due to excessive supply. In conditions of high competition, more and more owners are ready to reduce the cost of rent and make concessions to tenants, thereby stimulating the relocation of companies. ”
In Q3, 2014, we continue to observe an increase in the number of transactions in which the tenant remains in the occupied premises, but on more attractive terms. Against the background of instability, both in the Russian and in the global economy, many tenants prefer to extend the contracts in the current building, seeking to reduce the cost of rent and revise the commercial conditions.
As noted by Andrey Lukashev, ILM Managing Partner: “Large companies are taking measures to optimize costs, including reducing the costs of the existing arena by reducing the rented area (compacting the working space); negotiating and lowering existing rates; moving to other office centers, with a significant difference in commercial conditions and improved operating conditions". He also adds: “Speaking about the specificity of demand in the current situation, it is worth noting that the most attractive thing is, of course, the premises with finishing. For premises in the state of “under the finishing” the owner ready to perform the finishing, a certain bonus for the tenant, which stimulates the relocation of companies. If we talk about small transactions, we see that the lease terms have decreased to three years”.
“Today we also see a desire on the part of some companies to catch the“ bottom of the market ”. That is, the companies decided to take advantage of the current market situation and are ready to purchase an office for their own placement on favorable terms for themselves”, says Dmitry Myslin, Managing Partner at ILM.
The excess of the volume of new construction over the net absorption more than one and a half times affected the dynamics of the vacancy rate. For three months, the vacancy rate on average in the market shows an increase from 14.0% to 14.7%.
As a result of the growth of developer activity and the introduction of a large amount of new space, the largest increase in the share of vacant space in Q1, Q4, 2014 is observed in class A facilities, where the increase was 4.5% and the overall rate reached 24.5% . In class B +, growth was only 1.4%, the total figure is 16.4%. At the same time, in objects of class B, the indicator slightly decreased, from 8% to 7.5%.
The decline in the requested rental rates, which began in 2013, continues in the third quarter of 2014. “As a result of the increase in the volume of new construction, competition between the objects has intensified, and many owners are adjusting the rental price. The downward dynamics of the requested rates are affected by the change in the structure of the offer, a large proportion of the entered areas are outside the CAO with cheaper offers. On the other hand, the real estate market is influenced by economic instability, currency fluctuations also did not contribute to the growth of the average requested rental rates in dollar terms, ”comments the head of the research and analysis department of the ILM company, Ekaterina Volkova.
In class B + objects, by the end of September, the average requested base rental rate in three quaters in dollar equivalent decreased by 3%, from $ 525 to $ 510 per square meter. m per year.
The average requested base rental rate for class B premises in dollar equivalent for the 3rd quarter of 2014 is at $ 400 per sq. M. m per year. Compared with the previous quarter, the rate decreased by 9%.
If we analyze the dynamics of the average rate for nine months, the figure dropped by 12%. Most owners of objects of class B- declare commercial terms in rubles, therefore, in terms of Russian currency, the increase in the average cost of rent, compared with objects of other classes, was insignificant, namely 6%. Thus, at the end of September, the average requested rental rate for this class was 15,700 rubles. per square meter per year.
“Despite the fact that dollar rates have fallen, rates in terms of rubles have increased significantly. Today we see that owners who want to attract tenants are ready to nominate rates in rubles, or to fix the currency corridor”, specifies Andrey Lukashev, ILM Managing Partner.
The index of price expectations of owners (REI ILM), which reflects the expectations of owners regarding the growth of rental rates in the current period compared to the previous period remains quite low. This trend began in October last year, the index never crossed the border of 50 points, which is critical. In Q2, in class A objects, the majority of landlords continue to adhere to the position on lowering rental rates, and the index drops to 42%.
In class B +, the situation is reversed; by July 2014, the index shows growth, most owners raise interest rates due to an increase in property tax, which is now calculated on the basis of the cadastral value of the property. And finally, in the 3rd quarter of 2014. The index of rental expectations for class A and B + shows a similar trend. Owners begin to adjust rates to decline, and the index shows a sharp decline, reaching minimum values, 35 points for class A, and 28 points for class B +.
"The Rental Rate Expectations Index (REI ILM) caught the beginning of a decline in rental rates as early as September 2013, and now has reached the maximum in the entire observation history", says ILM Partner Dmitry Myslin.