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News Release

Moscow

Record levels of new supply in Q3 has led to a further spike in vacancy rate in the Moscow office market

​JLL announces the Q3 2014 results


​Moscow, 21 October, 2014 – According to JLL analysts, deliveries of new office space in Q3 2014 amounted to 496,000 sq m, which was two times higher the level seen in Q3 2013, setting the highest level of quarterly completions in five years. Volume of new supply over the first nine months totaled 1m sq m, which, in turn, exceeded the amount of new deliveries in 2013 (888,000 sq m). By the end of September, the total supply of high quality office space in Moscow reached 16.7m sq m.

About half of all deliveries in Q3 were related to Class A premises, while the share of Class B- office space comprised only 7% of new supply. In addition, the level of completions of Class A seen in the last quarter (535,000 sq m) was the highest on record. The process of decentralization of new office supply accelerated compared to the previous quarter – about 85% of all deliveries in Q3 were located outside the Third Transportation Ring (TTR) while the same figure for Q2 stood at 63%.

Among the largest Class A projects delivered in Q3 there were Comcity Office Park – Phase I Alfa (107,500 sq m – office area), Lotos BC (88,000 sq m) and Vodny MFC (52,300 sq m). About 200,000 sq m were commissioned in Class B+ including Savyolovskiy City MFC (56,700 sq m), Vereyskaya Plaza III BC (76,000 sq m) and Aerodom BC (26,700 sq m). In sum, 15 buildings entered the market in Q3 2014.

moscow-office-completions-by-location-by-class_21102014.png

Source: JLL

The additional 295,000 sq m of new office space is likely to be commissioned by the end of the year, bringing the total volume of new supply for the entire 2014 to 1.3m sq m. Volume of new deliveries of office space, therefore, could reach the highest level in five years. Among the largest upcoming projects for Q4 there are OKO MFC (110,000 sq m), Port Plaza BC (64,600 sq m) and Aero City BC (32,600 sq m).

The Dynamics of Completions of New Office Space in Moscow

the-dynamics-of-completions-of-new-office-space-in-moscow_21102014.png 

Source: JLL

In terms of dynamics of demand for office space, Q3 results were 15% higher in QoQ terms which could be attributed to the end of the traditionally sluggish summer period, yet lower than the same period a year ago (-6%) due to fundamental factors affecting demand this year. Volumes of take-up in Q3 were estimated at 304,000 sq m, bringing the total amount of take-up for nine months to 826,630 sq m which represents a 21% drop YoY.

Several large deals contributed positively to share of foreign tenants in total amount of transactions of office space which comprised 54% of all recorded deals in the first nine months of 2014 compared to 44% seen in the same period last year. At the same time, it should be highlighted that renewals and renegotiations contributed mostly to the share of foreign tenants, while Russian companies prevailed in the total amount of deals for new office space with roughly 53% share.

moscow-office-demand-by-business-sectors-by-class_21102014.png 

Source: JLL

The share of renegotiations and renewals of lease agreements comprised a substantial part of deals for office space in the Moscow market over the past nine months – the amount of transactions for new office space fell to 65% compared to 87% for the same period in 2013. These developments could signify that tenants are cautious in their decision to lease new office space given the current condition of the Moscow office market.

In terms of the structure of demand for office space in Q3, Manufacturing companies accounted for 31% of all recorded transactions, while companies from the Service Industry sector had a 30% share. The largest transaction recorded over the past nine months was the lease of 17,370 sq m office space by Systematika Group of Companies in Comcity Phase I Alfa.

In 2014 the volumes of take-up are expected to be close to 1.2m sq m. Changes in macro environment, such as the deceleration of GDP growth and ongoing rouble devaluation will be the main factors affecting demand for office space this year.

Moscow Office Take-up and GDP Long-Term Relation

moscow-office-take-up-and-gdp-long-term-relation_21102014.png

Source: JLL

By the end of September, about 15.5% of high quality office space in Moscow was vacant compared to 14.8% level seen in the Q2. In Class A premises, vacancy rate increased to 25.9% from 24.5% seen the previous quarter while Class B+ vacancy rate ticked up to 14.2% vs 13.5% seen in Q2.

Ongoing rouble devaluation put an additional pressure on rents – over the last quarter, the prime rents stood in the range of USD900-1,100 per sq m per year. Class A rents were ranging between USD580 and USD850 and Class B+ between USD350-600 per sq m per year. In Moscow City area, the rents were ranging between USD 580-850 per sq m per year.

Elizaveta Golysheva, National Director, Deputy Head of Office Agency, JLL, Russia & CIS, commented: “The deterioration of the Russian economy as well as political uncertainty have coincided this year with the completion of another development cycle, resulting in increased vacancy rates on the market. Nonetheless, taking into account the rapid increase in deliveries, the growth in availability looks relatively modest, as almost half of the new supply of office space in Q3 has been delivered already pre-leased or purchased at the early stages of construction. In Class A, the share of pre-lets reached 60% out of 264,000 sq m of new office space commissioned in Q3. Comcity Phase I Alfa can be mentioned as an example of a high quality office scheme that entered the market with almost 76% occupancy due to the high number of pre-lease agreements.”


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 $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $50.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, 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