OFFICE MARKET REPORT - Knight Frank€¦ · of mining sector (oil and gas corporations) has also...
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RESEARCH Q1 2013 OFFICE MARKET REPORT Moscow Knight Frank HIGHLIGHTS • The new stock volume of Class A and Class B office space amounted to nearly 260 thousand sq m, almost doubly exceeding the figure for the same period of last year. • According to the results of Q1 2013, about 150 thousand sq m of office space was leased and purchased. This value is at the level of last year. • The vacancy rate has changed in comparison with Q4 2012 and amounts to 14.5% for Class A office buildings and 12.8% for Class B. • Rental rates are the same as at the end of last year: in the range of 700–1,200 $/sq m/year for Class A office centers and 350–650 $/sq m/year for Class B. • In the next three years, we anticipate stable demand from tenants and buyers, as well as further recovery in new construction volumes of Class A and B office space.
Transcript of OFFICE MARKET REPORT - Knight Frank€¦ · of mining sector (oil and gas corporations) has also...
RESEARCH
Q1 2013OFFICE MARKET REPORTMoscowKnight Frank
HIGHLIGHTS• ThenewstockvolumeofClassAandClassBofficespaceamountedtonearly260thousandsqm,almost
doublyexceedingthefigureforthesameperiodoflastyear.
• AccordingtotheresultsofQ12013,about150thousandsqmofofficespacewasleasedandpurchased.Thisvalueisattheleveloflastyear.
• ThevacancyratehaschangedincomparisonwithQ42012andamountsto14.5%forClassAofficebuildingsand12.8%forClassB.
• Rentalratesarethesameasattheendoflastyear:intherangeof700–1,200$/sqm/yearforClassAofficecentersand350–650$/sqm/yearforClassB.
• Inthenextthreeyears,weanticipatestabledemandfromtenantsandbuyers,aswellasfurtherrecoveryinnewconstructionvolumesofClassAandBofficespace.
Q1 2013OFFICE MARKET REPORTMoscow
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Supply
The total stock of high-quality office space inMoscowinQ12013exceeded12.7millionsqmandamountedto2.63millionsqminClassAand10.1millionsqminClassB.
In the first threemonthsof2013, thedeliveryofhigh-qualityofficespaceamountedtoalmost260 thousand sq m, which is more than twiceas much as for the previous year, and is alsothehighestquarterlyvaluesinceQ42010.Thissignificant growth resulted from the increasedactivityofdevelopers,resumingimplementationof pending projects postponed during therecession,aswellasthedelayeddeliveryoftheproperties planned for market introduction bytheendoflastyear.
InQ12013,twoClassAobjectsweredelivered:theofficecomplexWhiteGardensandabusinesscenterRossoRiva.Untiltheendoftheyear,weexpecttheconstructionofanothereightClassAoffice centers to be completed, includingabusinesscenterWallStreetontheGardenRing,theMercuryTowerinMIBCMoscow-City,aswellas the second stage of the business centerMorozov in the Red Rose business district.Accordingtoourforecast,highvolumesofnewspacedeliverywillcontinuethroughouttheyearandwillexceedthe2012figurebyalmost30%.
TheshareofsiteslocatedwithintheGardenRingisdroppingsignificantlyinthestructureofnewstock. The formation of decentralized areasofbusinessactivity,whichstartedabout5yearsago,willcontinuein2013.Sincethebeginningof theyear,onlyabout7%ofnewoffice spacein Class A and B is situated in the propertieslocatedinsideoftheGardenRing,andbytheendoftheyear,accordingtoourforecast,theshareofsuchfacilitieswillnottoexceed10%.
OFFICE MARKET REPORT
Nikola Obajdin, Director,OfficeDepartmentKnightFrank
«As per our expectations, the new construction volumes have been restored during the first months of the year. Furthermore, the properties whose construction was previously postponed, have also reemerged on the market. Besides, new high-quality office centers were announced: they are in demand by both Russian and foreign companies. Developers are paying increased attention not only to the quality of the object itself, but also to the improvements of adjacent territories’ infrastructure, which is common for business districts of developed markets of the world capitals. A number of developers announced plans for certification of their properties under the international energy efficiency rating systems standards, and in the coming years, we expect a significant growth in the number of "green offices", which also indicates transition to the phase of qualitative market development».
Key indicators. Dynamics*
Indicators Class A Class В
Totalstock,thousandsqm 12,728
including,sqm2,634 10,094
+2.0% +1.8%
DeliveredinQ12013,thousandsqm 259
including,thousandsqm 75.8 183.7
Vacancyrate,%14.5 12.8
(+1.9p.p.*) (-1.7p.p.*)
Averageweightedaskingrentalrate**,$/sqm/year
834 483
4 4
Rentalratesrange**,$/sqm/year650–1,200
(1,000–1,300***)350–650
Operationalexpenses,$/sqm/year 110–210 50–120
*Comparingtotheendof2012**ExcludingOperationalExpensesandVAT(18%)***RangeofaskingrentsforpremiumspaceSource:KnightFrankResearch,2013
Key projects delivered* in the Q1 2013
Office building Address Office area, sq m
Class А
WhiteGardens 27LesnayaSt 63,900
RossoRiva 4/2ShlyuzovayaEmb 11,947
Class B+
Navigator(phaseII) 47bld.5VarshavskoeHwy 52,000
Lotte 65ProfsoyuznayaSt 28,500
LeviumCentre 58NakhimovskiyAve 15,256
CityPoint 11KrasnopresnenskayaEmb 9,951
*Officeprojects,thatpassedStateCommissioninQ12013.ClassesaccordingtoMoscowResearchForum
Source:KnightFrankResearch,2012
www.knightfrank.ru
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Demand
Forthethreemonths,wehaveobservedsteadydemand from the tenants. The transactionsvolume on lease and sale of office spacein Class A and B reached approximately150thousandsqm,whichiscomparabletolastyear. Traditionally, the beginning of the yearis a period of low business activity, howevera number of transactions is currently undernegotiation, andweexpectan increaseof thisfigurealreadyinthecomingquarter.
The vacancy rate has changed comparedtoQ42012andamountedto14.5%(anincreaseof1.9p.p.)forClassAofficebuildingsand12.8%forClassB(adecreaseof1.7p.p.).Thisdynamicsisdeterminedbythedesireofsomecompaniestomovefromlower-qualityofficesintoClassBbusiness centers, leading toan increase in thetake-upvolumeofClassBofficespace.Objectsofthisclassattractthetenantswithmoreflexiblelease terms, an option to lease office blocks
withafinish,aswellaswithabroaderchoiceofstock,comparedtoClassA.Besides,consideringasomewhatunstableeconomicsituation,someprivate investors wish to diversify their assetsportfolio, by purchasing smaller office spacesforthepurposeofthenleasingthemout.TheygeneratedemandspecificallyforunitsinClassBcategory,asthepurchaseofsmall-spaceofficesin business centers of Class A is practicallyimpossible.
The greatest demand in Q1 2013 was observedon the part of IT and telecommunicationscompanies, whose share reached almost 30%of the total take-up of high-quality officespace.Theshareofspaceoccupiedbycompaniesofminingsector(oilandgascorporations)hasalsogrown,primarilyduetoalargeofficespacelease deal by the OJSC Gazprom. Traditionally,therewasasteadydemandfromthecompaniesin financial sector, as well as B2B, whichcollectively leased and purchased nearly aquarterofallClassAandBofficespace.Bytheendofthefirstthreemonths,thedemandfrom
Key lease deals in Q1 2013
Company Lease Area, sq m Address Office Building
Gazprom 24,606 118bld.1VarshavskoeHwy Varshavka-Sky
TinkoffCreditSystems 7,287 38АKhutorsjaya2-ndSt Mirland
INLINETechnologies 5,000 39LeningradskoeAve Skylight
Roszheldorproekt 3,467 42bld.2АSchepkinaSt ChaikaPlazaIV
Gazpromneft-Center 2,619 10/5LetnikovskayaSt
Nikon 2,014 1Syromyatnicheskiy2-ndLane DeltaPlaza
Source:KnightFrankResearch,2013
14.5%
12.8%
Area occupiedClass А
Class ВArea occupied
Area vacant
Area vacant
Class
B
Class A
In Q1 2013, the vacancy rate in Class B was lower than in Class A
Source:KnightFrankResearch,2013
RossoRivaBusinessCentre4/2ShlyuzovayaEmb
Q1 2013OFFICE MARKET REPORTMoscow
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manufacturingcompaniesandFMCGcompaniesdropped by half, accounting overall for almost15%ofthetotaltake-up.
Commercial terms
The weighted average rental rates for Class Aand B office space, having remained stable foroverayear,continuethistrend.Arareexceptiontothishashappenedattheendof2012weresomeof the properties have demonstrated a minorcorrection towards an increase, which resultedfrom shortage of space in a particular buildingand/ordistrict.Bytheendofthethreemonths,askingrentalratesremainedat834$/sqm/yearforClassAand483$/sqm/yearforClassB.
Forecast
Inouropinion,therecoveryinnewconstructionvolumes,whichbeganin2013,willcontinue in2014–2015aswell.Weexpectthattheamountof delivered office space in the next threeyearswillamounttojustabove3millionsqm.Furthermore, over 90% of office space will bedeliveredoutsidetheGardenRing.By2015,theconstruction of most of the MIBC Moscow-Cityprojects will have finished, – thus the officestockvolumeintheareawillexceedonemillionsqm.
AccordingtotheWorldBank reportonRussia'seconomy #29, the country is expected toexperience moderate economic growth of3.6–3.8% per year. The Ministry of EconomicDevelopment had similar expectations at thebeginning of the year as well. Against thebackdrop of moderate economic growth, weexpect stable demand for high-quality officepropertiesinthenextthreeyears.
Withregardtointernalfactorsdeterminingthestructure of demand, it is worth noting thatin 2011–2012, it was formed for the most partthrough return to the market of those tenants
thousand sq m thousand sq m
Class A
%
Vacancy rateTake-up Delivery
0 0
5
10
15
20
30
60
80
100
120
140
160
20
40
25
2012 2013II IIIF IIIF IIVF II IIIF IIIF IIVFII III III IIV
Class B
0
200
250
300
350
50
100
2012 2013II III III IIV
Delivery volume of quality office premises has recorded the historical minimum since 2004
Source:KnightFrankResearch,2013
21%13%
10%
29%
8%
4%
6%
3%3%
3% IT / Telecom / Electronics
Oil / Gaz / Mining
B2B
Banking / Finance / Investment
Manufacturing
FMCG / Retail
Medical / Pharmaceutical / Healthcare
Real-estate / Construction / Architecture
n/a
Other
In Q1 2013, the IT and telecommunication, as well as oil and gas companies have leased nearly half of office space in Class A and B categories
Source:KnightFrankResearch,2013
DudkinoBusinessPark0.5kmfromMKAD,KievskoeHwy
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whohavesignedcontracts in2007–2008.Backthen,fiveyearsago,thevacancyratewasbelow5%and in someareas therewasnovacancyatallleadingtoaverylimitedchoice.Furthermore,the properties leased in 2007–2008, werestartedtobebuiltin2004–2005,whencurrentlyexisting classes have only just been defined.In recent years, the market has undergonequalitative development, and large corporatetenantsoftendemonstratewillingnesstomoveinto new buildings, often of superior quality.WeexpectthatthebasisofdemandforClassAandB+offices in2013–2015willbe formedbythe lower class tenants, as well as companiesthatareexpanding,yetmaynotrealizethisneedwithintheircurrentproperties.
Inviewofmarketfactors:thenewconstructionvolume ratio and take-up levels, – one canexpect with high probability that the averageannualrentalrateforClassAandBpropertiesin2013willremainatthelevelof2012.Anyspecialcasescorrectingthisindicatorwilldependonlyonthespecificityofthesituationintheobject.
$/sq m/year
0 2,0001,5001,000500
London (West End)
Moscow
Paris
London (City)
Stockholm
Milan
Kiev
Warsaw
1,617
1,176
1,034
935
690
648
413
373
In comparison with the markets of European cities, Moscow still occupies one of the top positions, concerning rental rates on premium offices, it is second only to London (West End district)
Source:KnightFrankResearch,2013
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© Knight Frank 2013Thisoverviewispublishedforgeneralinformationonly.Althoughhighstandardshavebeenusedinthepreparationoftheinformation,analysis,viewandprojectionspresentedinthisreport,nolegalresponsibilitycanbeacceptedbyKnightFrankResearchorKnightFrankforanylossordamageresultantfromthecontentsofthisdocument.Asageneralreport,thismaterialdoesnotnecessarilyrepresenttheviewofKnightFrankinrelationtoparticularpropertiesorprojects.ReproductionofthisreportinwholeorinpartisallowedwithproperreferencetoKnightFrank.
Professional Consulting ServicesKonstantinRomanovPartner,[email protected]
Valuation ServicesOlga Kochetova Director, Russia & CIS [email protected]
Marketing, PR, HRMariaKotovaPartner,[email protected]
Market ResearchOlgaYaskoDirector,Russia & [email protected]
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KyivYaroslavaChapkoBusinessDevelopmentDirectoryaroslava.chapko@ua.knightfrank.com
Office Real EstateNikola ObajdinDirector [email protected]
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