q3 2010 office real estate market - knight frank · q3 2010 office real estate market moscow 4 the...
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Q3 2010office real estate marketMoscow
Knight Frank
executive summary• Thetotalvolumeofqualityofficespaceisstillincreasingatslowrates,newprojectsarealmost
notannounced,howeverthereisanumberofpropertiesunderconstructionareonthemarket.
• Thedemandforqualityofficespaceshowsapositivetrendforalreadyayear.ClassAofficespacetakesamajorshareinthetake-up(loomslarge)structure(about80%),asarepremiseslocatedwithinorclosetotheGardenRing.
• Rentalratesstabilizedatthelevelachievedinthepastquarterandthere’snosensefortheirdecrease.
overview
Q3 2010office real estate marketMoscow
2
Supply
About182,000sqmofqualityofficespacewerecommissionedduringthelast3months,andtheincreaseinofficespaceforthisyearisbeingmaintainedonalowlevel–about2%forthequarter.SinceMarch2010nooneClassAbusinesscenterwascommissioned,howevermanyprojectsinthissegmentarecurrentlyunderconstruction,andsomeofthemareclosetocompletion.ThissituationmaybecausedbythehigherconstructioncostsforClassAofficespace.
Onlyprojectsthathavebeenatthehigherstageofdevelopmentbeforethecrisisarenowdeliveredtothemarket.ThepoliticalsituationinMoscowisalsonotsofavorableforstartingnewprojects.Itsinfluenceonthecommercialrealestatesectorisnotsosignificant,however,theprocessesofdistributinglandplotsforconstruction,projectdocumentationaccommodation,possiblegovernmentinvestmentsupport,andcommissioningalldependonpoliticalforece.ChangesinthepoliticalsituationinMoscow,includingtheassignmentofnewofficialsinchargeoftheabove-notedquestions,mightunpredictablyinfluenceonthetermsofreceivingagreementsandofdevelopmentforaseriesofprojects.
Bytheendoftheyearanincreaseinqualityofficespaceslightlymorethan300,000sqmisexpected,themostpartcomesfromClassA.Suchprojectsas“VivaldiPlaza”,“Summit”,“DiamondHall”,“MarrPlaza”,“ImperiaTower”,“LegendaTsvetnogo”,“ImperskyDom”,andthebusinesscenteronShepkinaSt,61-2,areallpreparing
office real estate market
Mikhail IoannesyantsDeputyDirector,OfficeRealEstateDepartment
“The third quarter was a crossover period for the office market: For the first time since the beginning of the crisis, the size of absorption surpassed the volume of commissioned space, according to the quarter’s results. This situation is caused with the increase in the volume of deals on the one hand – Q3 results surpassed Q2 results twofold. And on the other hand the increase of supply remains on the low levels.
At the same time, rental rates have not changed compared with May. A significant increase in rates occurred in spring, facilitated by the developers’ anticipations of the growth in demand but in fact before the actual increase. Thus, the growth in market activity, that landlords counted on in spring, showed itself in Q3 and balanced the spring growth in rental rates.”
Key indicators Class A Premium** Class A Class B+ Class B-
Totalvolumeofqualitypremises,millionsqm 10.9
including,millionsqm 1.9 6.0 3.0
CommissionedinQ32010,thousandsqm 182
including,thousandsqm 134 48
Vacancyrate,% 15.1 17.7 20.9
Baserentalrate*,$persqmperannum 780-1,000 500-750 300-550 200-390
OPEX,$persqmperannum 90-200 80-100 50-80
*ExcludingoperatingexpensesandVAT(18%)
**Rangeofaskingrentsandsalepricesforpremiseswithpremiumlocations
Source:KnightFrankResearch,2010
Key projects commissioned in Q3 2010
Property Name Location Total area, sq m
Class B+
Nagatinoi-Land* Bld1-3,18AndropovaAve 37,387
Bld1-1-B,18AndropovaAve 23,440
Bld1-1-V,18AndropovaAve 22,070
MiraxPlaza,BldD 36KutuzovskiyAve 31,120
AFIonPaveletskaya* Bld1,8PaveletskayaEmb 17,000
Class B-
EastGate Bld7-20,100ShelkovskoeHwy 12,500
BCPerovo Bld1-9,91stPerovaPolyaPassage 19,500
*KnightFrankisaconsultantontheproject
Source:KnightFrankResearch,2010
www.knightfrank.ru
3
toenterthemarket.Thesituation,whenthemajorityoftheofficeareawasleasedbeforetheofficialcommissioningoftheproject,wasusualonthepre-crisismarket.Moreover,theseprojectsarealreadyalmosthalfwayfilledevennow,whenthere’sacomparativelylowdemandforofficespaceunderconstruction.
Demand
Duetotheeconomicrecoveryobservedinthebeginningoftheyear,agrowingdemandforqualityofficespaceismentioned:forthepastthreemonthsthevolumeoftakeupwasabout385,000sqm,whichis10%morethanthevolumeofabsorptionfortheentireH1,andforalreadyayeartheleveloftake-upshowsapositivedynamics.
Moreover,inQ2thelevelofdemandincreasedby20%comparedtoQ1,andforthelast3monthsitincreasedtwofoldcomparedwiththepastquarter.Asinthepastquarter,theshareofClassAofficespaceinthetotalstructureofabsorptionwasabout80%,whilebeforethecrisistenantsandbuyersdistributedtheirinterestsforClassAandClassBofficesapproximatelyinequalproportions.Moreover,intheendof2008theshareofClassAspacewasatalevelof12%andoverfollowing2yearsitrousedtoalevelof20-50%.Thefactthatforalready6months80%ofleasedandpurchasedspaceisinClassAsegmentconfirmstheactivationofdeferreddemandandthemigrationoftenantstothehigherqualityoffices.
AstheresultofthisthevacancyrateforClassApremisesdecreasedto15%,thatisasignificantreduction,butthatisstillfarfromthelevelreachedin2008.ForClassBthevacancyratereducesslowly,thoughthisprocessiscausedmorebythelowvolumesofdelivery,thanbyasignificantgrowthofdemand.
Forthefirsttimefortwoyearsthevolumeoftake-upsurpassedthevolumeofdelivery
ofnewspace,yetitisstilltooearlytotalkaboutsignificantgrowthonthemarket.Themainvolumeoftake-upisfilledbypostponedunsatisfieddeferreddemandfromtenants.Inaddition,40%ofthetotalvolumeoftransactionsforQ3wascomprisedbytwolargefreeholddealsofofficepremises:thepurchaseof“WesternGate”businesspark,andtheacquisitionof“Domnikov”businesscenter,byRZD.Suchbig-sizeddealsaresingleonthemarket,nevertheless,evenwithouttheirconsideration,
Class А
Class В
Source: Knight Frank Research, 2010
30
20
10
0
The share of vacant space in Class A decreased, while in Class B a gradual decrease is also being observed
%
Delivery
Take up
Source: Knight Frank Research, 2010
The volume of take-up in Q3 surpassed the volume of delivery for the first time since the beginning of the crisis
thousand sq m
700
600
500
400
300
200
100
0
Class А
Class В
Source: Knight Frank Research, 2010
12
10
8
6
4
2
0
The volume of Class A and Class B office space increased by 6% over the past 9 months of 2010
mln sq m
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 F
2009 2010
Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2010
F
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
The share of leasehold and freehold deals for new office space is gradually returning to the level from the beginning of 2008
Lease/sale of new office spaceSubleaseRenegotiation
Source: Knight Frank Research, 2010
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Q3 2010office real estate marketMoscow
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theleveloftake-upshowsastablepositivedynamics.Accordingtothegeneralpositivetrends,thereisnoprerequisitesforadecreaseindemandandatraditionalpre-NewYearbuoyancyoftheofficerealestatemarketisexpectedbytheendoftheyear.
Adecreaseintheshareofrenegotiationdealscontinues:themajorityoftenantshavealreadycompletedthisprocess;moreover,commercialtermsrenegotiationisbecomingmoreandmoredifficultongainingmarket.
Commercial terms
AnincreaseinbusinessactivityandpositiveexpectationsofmarketplayersfacilitatedasignificantgrowthofrentalratesforH12010.Forthepastquarter,ratesstabilizedatthepreviouslyachievedlevel,whichprovidesagoodbackgroundfortheirgrowthconsideringthemarketactivizationforecastedbytheendoftheyear.
Themarketprocessof“chainreaction”,whenrentalratesincreasetogetherwithincreaseddemand,isespeciallycharacteristicfordevelopingmarkets.InMoscowaphaseofstabilizingratesonanewlevelisfoundrightnow,whichwasaresultofgraduallygrowingdemand,ontheonehandofthesummerseasonofclients’activitydecreasingontheotherhand.
TheshareofdealswithofficespacewithintheGardenRinginsignificantlyincreasedfor5%comparedtothepreviousquarterandabout45%ofClassAandClassBofleasedandpurchasedofficespaceislocatedinthecenterofthecapital.Theshareofthecentralareasinthetotalvolumeofdealswasslightlymorethan30%lastyear,whichmightmeantheendofthetrendtowardsadecentralizationofdemandontheMoscowofficemarket,whichstartedtoformin2008.Thisisoneofthereasonsthatpropertieswithpremiumlocations,whichareactingasdriversofgrowth,sustainthehighestrentalrates.
Key deals in Q3 2010
CompanyVolume of transaction, sq m
Address Property Name
Lease
MosCommerceBank 5,570 Bld1,3BegovayaSt NordStarTower
Otkritie 5,550 12/1YakovoapostolskyLaneYakovoapostolskyBusinessCentre
Eldorado 5,270 14SmolnayaStSmolnyBusinessCentre
Nycomed 4,750 Bld1,2UsachevaSt FusionPark
Mocrohen* 3,890 102dVolkonskyLaneVolkonskyBusinessCentre
NTK 2,800 19LeninskayaSlobodaSt OmegaPlaza
Transneft 2,530 69PyatnitskayaSt PyatnitskayaPlaza
RusskiyProdukt* 2,380 211stTverskaya-YamskayaSt ChetireVetra
Progress 2,15021GoncharnayaSt/Bld1,14V.RadischevskayaSt
DiboldSelfService 1,800 14DvintsevStDvintsevBusinessCentre,BldC
InterLabService 1,600 Bld1,8OlsufievskyLane
Bio-RadLaboratories
1,530 Bld1,9NovodanilovskayaEmbDanilovskayaManufacture
RussianCaramelRestaurantsLLC
1,420 Bld2,LeningradskoeHwy Metropolis
Amgen 1,350 8PresnenskayaEmb CapitalCity
Purchase
RWMCapital 84,550 34MashiPorivaevoySt DomnikovBC
confidential 60,407 21BelovezhskayaSt WesternGate
May 6,000 7DmitriyaUlianovaSt
*KnightFrankisaconsultantofthedeal
Source:KnightFrankResearch,2010
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
The share of leasehold and freehold deals for new office space has been gradually returning to the level of the beginning of 2008
BRGR
Source: Knight Frank Research, 2010
2006 2007 2008 2009 2010
TTR
FTR
MKAD
VivaldiPlaza,8/4KozhevnicheskayaSt
overview
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Office Real EstateValentin [email protected]
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Valuation ServicesOlga Kochetova [email protected]
Saint PetersburgOleg [email protected]
KyivMikhail [email protected]
Marketing, PR, and Market ResearchMaria [email protected]
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© Knight Frank 2010
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