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Moscow

Moscow office rental rates in CBD can rise by 25% by the end of 2019

Shortage of large offices will give confidence to landlords


Moscow, September 21, 2017 – According to JLL, the Moscow Central Business District (CBD) office market contains a hidden imbalance which is represented by a shortage of large offices. This will raise landlord confidence and stimulate rental rents growth in the near future.

“The new supply is limited and construction is often delayed. In 2016, only three buildings have been completed in CBD, totalling 44,514 sq m (of which 40,247 sq m is Class A). This has marked a ten-year low of construction activity.” – says Olesya Dzuba, Head of Research, JLL, Russia & CIS. – “Only one Class A business centre, Oasis, is expected in CBD in 2017. Taking into account announced and under construction projects, CBD office completions in the next few years will be significantly lower than take-up levels. Moreover, the majority of new projects will appear at the CBD border or beyond.”

CBD office market balance
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Source: JLL

The attention of tenants is focused on Class A premises. CBD locations are traditionally favoured by domestic and international corporations and by local medium size firms. Demand for Class A offices in the city centre is already recovering; take up in H1 2017 grew 23% YoY to 41,200 sq m. The correction of rental rates in 2015-2016 and a resulting narrower difference between Class A and Class B+ rates encourage tenants to improve leasing conditions by relocating to higher quality premises in the CBD or outside the Garden Ring, without paying extra. 

Low new supply and stable demand in Class A offices lead to declining vacancy rate, down by 3.5 ppt to 14.4% from end 2014 to H1 2017. This boosts landlord confidence.
 
CBD office vacancy by Class
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Source: JLL

In the near term, the ongoing economic recovery will support further office demand expansion. This is expected to reduce the vacancy to 11.5% in 2021. A larger impact is expected in Class A. 

The narrowing selection of quality offices will stimulate rental growth: JLL experts predict 7-25% increase in Class A by the end of 2019. This will raise Class A rental rates to $500-800 per sq m per year from $400-750 in 2017. Rental rates in Class B+ will rise as well, reaching RUB28,000 versus RUB26,000 in 2017.

CBD office rental rates, USD per sq m per year

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Source: JLL

“Small size tenants can always find office premises that meet their requirements. For large companies, it is becoming a challenge to find an appropriate office in the CBD. Shrinking availability and expected rental growth will force tenants to consider under construction projects and to pre-lease premises there, or to seek a compromise on rents in their current location,” – concludes Elizaveta Golysheva, National Director, Head of Office Agency, JLL, Russia & CIS.

   
 

About JLL
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and on behalf of its clients managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $145 billion. At the end of the second quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of nearly 80,000. As of June 30, 2017, LaSalle Investment Management had $57.6 billion of real estate under asset 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, 2006-2017 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, 2016, St. Petersburg; Consultant of the Year at the RCSC Awards in 2015.