Demand for office space in the Central Business District of Moscow will remain high among financial institutions and the other usual 'prime' tenants, according to 'Central Business District (CBD), Moscow' report by CBRE. Though the breakthrough of rental rates that was forecasted by office real estate market, will not take place in 2012.
Geographically the CBD is defined as the area inside the Garden Ring (GR) plus the area along 1st Tverskaya-Yamskaya Street, which ends at Belorusskiy railway station. The CBD has the highest concentration of office buildings compared with other Moscow submarkets.
Half of all Moscow class-A office buildings are located there, including the following landmark projects: White Square Office Complex, Ducat III, Aurora Business Park, Balchug Plaza, Paveletskaya Plaza, Summit, and others.
The restrictions of new development in CBD and historic center of Moscow is explained by heavy traffic in the center of the city and a limited number of available land plots. According to the report, by the end of Q1 2012, just one new class-A office building, LightHouse, had been put into operation.
One more project has been announced as due for delivery in 2012: Aquamarine BC Phase III. Such a low volume of new supply will undoubtedly influence the level of vacant space inthe area. CBRE experts expect the limited number of options for large tenants in CBD over the long-term.
Currently, the vacancy rate in the CBD is 9% (266,400 m²), which is the lowest among Moscow's submarkets. Almost 70% of class-A vacant space is offered in shell&core condition. This trend will be continued and by the year-end the vacancy rate will be at approximately 7% and in the near future will reach pre-crisis levels.
Due to the volatility of European markets, many occupiers are exercising caution in their long-term expansion plans. The majority of take-up is accounted for by Russian companies. Tenants have to consider the offices beyond the CBD to fit in the budgets. Over the long-term, due to rising rents, falling vacancy in the CBD and limited number of options for large tenants, the increasing decentralization trend will be continued.
In the long-term outlook, class-A space in new office buildings which are under construction right now will mostly likely be pre-leased due to the limited construction in the CBD, according to the results of the latest report by CBRE, but demand for office space in the CBD will remain high among financial institutions and the other usual 'prime' tenants.
The average base rent for class-A premises in the CBD is US $750/m²/year net of OpEx and VAT, and for prime class-A space $1,200 per m². Throughout 2011 the growth in prime rents was 30% compared with 2010. Before the crisis, the rents for the best premises reached $2,000 per m².
Claudia Chistova, Head of Office research, CBRE in Russia comments on the results of the report: "Historically the CBD is in high demand from both developers and tenants. In spite of the increase of quality office stock beyond the Garden Ring during last several years, the volume of take-up inside the Garden Ring stands at 20-30% of the total take-up.
"Over the long-term, due to the prohibition of new development in the historic center, we'll observe increasing decentralization. Undoubtedly, demand for office space in the CBD will remain high among financial institutions and the other usual 'prime' tenants."
Elena Denisova, Director, Head of Office Agency, CBRE, Russia says: "The demand for CBD keeps stable and will remain such though large-scale users (7,000-20,000 m²) will be a much rarer case in CBD onwards. Taken decentralization trend as well as consolidation plans with lack of 'product' in CBD to match the requirements, big occupiers (from 20-30,000 m²) are likely to settle their office needs beyond TTR.
"With no options for new development in CBD, the topic of redevelopment (for both existing office buildings and various mix-use properties) acquires a new potential and a lot of sense to it."