Moscow, April 10, 2017 – Only 21,143 m2 of office space was commissioned in Q1 2017 in Moscow – almost 67% less than in Q4 2016. Despite a large number of Grade A business centres being at high degree of readiness, the terms for obtaining permits have been postponed to later periods – a significant part of the premises announced for commissioning in this period was moved to mid-2017. In Q1 2017, several buildings of the Bolshevik project with a total area of about 14,143 m2 underwent high-quality renovation, and a 7,000 m2 business centre was commissioned in the Novomoskovsk district, according to report by Colliers International.
A total of about 450,000 m2 of high-quality office space was announced for commissioning by the end of 2017, of which almost 90% is Grade A. Despite the fact that the pace of commissioning remains restrained, the amount of commissioning in 2017 will exceed 2016 figures. In 2017, the nadir of activity will gradually be overcome, and a more noticeable increase in the pace of construction will begin only in 2018.
There was a local change in lease rates denominated in roubles in Q1 2017, while rates in the market as a whole quoted in U.S. dollars did not change relative to Q4 2016. In the Central Business District, the lease rates for Grade A offices were $565 m2/year and $352 m2/year for for Grade B+. Colliers forecasts that during 2017, asking rates will remain at the current level or slightly increase. In the future, property owners will begin to test the market for willingness to accept higher rates. It should be noted that in 2016, Moscow is in third place in terms of lease rates for offices in Europe, second only to London and Paris.
Given the cautious revival in the market, the proportion of vacant space will decrease at an even pace. However, there is still a significant amount of “systemic vacancy” on the market. The amount of vacant supply in buildings with a persisting low level of occupancy for 3-4 years is at least 260,000 m2, which is 13% of the total vacant space on the market. A significant change in this trend is not expected, especially amid the existing volume of quality vacant space. At the same time, it should be noted that several major deals closed for the absorption of office space in 2016 reduced “system vacancy” both in the market as a whole and in those premises where, due to the inflexibility of the property owner's commercial policy of the owner, space remained vacant for a long time. Examples of such developed properties include the Eurasia Tower and President Plaza complexes.
Vera Zimenkova, regional director of the department of corporate solutions and office real estate, Colliers International, Russia: “Despite the fact that commissioning of new office space has significantly decreased, we expect an increase in the rate of commissioning of new construction in 2017 relative to 2016. However, the choice of options with a favourable price-quality ratio will still be limited, because the premises under construction have already been partly sold or leased. Most illiquid facilities will remain in low demand due to objective factors.”