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Moscow

Moscow office market: Macro economic uncertainty puts pressure on demand

JLL announces the Q1 2014 results


​​​Moscow, 17 April 2014 – According to JLL estimates, 209,048 sq m of new office space was delivered in Moscow in Q1 2014 bringing the total volume of office stock to 15.8m sq m. The volume of new deliveries in Q1 2014 was 19.5% lower YoY than for the same period last year.

In terms of quality of new supply, Class A buildings comprise 62% of total deliveries in Q1 2014. The commissioning of Eurasia Tower (86,834 sq m of office space) contributed substantially to the increase in the class A share in total completions. Aside from Eurasia Tower, among the key deliveries in Q1 2014 there were Mebe One Khimki Plaza (29,937 sq m), Solutions BP (Phase III; 14,432 sq m) and Morozov BC (Phase II; 13,607 sq m).

In sum, about 12 new buildings were delivered in Q1 2014 and some 42% of all deliveries in were in the Moscow City area. For the rest of 2014, we expect the major part of new supply to be delivered in decentralized areas – around 76% of 2014 pipeline is located outside the Third Transportation Ring (TTR).


Source: JLL

For the next three quarters we are likely to see another 836,000 sq m of new supply coming to the market, bringing the total volumes of deliveries in 2014 close to 1m sq m. By the end of 2014, we expect the total stock of Moscow office space to increase by 6.7% YoY and reach 16.7m sq m. The key projects expected to be delivered in 2014 are ComCity Phase I Alfa (107,546 sq m), OKO MFC (87,600 sq m) and Arcus III (34,305 sq m).

Moscow Total Office Stock Dynamics


Source: JLL

The largest transaction in Q1 2014 was the lease of 17,370 sq m office space by Systematika Group of Companies in Comcity Phase I Alfa. The main drivers of demand were companies from the Business Services sector, accounting for 31% of recorded transactions in Q1 2014. The share of domestic tenants remained at the same level seen in Q4 2013 and comprised 60% of all recorded transactions.

​​ Source: JLL

“As for dynamics of demand in Q1 2014, the picture was quite mixed. On the one hand, the estimated volumes of take-up for the last quarter dropped by 25% YoY to 258,706 sq m. However, historically, the first quarter of the year is typically volatile both on QoQ and YoY basis for take up and generally has little correlation with annual take-up volumes. Over the past seven years, the annual take-up volumes, in turn, demonstrated very good correlation with the GDP growth. We believe the changes in the macro environment will be the main factor affecting demand for offices this year. For 2014 we expect the volumes of take-up to be about 1.3m sq m, nonetheless we don’t rule out the possibility of lowering our forecast in case of a further worsening of the Russian economy.” – Alexander Churikov, Head of Office & Occupier, Industrial Research, JLL, Russia, commented.

Moscow office take-up and GDP long-term relation


Source: JLL

In addition, the levels of net absorption in Q1 2014 turned to be 9% higher compared to Q1 2013 level (144,356 sq m vs. 131,848 sq m). This indicator shows the changes in the levels of occupied stock over the period and, in our view, reflects more accurately the current state of occupier market. Therefore we do not believe that the current YoY drop in quarterly take-up volumes reflects a fundamental change in trend in demand for office space.

In terms of available space on the market, the overall vacancy rate ticked up slightly over the quarter and stood at 13.9%. Vacancy levels for Class A office spaces turned to be a bit higher compared to the levels seen in Q1 2013 and reached 20.8% mainly due to the new supply in Q1 2014. In Class B+ the overall vacancy rate remained at about the same level seen in previous quarter and currently stands at 12.9%.

Elizaveta Golysheva, National Director, Deputy Head of Office Agency, JLL, Russia & CIS, commented: “The biggest pressure on rents is seen currently in the Prime office segment which could be attributed mainly to the recent rouble devaluation. Over the last quarter, the prime rents decreased slightly to USD900–1,100 per sq m per year. Nonetheless, the level of base rents across the market remained largely stable with Class A rents ranging between USD580 and USD850 and Class B+ at USD350–600. In Moscow City area the rents are ranging between USD 650–850 per sq m per year. To our view, in the current environment tenants have more negotiation power, given the greater opportunities on the market in terms of price-quality, while still absorbing similar levels of high quality office spaces compare to Q1 2013 figures.”


About JLL 

JLL (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, JLL operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 279 million square meters and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $47.6 billion of real estate assets under management.

In Russia and CIS JLL has offices in Moscow, St. Petersburg and Kiev. JLL, Russia & CIS was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010, 2011, 2012 and 2013 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg and The Best Real Estate Consultancy in Ukraine at the Ukrainian Property Awards in 2013. For further information, visit www.jll.ru