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​Moscow

Moscow office market: within H1 2014 the demand structure changed


​​​Moscow, 23 July 2014 – According to JLL estimates, 323,790 sq m of new office space was delivered in Moscow in Q2 2014 bringing the total volume of office stock to 16.2m sq m. In sum, about 11 new buildings were delivered in Q2 2014. 

In terms of the quality of new supply, the total volume of Q2 deliveries was equally distributed between Class A and B+ whereas the completions in Class B- comprised less than 1% of the total volume of new office space. President Plaza (115,834 sq m of office space) and Arcus III (34,305 sq m) turned out to be the biggest deliveries in Class A.  The commission of BC on Poklonnaya st., 3a (79,500 sq m) contributed substantially to the increase in supply of Class B+ over last quarter.  

The total amount of new supply for the whole H1 2014 is estimated at 0.5m sq m – about 63% of all deliveries in were located outside the Third Transportation Ring (TTR) while 50% of new office space were in Class A. In terms of annual dynamics, the volume of new deliveries in H1 2014 was 1.5x times higher YoY. 

Moscow-Office-Completions-by-Location_Class_23072014.png 

Source: JLL

For the next two quarters we are likely to see another 700,000 sq m of new supply coming to the market, bringing the total volumes of deliveries in 2014 close to 1.2m sq m. The volume of new deliveries of office space, therefore, could reach a new high over the last five years.  By the end of 2014, we expect the total stock of Moscow office space to increase by 7.7% YoY and reach 16.8m sq m. Among the biggest projects expected to be delivered by the end of 2014 there are ComCity Phase I Alfa (107,500 sq m), OKO MFC (110,000 sq m) and Vodny MFC (61,600 sq m)

The Dynamics of Completions of New Office Space in Moscow 

The-Dynamics-of-Completions-of-New-Office-Space-in-Moscow_23072014.png

​Source: JLL

The volumes of take-up in Q2 2014 were estimated at 264,000 sq m, bringing the total amount of H1 2014 take-up for office space in Moscow to 522,600 sq m which turned out to be 28% lower YoY. In addition, the levels of net absorption were 279,000 sq m in H1 2014 representing a 24% drop compared to the levels seen in H1 2013. 

The largest transaction in Q2 2014 was the renewal (including expansion) of 13,121 sq m of office space by General Electric in Naberezhnaya Tower. At the same time, the largest transaction recorded in H1 2014 was the lease of 17,370 sq m office space by Systematica Group of Companies in Comcity Phase I Alfa. The main drivers of demand for office space in Moscow in the first half of the year were companies from the Business Services sector, accounting for 31% of all recorded transactions, as well as the Manufacturing companies with 30% share. Several large deals contributed positively to the share of foreign tenants which increased in H1 2014 and comprised 60% of all recorded transactions.

Moscow-office-demand-by-Business-Sectors_Class-23072014.png Source: JLL

“The structure of demand for office space has noticeably changed since 2013. The share of transactions for office premises bigger than 3,000 sq m decreased from 60% of total volume of all recorded transactions in H1 2013 to 40% in H1 2014.” – Alexander Churikov, Head of Office & Occupier, Industrial Research, JLL, Russia, commented. - “Moreover, in H1 2014 the share of renegotiation and renewals of lease agreements  accounted for a substantial share in the total amount of transacted space in Moscow office market while the share of new deals decreased from 88% in H1 2013 to the current level of 65% of all recorded transactions. We believe, these developments suggest that market participants become more cautious in their decision of buying or renting the significant amount of office space and often prefer to renew the current lease agreement than to move to a new office."

According to JLL analysts, the changes in the macro environment will be the main factor affecting demand for office space this year. For 2014 the volumes of take-up are expected to be close to 1.3m sq m implying about 12% decrease to the level of 2013. 

Moscow office take-up and GDP long-term relation

Moscow-office-take-up-and-GDP-long-term-relation_23072014.png 

Source: JLL

Ongoing growth in supply on the back of weak dynamics of demand for office space in H1 2014, led to the increase in the overall vacancy rate to 14.8% by the end of Q2 compared to 13.9% seen in the Q1 2014. In Class B+ the overall vacancy rate ticked up slightly to 13.5% compared to the 12.9% seen in Q1 while in Class A the vacancy rate reached 24.5% from 20.8% seen the previous quarter which could be attributed to the high level of completions in H1 2014.

Over the last quarter, the prime rents stood in the range of USD900 – 1,100 per sq m per year. Class A rents are ranging between USD580 and USD850 and Class B+ between USD350 – 600 per sq m per year. In Moscow City area the rents are ranging between USD 580–850 per sq m per year. 

Alexey Efimov, Regional Director, Head of Corporate Solutions Department, JLL, Russia & CIS, commented: “Although the rouble devaluation coupled with the increased volatility of capital markets had a negative impact on the rents dynamics in Q1, these factors weakened their influence in Q2 2014. Taking into account both moderate demand for office space and growing supply this year, we are likely to see a further stabilization of a situation on the market. Nonetheless, macroeconomic factors and ongoing political uncertainty could deteriorate further dynamics of the main indicators of the Moscow office market in the second half of the year."

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 fee revenue of $4 billion, JLL has more than 200 corporate offices and operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $48.0 billion of real estate assets under management. JLL is the brand name of Jones Lang LaSalle Incorporated.

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 , 2013 and 2014 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