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News Release

​Moscow

The volumes of take-up in office space were down by 17% YoY over the last quarter in Moscow

​Developers are adjusting their plans accordingly - the amount of new supply could decrease further in 2016-2017 period


​Moscow, 21 April, 2015 – According to JLL analysts, only three high quality office schemes – Evolution Tower (79,000 sq m – office area), Slobodskoiy BC (9,500 sq m) and Nastasyinskiy BC (2,200 sq m) were commissioned during the Q1 2015. This brings the amount of new supply of high quality office space over the past three months 91,000 sq m, which was almost two times less than the level seen over the same period last year (210,000 sq m).

In sum, around 0.9m sq m of new supply of office space is expected to enter the market over the entire 2015 which will be 33% lower YoY while the total supply of high quality office space in Moscow is about to reach 18m sq m which would reflect a 5.5% growth on a YoY basis. In terms of the structure of new supply, Class A buildings comprise about half of expected supply while location-wise about 50% of pipeline for 2015 are located outside the Third Transport Ring (TTR). Amongst the largest upcoming projects for 2015 are IQ-quarter in Moscow City; Oruzheyny MFC in Central Business District, Bolshevik (Phase I) on Leningradskiy Avenue within TTR and Sirius Park outside TTR.

Due to the ongoing economic uncertainty many developers adjusting their construction plans by putting on hold projects in the early stage of construction and postponing planned projects. In longer term, the supply will likely become even tighter due to the end of the ongoing construction cycle in the office segment – according to JLL estimates, only 1m sq m of office space is currently under construction and expected to enter the market in 2016-2017 period which is comparable to the volume of new supply for the entire 2015.

The Dynamics of Completions of New Office Space in Moscow

The Dynamics of Completions of New Office Space in Moscow_21042015.png 

Source: JLL

Occupiers were actively renegotiating the terms of existing contracts over the course of the last quarter – renewals and renegotiations of lease terms comprised the majority of the total amount of transactions in Q1. At the same time, the volumes of transactions for new office space were still under the pressure due to the current economic turmoil.  The volumes of take-up over Q1 were estimated at 215,000 sq m which was a 17% lower YoY. Though the areas outside the TTR still accounted for the largest part of total take-up of office space in 2014, there is some visible activity amongst tenants willing to relocate closer to the center of the city and who are actively looking for affordable office space within the TTR.

The share of Class A in the total volume of transacted space over Q1 was close to the 20% while Class B+ premises accounted for 60% of total transactions. Sector-wise, Business Services companies (including IT and high-tech sectors) accounted for the biggest share (39%) of all recorded transactions over Q1. In terms of the origin of tenants, the share of foreign players increased slightly in Q1 to 56% vs. 52% seen at the end of 2014 as a result of the growing activity of foreign companies in renewing and renegotiating of existing lease terms.

Moscow Office Demand by Business Sectors_by Class_21052015.jpg 

Source: JLL

“The expected contraction of the Russian economy coupled with rising unemployment and growing inflation risks will be the main factors affecting demand for office space this year as private sector starts supporting falling margins by means of cutting operational costs, such as labor and lease expenses. In that sense, corporates mostly exposed to the ongoing macro headwinds are those heavily affected by rouble devaluation, such as banks, financial institutions as well as companies with a large share of imports, such as car manufacturers, etc. At the same time, companies with a high share of denominated revenue (most exporters), as well as companies operating in the low price segment (most discounters) look relatively stronger in the current environment. Assuming a sizeable decrease in Russia GDP this year, the volumes of take-up are estimated to be close to 0.8-0.9m sq m (a 20-25% YoY decrease) which is comparable to the levels seen in 2009.” – commented Alexander Churikov, Head of Office, Occupier & Industrial Research, JLL, Russia & CIS.

Moscow office take-up and GDP long-term relation

Moscow office take-up and GDP long-term relation_21042015.png

Source: JLL

By the end of March, the overall vacancy rate in the Moscow office market stood at 17% compared to 16.6% seen in the previous quarter. The vacancy rate in Class A stood at the level close to 28% as it was by the end of Q4 2014.  Class B+ vacancy rate ticked up to 16% from 15.5% seen at the end of the last year.

The rental cost for Prime offices decreased over the past three months by USD60 and stood in the range of USD750–840 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.

Elizaveta Golysheva, National Director, Deputy Head of Office Agency, JLL, Russia & CIS, said: “Commercial real estate has responded rapidly to the dislocation in the rest of the economy in particular pricing the weaker rouble. Nonetheless, the upper range of Class A rent (excluding Prime) is still under the pressure and could decrease further by another 7-10% by the end of 2015. In the current economic environment, most of the tenants that are trying to renegotiate the current lease terms, are seeking either a fixed currency corridor or switching to rouble denominated contracts. However, factors preventing a comprehensive shift to roubles in Class A remain dollar-denominated leverage amongst high-quality real estate developers, increasing inflationary pressure as well as a gradual rouble appreciation. For many tenants the current economic situation is seen as an opportunity to renegotiate existing lease terms or to relocate to more affordable premises of a better quality. In particular, over Q1 we observed an increase in interest from occupiers to the area of Moscow City resulted in several deals took place over the last quarter (in particular in OKO, Capital City and Eurasia Tower), yet about 42% of high quality office stock in the area is still vacant.”


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 $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316.0 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $53.6 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