Developers have publicized plans to bring another 1.4 million sqm of prime office space to the market in 2014. However, Colliers’ predicts only 900,000 sqm of this space will actually be built this year. More than half of the new premises planned for this year are in Class A buildings, 30% should qualify as Class B+, while the remainder will be Class B-.  

In 2013, the largest volume of newly inaugurated office space appeared in the Central Business District, where 23% of the new space was commissioned. Moscow City accounted for 11% of new office premises. Outside the business districts, the top areas for new office centres were the western and south-western districts of the city, which accounted for 14% and 10% respectively. The largest office projects commissioned in 2013 included the office centre Park Pobedy (92,000 sqm), Mercury City Tower (87,574 sqm) and White Gardens (63,900 sqm).

As the volume of new build increased, demand for office space decreased by 10% in 2013. The total volume of office deals amounted to 1.5 million sqm, and the most highly sought after locations were in the Central Business District, Leningradsky District and Moscow Citi. Notably, demand for space at Moscow City shot up by 65% last year, indicating a rise in interest as the local development approaches completion. One of the largest deals of the year was Gazprom’s lease of 24,606 sqm in the Varshavka Sky business centre.

The simultaneous decline in demand for office space and increase in new supply resulted in higher vacancy rates overall. At the end of 2013 the average vacancy rate in Class A premises stood at 17.2%, up 2% from the end of 2012. For Class B offices the impact was not so substantial: Class B+ centres saw vacancy rates reach 9.3%, up 1.4%, while the vacancy rates for Class B- premises declined 1% to 4.4%.

Lease rates dipped approximately 5% to $785 per sqm for Class A, while a stable demand for Class B+ offices led to a 4% increase in the average rate, which reached $500 per sqm at the end of the year. Lease rates for Class B- did not change during the period, with the average remaining at $415 per sqm.

Vera Zimenkova, Director of Corporate Solutions, Colliers International Russia, noted: “The demand for office space in 2014 has so far remained at the same steady level seen in 2013. Tenants continue to be cautious about moving offices, as current leases are extended, unless office quality can be improved without impacting the company’s lease budget.

Demand for office premises and new constructions coming to market indicate higher vacancy rates in 2014, and the volume of vacant space for Class A buildings could reach 25%. Given the decreasing volume of vacant premises in Class B, demand could rise for Class A premises offered at accessible rates. This factor could limit growth in vacancy rates and also put downward pressure on lease rates for Class A buildings. At the same time, the Class B segment could see a slight rise in asking rates, but not more than inflation.”