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News Release

Moscow

First time in three years, the level of new completions is expected to exceed 1m sq m

Jones Lang LaSalle announces the Q1 2013 results


Moscow, 18 April 2013 – First quarter of the year was marked by a high level of completions -260,000 sq m entered the market, which is a 113% increase on a YoY basis reported Jones Lang LaSalle experts.

New Completions Dynamics
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Source: Jones Lang LaSalle

Out of 13 completed buildings this quarter two (30% share of all new completions) of them were Class A: White Gardens Office Center (office area – 63,900 sq m) and Rosso Riva (11,947 sq m).
Class B+ accounted for 70% share with major developments including Navigator 2 (52,000 sq m), Lotte BC (38,500 sq m), Park Tower (11,900 sq m) and CityPoint (9,950 sq m).
Location-wise, more than half (55%) of the new completions were located in decentralized submarkets.
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Source: Jones Lang LaSalle
Next three quarters of 2013 are expected to be active as well with another 850,000 sq m in the pipeline. New completions in 2013 may reach 1.1m sq m, which will be the highest level during the last three years.

Leasing activity in Q1 was active as well and amounted to a healthy 344,440 sq m, an increase of 15% sq m compared to Q1 2012. Small to medium sized deals (up to 3,000 sq m deals) made up the bulk of demand activity.
Demand was driven by the Mining & Exploration (26%), Manufacturing (24%) and Business Services (22%) sectors.

Largest transaction of Q1 was the lease by Gazprom in Varshavka Sky (24,000 sq m). Several other deals executed on the market: Roszheldorproject leased in Chaika Plaza IV (3,500 sq m), MasterCard took space in Legend BC (1,800 sq m), Nikon leasing in Delta Plaza (2,000 sq m). Some tenants like Unimilk in Vyatskaya Office Complex (2,150 sq m), Scania in Krugozor BC (2,150 sq m) and Quintiles (1,600 sq m) in Arcus II opted to renew their space.
Decentralized properties continue to attract the majority of demand with 80% of total leasing activity.

Despite the high level of deliveries vacancy rate posted a very marginal increase (last quarter overall vacancy rate reached 13.5%). In the first quarter of this year this level was recorded at 14.2%, Class A vacancy rate amounted to 18.5%, whereas Class B+ vacancy rate reached 13.8%. This suggests that pre-leases are returning and is a positive trend in the market.

Out of all modern office stock in Moscow (14.9m sq m) some 2.1m sq m is available for prospective occupiers, of which 516,000 sq m is Class A. In terms of location, the largest opportunities are to be found in the Garden Ring to MKAD submarket (1.6m sq m); 400,000 sq m is available in CBD, while Moscow City financial district has 85,000 sq m available.

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Source: Jones Lang LaSalle

In terms of costs, Q1 prime rents remained unchanged at the level of USD1,000 to USD1,150/sq m per year. For remainder of the year we forecast prime rents to have a modest increase (up to 3%). CBD Class A rents were recorded at USD650–1,150/sq m per year. Moscow City rents vary from USD650–950/sq m per year. Attention to cost is increasingly driving occupiers towards lower-cost space outside CBD. In this respect, decentralized locations (TTR to MKAD) display most attractive rents with USD450–700/sq m per year for Class A premises.

Liliana Stoianova, Head of Office and Occupier Research, Jones Lang LaSalle, Russia and CIS, mentioned: “Encouragingly we are beginning to see more movement of development activity with a number of schemes already under construction. Until the end of 2015 we expect another 3m sq m to be delivered to the market. Of this, half is expected to be Class A premises with notable high quality developments including six skyscrape schemes in Moscow City financial district (office area - 615,000 sq m) and nine decentralized business parks schemes (office area - 770,000 sq m). Driven by cost-optimization, these two submarkets offer occupiers not only high-quality space and  large floor plates, but also attractive rents, which cannot be achieved in CBD.”


About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 242 million square meters. Its investment management business, LaSalle Investment Management, has $47.0 billion of real estate assets under management.
In Russia and CIS Jones Lang LaSalle have offices in Moscow, St. Petersburg, Kiev and Aktau. Jones Lang LaSalle, Russia was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010, 2011 and 2012 at the Commercial Real Estate Awards, Moscow and Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg.
For further information, please visit www.jll.ru