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Moscow Office Market in H1 2014: Prime Office Lease and Sales Volume Forecasted to Reach 1.3 Million sqm by Yearend

According to the leading international real estate consultancy Colliers International, the total volume of office transactions in Moscow in the first half of 2014 exceeded 500,000 sqm, which is 60% of the volume transacted during this period in 2013. Class A premises accounted for 31% of prime office space leased (161,000 sqm), while Class B+ accounted for 49% (248,700 sqm) and Class B- accounted for the remaining 20% (100,300 sqm). Office space sold to final users accounted to 11% of the volume of office transactions in the period.
The main demand for quality business centres came from companies in the Production (23%), Professional Services (22%) and IT & Communications (19%) sectors. Colliers International forecasts that the volume of Class A and B space absorbed by the market will reach 1.3 million sqm by the end of 2014, which is comparable to the take-up volume in 2010.

New office construction in the first half of 2014 was 1.5 times greater than in the first half of 2013. Over the first six months of the year 27 new Class A and B business centres with a total of 532,000 sqm opened on the market, which is the highest level since 2010. More than half of these premises qualify as Class A space. A substantial portion of the new premises has appeared in the west of Moscow outside established business districts (43%) as well as in the Central Business District (17%) and at Moscow City (16%). The largest projects to be inaugurated in the first half of the year were the Eurasia Tower (86,800 sqm of office space), Presidential Plaza (114,700 sqm) and Poklonnaya 3A (79,500 sqm), among others.  

The large volume of the new supply impacted vacancy rates in Moscow, which stood at 11.5% for the prime office segment at the end of the first half of the year. Most of the vacant space is found in Class A premises (25% vacancy rate). The share of vacant space in Class B- buildings remained at 5% while in Class B+ facilities it increased to 10%.

According to Colliers International, due to the increasing competition among business centres the average lease rate for Class A offices has declined to $750/sqm/year. Outside the established business districts rates have fallen to as low as $490/sqm/year while in the Central Business District and at Moscow City rates have held steady at $900/sqm/year and $760/sqm/year, respectively. The average rate for Class B+ offices was $485/sqm/year while for Class B- offices it remained at $420/sqm/year.

The total volume of prime office real estate in Moscow at the end of the first quarter of 2014 was more than 15 million sqm. According to Colliers International, an additional 1.2 million+ sqm of new Class A and B office space has been announced for completion by the end of the year.  

Vera Zimenkova, Director of Corporate Solutions, Colliers International Russia: “The Moscow office market is experiencing an accumulation of deferred demand as companies, on the one hand, prefer to wait out this period of political instability and, on the other hand, hope to secure more advantageous commercial conditions from either current or potential landlords thanks to increasing competition among office buildings.”