The cost of renting office space has dropped to a historic low
Negative trends in the commercial real estate market, emerging two years ago, in 2015 only deepened. The continuing devaluation of the ruble, the decline in business activity and reduced retail sales are forcing companies to optimize costs, including by reducing expenditure on office rent.
In this center of business activity, like Moscow, the market of commercial real estate is felt acutely, especially in the segment of premium-class, which at all times worked on the image and brands. “Class today, when many companies are optimizing their costs, just not affordable for the tenants, besides modern office complexes of a class In and In+ in many ways has already approached a high-end, but the rent is lower there,” says Sergey Shiferson, commercial Director of City&Malls PFM. Therefore, according to him, more tenants are migrating from Prime office properties in the room is quite comfortable, but moderate cost.
But companies are motivated not only saving. Those firms, whose business is stable, enjoy the moment and move from suburban business complexes in the centers at the TTC. There is a counter process: tenants from outside the Garden ring moving away, trying to take a more extensive area — the good market conditions now on their side.
Lower and lower
Because of the lack of funds frozen a significant portion of the construction of business centers. In particular, in St. Petersburg for the year put into operation only half of the planned amount of areas, says the head of the rental Department the Greenwood Anna skokova. According to her, the occupancy of business centers has declined markedly over the past two years and is depending on the region of 80-85% for class b and 70-80% for class A. thus, according to the expert, the drop in demand in recent months had stopped. This is due to the lower rental rates (average 15 percent) and the ability for tenants to obtain various privileges from the business centres, for example, short term rental vacations.
According to Knight Frank, rental rates went down in 2013, peaking in 2014, amid rising volumes of vacant space, ten year low. But last year the decline continued, and the record was broken. In the class A office rates have fallen 20 percent in dollar terms and by 17% in rouble, in class by 9 and 12 percent, respectively.
Photo: Svetlana Privalova / Kommersant
“The main impact in the current crisis was in the market for high quality offices, the most affected segments A and b+,” — says Andrey Kovalev, the owner of the group of companies “Ekoofis”. According to him, in office buildings And class a vacancy rate now can reach 30 percent, sometimes more. “This market is not seen even in the crisis 2009 year”, — says Kovalev. In the segments b and b+ is empty, on average, 15-20 percent of the area, indicates the expert.
However empty high-class offices in the past year has been less noted in Knight Frank. The volume of transactions for the purchase of high-quality office space in Moscow almost 40 per cent higher than in 2014. But for the most part, explain in the company, this involves the closure of one major deal, for which negotiations began in 2014 and was conducted throughout 2015. In total transactions last year, accounting for 62 per cent, said the Director of the office real estate Department at Knight Frank Konstantin Losyukov. According to sources “Tape.ru”, it is about buying Transneft 80 thousand square meters in the tower “Evolution” in the business center “Moscow-city”. Housewarming oil is expected this summer.
“The reduction in vacancy rates in Moscow office market is due to the closing of several large lease transactions and the departure of a significant amount of space in the “Moscow city”,” stresses Elizabeth Golysheva, Director for Russia and CIS, head of Department for work with owners of office premises at JLL. According to her, as a result, the vacancy rate in the empty “Moscow-city” for the last quarter fell 31 percent to 16.7.
Managing Director of Regus in Russia Irina Baeva said that currently there is a growing demand for rental offices small area, equipped and furnished offices that do not require investments on the part of customers. In addition, it increases the demand for jobs in coworking. “Accordingly, increasing the supply of these products on the market,” adds Baeva.
Photo: Kirill Kallinikov / RIA Novosti
As a rule, tenants don’t want to leave their settlements offices and trying to renegotiate existing leases in their favour. “The market is dominated by transactions on renegotiated conditions in occupied spaces, and not moving,” says Elena Kolesnikova, senior Director of global corporate services at Cushman & Wakefield. According to JLL, the share of the exposed adjustments of the treaties in 2015 reached 63 percent versus 40 percent a year earlier.
“The majority is trying to redefine the relationship in favor of ruble-denominated rates or at least the fixation rate for a certain period,” says Kolesnikova.
And of course, the tenants demand a discount — ranging from 5% to 50%. “There are such contracts, which, unfortunately, nothing can be done”, — explains the expert. If in a difficult contract none of the parties are not willing to take risks to improve long-term pattern, usually the savings is minimal. The time of bargaining also depends on the conditions in this contract, the farther the expiry date, the less chance for a discount. This means that the parties can find out who is ready to make concessions, very long time. Most often, especially when renegotiating lease agreements, we are talking about a discount of about 10 per cent, says Mr Sigerson, commercial Director of City&Malls PFM.
From the point of view of partner financial opportunities are now easier to negotiate and reach a mutually favorable conditions for the launching of new projects, said managing Director of Regus in Russia Irina Baeva. The expert sees opportunities for development both in Moscow and St. Petersburg, and in regions, in particular, in most cities.
Signs of crisis
Analysts see several notable trends in the market. So, in conditions of instability of the company with financial resources prefer to purchase office space in the property. In the future this reduces the risk of increases in rental rates, says Veronika Lezhneva, Director of research Department at Colliers International.
At the same time, said Anna skokova, head of Department of rent of the Greenwood, and there are innovative approaches to overcoming the crisis. In particular, in some cases, unprofitable business centers, converted into hostels or mini-hotels. It is typical for rooms of class C and has been applied so far only in the two capitals. The hotel market feels much better in the current environment.
Photo: Kirill Kallinikov / RIA Novosti
In General, to buy offices seek large company in addition to Transneft, VTB, among the well-known transactions — the purchase by the company “Avia-leasing” office in a tower “Federation”, the acquisition by MegaFon of offices in the business center “the Armory”. “In the long run your own office is really cheaper than leased. In addition to the savings that companies are valuable assets, which, of course, are office centers in Moscow. However, to afford the office the property may only large and stable companies,” says Mr Sigerson.
Buildings that have already stood empty for more than two years to find new tenants harder — points to another trend of Elena Kolesnikova. In recent years we have commissioned a lot of quality areas, and they continue to be. According to Knight Frank, by the end of 2015 in put into operation high-quality office buildings in Moscow to fill three million square meters, of which more than 60% in the objects, construction of which was completed in 2013-2014.
Veronica Lezhneva, Director of research at Colliers International, noted the increase in the share of public and non-profit organizations in the structure of transactions previously accounted for not more than one percent and in 2015 to 10 percent. “Major government agencies or parastatal companies continue with cost optimization and consolidation of offices and subsidiaries in one location,” explained “the Tape.ru” Veronica Lezhneva.
Perhaps as significant was the effect of the transaction of the Moscow government, reported in early 2015. The Metropolitan government had intended to purchase the area in the tower “Eye” and business center “Moscow-city”, to accomodate the property Department, tender Committee and other departments, who is now eight different buildings. “The current decline in prices on the real estate market will allow for the purchase of offices in the most beneficial. As part of the transaction per square meter, the city will pay 260 thousand rubles, while the average market value of similar office space 317 thousand rubles,” — explained then the government’s website, the head of the Department of city property Vladimir Yefimov.
While official information on the closing of the transaction no. But consultants know that these areas on the market are not offered, they are reserved for the anonymous buyer, said “the Tape.ru” a source in the market.
The owner of GC “ECOOFFICE” Andrey Kovalev points out another interesting feature of the crisis: the premises in the business centers are actively interested in the tenants of the retail profile. “Companies that previously preferred space in shopping centers or street retail, willingly sit in business centers is a sort of movement towards “guaranteed” consumer, who most likely will need goods of daily demand throughout the day,” says the expert. This also applies to “service” tenants. For medical centers, fitness centers, beauty salons, dental clinics, travel agencies demand from office workers is sometimes the only chance for survival.
“Today’s macroeconomic turbulence is forcing many developers to adjust their plans and to review the commissioning of objects” — sums up Alexander Churikov, head of market intelligence office and warehouse real estate company JLL. Given the fact that new construction projects are now almost do not run, the expert expects a sharp decline in volume of new office space in Moscow in the period 2017-2018.