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News Release

​Moscow

Moscow Office Market remains hostage to the ongoing economic turmoil


​Moscow, 28 January, 2015 – According to JLL analysts,  the amount of new supply of high quality office space in 2014 totaled to 1.4m sq m, which was 58% higher than 2013, setting the highest level of completions in five years. Moreover, the amount of new deliveries in Class A was 713,128 sq m which is a record high.

As for quarterly dynamics, the volume of new supply in Q4 amounted to 370,390 sq m which was 22% higher YoY. Over the past three months about 15 buildings entered the Moscow office market, including OKO MFC (110,000 sq m – office area), Port Plaza (62,700 sq m) and Orbita (Phase II: 39,400 sq m).

As a result, by the end of December the total supply of high quality office space in Moscow reached 17m sq m showing a 9% growth on a YoY basis.

The Dynamics of Completions of New Office Space in Moscow

The Dynamics of Completions of New Office Space in Moscow_28012015.png 

Source: JLL

“An additional 1m sq m of new office space is likely to enter the market in 2015, with a roughly one third of that to be commissioned in Moscow City. Nonetheless, the ongoing economic turmoil is likely to affect many developers forcing them to adjust their construction plans thus putting an additional downside risk to the total amount of expected deliveries.” - Alexander Churikov, Head of Office, Occupier & Industrial Research, JLL, Russia & CIS, commented. – “Among the largest upcoming projects for 2015 there are Evolution Tower, Federation Tower - East (A) and IQ-quarter in Moscow City; Oruzheyny MFC, Bolshevik BC and Sirius Park.”

The majority of deliveries in Q4 were Class B+ premises (56%), while the share of Class A office space comprised about 41% of new supply. For the whole of 2014, new deliveries were almost equally distributed between Class A and Class B+ while Class B- buildings comprised only 4% of the total amount of new supply. 

The largest share of new supply in 2014 was located outside the Third Transportation Ring (TTR) while only 4% of new office space was delivered in the Central Business District. Moscow City area accounted for 15% of total 2014 deliveries of high quality office space due to the commissioning of such objects as Steel Peak Tower (former Eurasia Tower; 94,000 sq m – office area) and OKO MFC.

Office Completions by Class by Location_28012015.png   

Source: JLL

Through 2014 the demand for office space remained hostage to the economy. In terms of dynamics of demand for office space, the volumes of take-up in 2014 were estimated at 1.1m sq m which was a 24% lower YoY and turned out to be the lowest amount of annual take-up volumes seen in the past five years. The structure of demand has noticeably changed with the share of renewals and renegotiations comprising 40% of the total amount of deals in 2014 from 20% seen in 2013. The largest transaction recorded over the past year was the lease of 17,370 sq m office space by Systematika Group of Companies in ComCity Phase I Alfa.

Sector-wise, Manufacturing companies accounted for 31% of all recorded transactions, while companies from the Service Industry sector had a 22% share. The total volume of transacted office space over the 2014 was equally distributed between foreign and domestic tenants.

Office Demand by Business Sectors by Class_28012015.png   

Source: JLL

Changes in the macro environment, such as the expected fall in GDP and the persistent high volatility of the rouble, will be the main factors affecting demand for office space this year. According to JLL analysts, with the expected 4-6% fall in GDP in 2015 the volumes of take-up are estimated to be close to 700-800 thousands sq m (a 25-30% YoY decrease) which is comparable to the levels seen in 2009.

Moscow office take-up and GDP long-term relation

Moscow office take-up and GDP long-term relation_28012015.png

Source: JLL

By the end of December, the overall vacancy rate of Moscow office market stood at 16.6% compared to 13.7% level seen in 2013. As a result of the high level of completions of high quality office premises in 2014, the vacancy rate in Class A reached 28.4% while in 2013 only 18.2% of all Class A office space was empty. Class B+ vacancy rate ticked up to 15.5% vs 13% seen in 2013. 

The rental cost decreased on average by 22% YoY in 2014 with the prime rents in the range of USD750–900 per sq m per year. Class A rents ranged between USD450 and USD650 and Class B+ between USD275–450 per sq m per year. In Moscow City area, rents ranged between USD 450–650 per sq m per year.

Alexey Efimov, Regional Director, Head of Office Group, JLL Russia & CIS, commented: “External factors such as the slowdown in GDP growth and the sharp rouble devaluation coupled with the high level of new supply  of office space, has resulted in increasing pressure on rents in 2014. Over the last year there were an increasing number of tenants that were trying to renegotiate the current lease terms, seeking either a fixed currency corridor or switching to rouble denominated contracts. Nonetheless, the actual switch to rouble denominated contracts has been so far observed mainly in Classes B+ and B- premises whereas for Class A premises lease agreements in currency are still common. Moreover, for the offices of similar quality the level of rents is often determined by the level of available space in a particular building. In the current environment, it is important for the landlords of vacant premises to have a flexible pricing policy, offering tenants some additional incentives.”


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