According to CBRE’s latest office market report, 600,000m² of office projects have been announced for delivery in 2016, with volumes of new delivery dropping to the level of 2011-2012.
The pipeline comprises 320,000m² is class-A offices, and 280,000m2 class-B with over 30% of the announced volume expected for commissioning in Moscow-City – IQ-quarter and the Federation Tower East.
The expectations are indicative of a slow 2015 during which the volume of new office delivery amounted to just 721,500m2, almost twice less than in 2014 and 2015 forecasts at the beginning of the year. The largest class-A office buildings delivered in 2015 were Oruzheiny 41 in the CBD (100,000m2), Evolution in Moscow-City (79,000m2); and in Class B – Neo Geo at Butlerova Street (110,000m2), Sirius Park at Kashirskoe Highway (66,000m2), Simonov Plaza at Leninskaya Sloboda Street (49,000m2).
Meanwhile, take-up (new lease and sale deals) in 2015 amounted to 870,400m2 (18% higher than in 2014), setting a positive trend for 2016 with conclusion of large new lease transactions expected throughout the year.
Last year saw the largest share of class-A transactions in the history of the Moscow office market at 43%; previously it has never exceeded 41%. The volume of renewals and renegotiations reached a historic high of 566,000m2: companies preferred to fix better commercial terms for the short-term in their existing business centres. However, these types of transactions in such a large volume ended in 2015.
A significant share of the total take-up involved state institutions and companies with government involvement, for example, Moscow Government subsidiaries in OKO, Moscow Region Government structures in Orbita, Transneft in Evolution.
According to CBRE’s forecast, in 2016 the volume of transactions is expected to remain at the level of 2015. The vacancy rate is expected to stabilise at the level of 16–17% overall, 24–25% in the class A segment, 13–14% in the class B segment.
The main trend of 2015 was the final transition of lease rates to rubles. The only submarket where landlords still continue to offer the premises in rents, denominated in dollars, is prime class-A segment ($800–900/m2 per year net of OpEx and VAT). According to CBRE’s forecast, rental rates denominated in rubles will at least remain stable during 2016.
Elena Denisova, director of office agency, CBRE in Russia commented: “Despite decrease in the volume of new office construction and rental decrease, Moscow office market observed positive changes: demand remained active and take-up exceeded the 2014 results.
“In 2016 among the major trends the conclusion of large new lease transactions cannot be excluded, including continuing demand from state institutions and state owned companies.
“We expect that 2016 will be the last period when the current market opportunities can be secured. It is also anticipated that extension and renegotiation deals will not be executed on such large volume in 2016.
“Lease rates denominated in rubles appear to reach bottom in 2015, however the bottom is not reflected on the asking rates, but rather can be clearly perceived through actually achieved transactions.”
