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Moscow

In 2014 Moscow Office Market is Going to Expand to the Record 16m sq m

74% of new supply will be delivered in decentralized areas


Moscow, 5 February, 2014 – According to Jones Lang LaSalle estimates, the 302,641 sq m of new office space was delivered in Q4 2013 in Moscow which represents 86% YoY increase compare to Q4 2012. As the result, the total figure of completion in 2013 turned to be 57% higher YoY basis and equaled to 888,269 sq. m, bringing the total volumes of office stock in Moscow to the record 15,6m sq m level.

The total volume of the announced projects this year is close to 1m sq m, however, according to preliminary estimates of Jones Lang LaSalle analysts, the actual completion is likely to be close to 865,027 sq m, which brings the total volumes of stock to 16.4m sq m. Among the biggest announced projects for 2014, there are Neo Geo BC (130,000 sq m), ComCity BP (Phase 1; 107,000 sq m), OKO MFC (87,600 sq m), Eurasia Tower (86,835 sq m) and Vodny MFC (61,570 sq m).

Moscow Total Office Stock Dynamics 
Moscow Total Office Stock Dynamics_05022014.png
Source: Jones Lang LaSalle

17 new buildings were delivered in Q4 2013 most of which belongs to Class B+. In terms of location of new supply, about 75% of all Q4 deliveries were in the areas outside the Third Transportation Ring (TTR) contrary to the Central Business District (CBD) which accounted just for 7% of all deliveries.

The biggest office deliveries in Moscow in Q4 2013
The biggest office deliveries in Moscow in Q4 2013_05022014.png
* Garden Ring

Source: Jones Lang LaSalle

In 2013 there were ongoing process of the decentralization; around 60% of all completions in 2013 occurred in the areas outside TTR (in 2012 the share was 64%). According Jones Lang LaSalle analysts, this trend is likely to continue in the near term – about 74% of total office space expected be delivered by the end of 2014 will be located outside the Third Transportation Ring. The key reasons for these developments are the intention of the city authorities to restrict an office construction in the areas inside TTR, particularly in the historical center of Moscow, as well as lower rents for tenants outside TTR.

 
2013 Moscow Office completions by Location - by class_05022014.png
Source: Jones Lang LaSalle
 

In terms of leasing activity, the market was solid in Q4 with the total volumes of transacted space being 18% higher on a quarterly basis at 381,252 sq m. Nonetheless, the annual result was slightly lower YoY basis with the volume of transaction totaled to 1.43 m sq m compare to 1.49 m sq m seen for 2012. The amount of transacted space within the decentralized submarkets accounted for 50% of total volume of transactions in 2013 and domestic tenants were slightly dominant, accounting for 60% of all transactions in 2013. In terms of deals type, the share of sales has decreased from 29% 2012 to 10% in 2013 which could be a signal that market participants became more cautious in the decision on whether to buy or to rent the office space in the current price environment. 

Moscow Office Total Take-up Dynamics
 Moscow Office Total Take-up Dynamics_05022014.png
Source: Jones Lang LaSalle
 

Among the largest transactions in 2013 there were lease of 10,800 sq m by Publics Groupe in the  complex Bolshevik, which has become the first big transaction made on the early stage of project development since 2008, a lease of additional 20,000 sq m of office space by Yandex in Krasnaya Roza BC and the lease of 14,000 sq m of office space by Norilsk Nickel in Mercury City Tower. The main drivers were companies from the Business Services sector, accounting for 33% across all transactions recorded in 2013. Three other sectors: Manufacturing, Banking & Finance, Construction, Mining & Exploration accounted for a considerable share of activity with 24%, 14% and 12% respectively.

2013 Moscow office demand by business sectors- by class_05022014.png
Source: Jones Lang LaSalle
 

Despite the considerable volumes of new supply seen in Q4, the overall vacancy rate ticked up slightly over the quarter and stood at 13.7%. At the same time, vacancy levels for Class A offices turned to be a little lower compare to the levels of the previous quarter with the overall figure of 18.2% in Q4 vs 18.9% seen in Q3. By the end of 2013, a noticeable increase in vacancies was seen in Class B+ (from 11.5% in Q3 2013 to 13% in Q4 2013) due to the large volume new office space delivered to the market in Q4 2013.

Elizaveta Golysheva, National Director, Office Agency, Jones Lang LaSalle, Russia & CIS, commented: “In 2014 we are likely to see an increasing pressure on the vacancies in the low-quality Class B- and B+ buildings located in the central parts of the city. The introduction of the new tax regime based on cadastral value could significantly increase the tax burden for the owners of such objects and, in turn, make them less cost competitive for the tenants. At the same time, we anticipate Class A vacancy rates to stay relatively flat. The demand for high-quality buildings in the area outside the Third Transportation Ring will be distributed equally.“ 

During the six consecutive quarters, prime rents remained flat at USD950 to USD1,150 per sq m per year. Rental costs are expected to remain largely stable during the year with Class A rents ranging between USD580 and USD850, Class B+ - USD350-600.”

 

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 $4.0 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 279 million square meters. Its investment management business, LaSalle Investment Management, has $47.6 billion of real estate assets under management.
In Russia and CIS Jones Lang LaSalle have offices in Moscow, St. Petersburg and Kiev. Jones Lang LaSalle, Russia was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010, 2011, 2012 and 2013 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