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Adjustment to the new rules

Office market 2013 results by Cushman & Wakefield

• The volume of supply steadily increases, with slowing tenant activity.
• 1,6 mn sq m of office space were bought and leased in 2013, which is lower than the same indicator in 2012 - 1,94 mn sq m.
• The new construction was strongly located outside historical center - in 2013 more than 50% of new construction was built outside the Third Transport Ring (in 2011 - 2012 this indicator was less than 40%).
• This year the level of absorption was the same as in previous year (around 400 000 sq. m), but the gap between absorption and new supply is increasing. This tendency creates the prerequisites for over abundant supply.
• At the beginning of 2013 the market witnessed the growth of rental rates, which was compensated by inverse dynamic at the end of the year. As a result the average annual rental rate increased on 7-12% depending on building, its location and class.

Mostly this year the office market was stable despite skepticism of market players and negative sentiments.

Tenants activity was stable throughout the year, showing no growth, that is due to economic slowdown and macroeconomic uncertainty that influenced the planning horizons. According to Cushman & Wakefield Research estimation 1% growth of GDP creates additional demand for 100,000 – 200,000 sq m of office space. Ministry of Economic Development forecasts GDP growth below 2% in 2013.

New construction of 750,000 sq m was highest since 2010. About 40 business centers were delivered to the market, among them are Mercury City Tower, business complex White Gardens, 9 Acres, Park Pobedy and Newton Plaza etc. Next year total volume of delivered objects will significantly decrease. We suppose that the main reasons will be tax reform, reconsideration of financial plans of developers and continuous cost savings in occupiers’ policy. 600,000 sq m or even less will be delivered next year.

The total volume of office deals decreased practically on 20% and amounts 1,6 mn sq m. Most of occupiers prefer to stay in their offices and to prolong their leasing contracts, discussing with landlords more profitable conditions.

Talking about tenants’ behavior Cushman & Wakefield expects no rise in prelease activity, with tenants pursuing wait-and-see policy. Tenants’ activity will be limited at the first half of the year, but at the second half the experts expect market revival.

The second year in a row rental rates for offices grow adjusting to inflation. At the end of 2012 and the beginning of 2013 market players were expecting positive dynamics as the result rental rates saw 15% growth, but later they were adjusted, as a result the rental rates increase on 7-12% depending on the class of the building and location. In the centre of Moscow (inside the Garden Ring, Novoslobodskiy district) and in Moscow-City average class A rental rateA grew most of all. Average class B+ rental rate grew most of all at the suburbs of Moscow. At the moment prime rental rate is 1200 USD per year per sq m excluding VAT and operational costs. Average rate in class A is 860 USD, in class B+-560 USD.

According to Cushman & Wakefield forecast average rates won’t change next year and will retain their current values.

Contact

Denis Sokolov

Research Leadership I

Moscow, Russia

Phone +7 495 797 9600

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