During 2011 Moscow's office market showed signs of both growth and slowdown, according to a new report from CBRE Russia Office Research. We observed falling vacancy and an increase in rental rates for quality office space. The level of new supply and take-up dropped considerably compared with the results of 2010: 2011 was similar to 2004 and 2005 when the market started its growth in terms of new delivered office space and demand levels.
The total take-up for 2011 was 1.18 mln m² (this figure includes new leases and owner occupied space, excludes extensions and investment sales). Out of this volume class-A and B+ take-up was 1 million m². In contrast to 2010, in 2011 geographically, the demand for office space in the CBD decreased to 23% versus 33% in 2010. Former class-C tenants leased space in quality office buildings.
According to the report, the volume of new delivery dropped considerably and reached 603,800 m², 30% less than a year before.
The majority of take-up in 2011 was accounted for by Russian companies, 65% of the total. Due to a combination of stable demand and falling supply, the overall vacancy decreased from 20% at the end of 2010 to 13% in 2011. The vacancy rate in class-A buildings stood at 16%-17% (compared with 21% in 2010). The vacancy rate in class-B stood at 13%-14% (compared with 16% in 2010).
Prime rents rose throughout the year. By year-end rental rates reached $1,200 (30% growth compared with 2010). The market also saw an increase in rents for Class A space, from $600 at the beginning of 2011 up to $800 at year-end.
Due to the limited amount of new delivery in 2012, the vacancy will continue to fall and decentralization trend will be continued. We expect overall vacancy to fall to 7% and rising rents for quality office space. Those factors will strongly influence the future direction of office development, and in particular we forecast a shortfall of supply on the office market by 2013 2014. According to the new CBRE report stable demand will continue for quality office space in the best locations that will be similar to 2010 - 2011 with 1.4 and 1.2 mln. m² accordingly.
Nevertheless, overall take-up will stay stable in 2012. Certainly, the volatility of European markets suggests risks for Russia's real estate market. In addition to the uncertain macro-economic landscape, Russia's political landscape is also a cause of some uncertainty leading up to the presidential election. Many occupiers will continue to exercise caution in their long-term expansion plans, and this will be a moderating factor on demand.
Claudia Chistova, Head of Office research, CBRE in Russia comments the results of the report: "In 2011 Moscow office market saw decreased supply of new office space, stable demand, falling vacancy and growth in Prime rents. Occupiers leased office space in quality office buildings, and not only office space in the CBD was in high demand but also office premises in popular submarkets beyond the Garden Ring (South-West, Leningradsky)."