Moscow, February 2, 2017 – In 2016, the total area of transactions in the Moscow office market amounted to 850,000 m2 – down 12% year over year. In addition, two major mortgage assets – the Eurasia tower and the President Plaza business centre passed into the ownership of banks – Sberbank and VTB. In 2017, demand may increase by 10%-15%, and the total area of transactions will exceed 910,000 m2, according to a report by Colliers International.
In 2016, manufacturing companies held a leading position in the demand structure and formed 20% of the total structure. Public and non-profit organisations were in second place. Their share increased to 13% due to the closure of a major transaction for 55,000 m2 at the OKO business centre. IT&T, trading and mining companies also remain active tenants – their combined share of demand was about 32%.
The greatest amount of absorption is concentrated in the Central Business District – with more than 36% of transactions of the total area for the year. Next in terms of demand for office property were business centres in the city's south, at the Moscow International Business Centre and within the boundaries of the Leningradskoye Shosse submarket. These submarkets had a comparable number of transactions and a comparable share in the demand structure – 8%.
There was a trend of major companies increasing consolidation of their units in 2016. On one hand, this led to market opportunities, expressed in a significant decrease in prices, and on the other – problems with developers repaying loans. The consolidation process was mostly observed among banking institutions (VTB, Sberbank) that gained developer's assets as debt collateral. In view of the prevailing market conditions, asset prices declined below their collateral value, and the new property owners have often found it more profitable to occupy the vacant space themselves rather than sell or lease them at current rates.
During 2016, business conditions stabilised – asking lease rates for new tenants in Class A premises denominated in dollars and roubles for the year did not change. Only the reduced base rate adjusted upwards – 5% for the year due to exchange rate stabilisation. The lease rate in U.S. dollars for Grade A offices is currently $432/m2/year and 26,740 roubles/m2/year. Grade B+/- lease rates decreased both in dollars and roubles, mainly due to tenant companies moving to higher-quality facilities, while vacancy increased at lower-cost premises. Grade B lease rates were at $206/m2/year and12,710 roubles/m2/year.
At the same time, the area of individual transactions shrank significantly in 2016 – the average unit was 774 m2 versus 1,020 m2 in 2015, and lease transactions of around 10,000 m2 were rare in the market.
Given gradual stabilisation of the office sector, purchases of office space increased significantly – from 8% to 18% year over year. In 2015, 67,000 m2 of offices were purchased, skyrocketing to 161,000 m2 in 2016. The cost per m2 of Class A office space is currently 275,000 roubles and 186,000 roubles for Class B.
Among the most significant lease transactions in 2016 was Samsung's lease of 10,000 m2 at the Novinsky 31 business centre, Yandex's 10,000 m2 at the Aurora Business Park, Servier's 6,600 m2 at the Beliye Sady business centre and Ancor's 5,500 m2 at the Golden Gate business centre.
François Nonnenmacher, director of Occupier Representation at Colliers International: “According to our forecasts, in 2017, property owners' flexibility with respect to the business environment will be sustained, which will facilitate the conclusion of new transactions. Amid gradual stabilisation of the market and an increase in demand in the second half of 2017, some owners will test the market's willingness to adopt higher rates. We generally do not see prerequisites for lower sales prices. On the contrary, given the 'washout' of completed quality supply in the pre-crisis period and the current low rates of entry, if there is demand, we can expect a moderate rise in prices for office property in the medium term. One of the price growth factors will be a lack of new quality supply, which not materialise in less than thee years.”