Research and market analysis department
www.ilm.ru
Moscow, 2 quarter 2017
Office market report
6 Presnenskaya nab., Building 2, Imperia Tower, Moscow City, Moscow, Russia +7 495 287 06 00, [email protected] Office market report Main indicators | Q2, 2017
Main indicators of the office market
Moscow, 2 quarter 2017
The number of square meters Absorption in H1 of 2017 Vacancy rates as of the end Average asking base rents *Changes in each building of office space delivered in H1 2017 of Q2 of 2017* as of Q2 of 2017* class as compared to the end of Q1 of 2017
19,2% 16,6 % Class B-
m 14 500 RUB 14,2 % Class B+ m 9,5 % 17 000 RUB m m 300 000 sq. Class A 57 000 sq.m Class A 24 500 RUB Class B+ 0 sq.m 89 000 sq. Class A Class B+ Class B- Average
Class B- 0 sq.m 199 000 sq. 13 000 sq. Total 57 000 sq.m High vacancy rates in decentralized locations will continue to support the falling trend of the average asking rental rates The vacancy rate in Class A properties located in CBD. Rental rates in Class B+ offices for the first six months of 2017 have risen by 6%. This has decreased by The office market continues to be driven by the post-crisis
ta l increase can be explained by the changes in the structure of mood with regard to the new developments which are estimated 1.5 points Class A Class B+ Class B- To the supply where more Class B+ spaces on the expensive side at 25% of what was supplied in the same period of 2016. Even coupled with a larger supply of smaller spaces that typically on average across all building classes though the total supply of new offices will most likely exceed the demand higher rates have been made available. number of 2016, it will remain low and unsteady. The total absorption for the first two quarters of 2017 showing the changes in the occupancy has doubled the results of 2016 when the relatively high absorption rate was saved by a couple of Managing partner large transactions of purchase and sale. The current absorption Andrei Lukashev | rate is less wonky and is driven by and large by office relocations The delivery from lower to higher Class properties. rate has Growing demand on analytics Lower new construction or the lack thereof has been driving down the vacancy rate and restoring the balance between supply decreased and expertise and demand. As of Q2 2017 vacancy rates have dropped by 1.5 points on average across all building classes with the largest by 75% Since the beginning we pay much attention to big data and development of online agency services which facilitate any drop taking place in Class B+ offices where it reached 2.8 points. as compared to the end of Q1 transaction process in commercial real estate. Now we are observing the growing demand on analytics and expertise which can help property owners to make decisions for correct and beneficial property management and that’s why on the basis of AMO.RU we have created AmoLab. Practically, it is a personal profile filled in by property owners themselves which gives an opportunity to receive all kinds of reports on commercial real estate.
3 4 Office market report Supply | Q2, 2017
Supply Total stock makes up 20 Millions Total stock as of the end of H1,2017 sq.m thousand sq.m as of H1 2017
8 000 7 000 6 000 Trend in the total stock of office Dynamics of delivery of new high-quality 5 000 space, thousand sq.m office premises,thousand sq.m 4 000 3 000 21 % 20000 1600 19000 1400 2 000 18000 1200 1 000 17000 Class А 16000 1000 0 15000 800 Class A Class B+ Class B- 14000 600 13000 400 12000 11000 200 As of H1 2017 total number of high-quality office space in 10000 0 Moscow makes up 20 Millions sq.m comprising 21% of Class 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 A (4.2 Millions sq.m), 38% of Class B+ (7.5 Millions sq.m) and 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q2 2017 41% of Class B- (8.3 Millions sq.m) office premises. 38 % Class А Class B Q1-Q2 2017 There is only one project (Neopolis) delivered in Q2 of 2017 adding 57,000 sq.m to the market. Class B+ Shortage of office space delivery wasf rst noticed in Moscow in 2015. In pre-crisis 2014 were delivered The office market continues to be driven by the post-crisis about 1.4 Millions office square meters and already in 2015 the delivery fell to 707,000 sq. m. In 2016 the mood. The delivery rate still keeps minimal. As of H1 2017 number of delivered office premises made up only 350,000 sq. m which became an anti record for the past the delivery rate has decreased by 75% as compared to the 10 years of collecting and tracking down market data. previous year (223,000 sq.m). Property owners continue to postpone the delivery of new projects to avoid exposure to the property The delivery rate can exceed the results of 2016, however taxes once a project is commissioned. The delivery of new projects may also depend on signing up large it will still remain on a low level. Developers have announced tenants. Besides, since 2014 the greater part of developers froze the delivery of some projects. Some the delivery of 380,000 extra sq.m in H2 2017, which is by 12% projects were frozen at the planning stage or its zoning was changed from office to apartments. As a higher than the total delivery rate as of 2016. Nevertheless the result, the majority of the new supply for the coming 24 months will derive from the projects that were actual delivery rate can be much lower. 41 % scheduled to be rolled out in 2015-2017. Class B-
5 6 Office market report Supply | Q2, 2017
Anna Vorobyova | Director. Head of AMO.ru Redevelopment of low-quality office buildings
We are currently experiencing a major uncertainty and the only way out is accurate planning. Any property project shall be calibrated, accurate and smooth. Tenants still migrate to higher-quality offices which determines constant absorption of Class A and B+ office premises. At the same time vacant Class B- office buildings shall be redeveloped and modernized. We expect that in the nearest future low-quality Class B- office buildings will be replaced with modern high-quality business complexes.
Properties expected for delivery by the end of 2017
Office space, Property Address Developer Class sq.m
IQ-Quarter 11 Presnenskaya Emb. Hals-Development А 108 600
Federation Tower I – East 12 Presnenskaya Emb. AEON-Development А 82 000
Oasis 3 Koroviy Val St. BIN А 29 000
Fili-Grad, Phase II 5 Beregovoy Proezd MR Group A 22 000
Smolensky Passage, 7-9 Smolenskaya Sq. BIN A 21 000 Phase II
Tverskaya Residence 2-nd Brestskaya St. 6 Tekhnokom A 18900
SKY House 40 Mytnaya St. Mos City Group A 17 500
20 Nagornaya St., Bld. 7 20 Nagornaya St., Bld. 7 Soyuzprominvest Б+ 14 800
36 Leningradsky Prospect, Arena Park, Bld. 4,5 UK Dinamo A 12 900 Bld. 4, 5
11 Nikoloyalamskaya St., Bernikov BIN Б+ 11500 Bld. 2
7 8 Office market report Demand | Q2, 2017
Demand Companies in the services sector remain the main consumer of high- Total net absorption in H1 of 2017 made up 300,000 quality office premises Currently we are watching the restored demand on office sq.m and doubled the results for the same period of2016 premises in all categories of tenants. As of H1 2017 the when the total net absorption rate was determined number of inquiries is almost equal in all sectors. The byseveral big transactions. This year net absorption biggest number of inquiries still comes from the consumer tendency is more stable. Net absorption as of H1 2017, The structure of demand section and makes up about 14% of all inquiries. During thousand sq.m according to the branch of the last 3 months the number of inquiries from trading In H1 the highest net absorption was fxed at B+ office business activity, H1 2017 companies reduced by 2 points to 14%. By the end of buildings. Due to a great number of deals, total net the year fnancial sector got more active and the number absorption in Class B+ office premises made up 199,000 160 of inquiries increased by 3 points and made up 9% of all sq.m. In Class A office premises net absorption made up 140 120 inquiries. 89,000 sq.m. After a slowdown in relocation in the end of 100 2016 net absorption in Class B- office premises achieved 80 positive values and reached 13,000 sq.m. 60 40 20 The structure of the total net absorption indicates that 0 the demand on office premises is still being determined by migration of anchor tenants to higher quality Q1 2017 Q2 2017 Q1 2017 Q2 2017 Q1 2017 Q2 2017 Q1 2017 Q2 2017 Q1-Q2 2017 Q1-Q2 2017 Q1-Q2 2017 Q1-Q2 2017 office buildings. The majority of companies continue B+ B- Total consolidating offices to reduce their rent and logistics expenses leaving lower quality offices unoccupied. That’s Trading companies why the number of vacant office square meters continues Consumer services to decrease mostly in Class A and B+ office premises. Net absorption trend, thousand sq.m IT, telecommunication In Q2 total net absorption in Class A office buildings and media companies grew by 79,000 sq.m and doubled the results of Q1 . In 800 Other Class B+ office premises net absorption made up 93,000 700 Developers sq.m compared to 106,000 sq.m in Q1. Despite the 600 increase in the number of deals in office premises Class B+ 500 Manufacturing companies 400 many office premises were left vacant in Q2. These are the Professional services 300 consequences of delayed release of the office premises 200 which is being characterized by factual relocation of 100 companies several months after the commencement of 0 Logistics and transport companies
the new lease. Therefore, the largest transactions are 2011 2012 2013 2014 2015 2016 FMCG and pharmaceutical companies settled in shell & core offices. As a result, some tenants Q2 2017 will move to their new offices later which will negatively Government institutions affect the total net absorption. Taking into account Energetics defcit of large vacant office premises on the real estate *Net absorption shows the volatility in the leased * The analysis is based on the total number market and lack of new options we expect the increase office premises for a certain time frame. It is measured of applications received by ILM in H1 of tenants activity on real estate market while relocation according to the following formula: S1+ Snew -S2, 2017 S1 — vacant office premises; will still be based on reduction of occupancy costs. Snew — new office premises delivered, within the preset time frame; S2 — vacant office premises by the end of the term, chosen for the analysis. 9 10 Office market report Demand | Q2, 2017
aſter FRR aſter FRR Net absorption on the market of high-quality office space Key deals of Q2 2017 aſter FRR at the end of Q2, 2017 Number Type of Company Property Address sq.m transaction District Class А Class B+ Class B– Tekhnoserv 14 000 lease Novospassky 7 Derbenevskaya Emb. Central District 24,7 -6,7 -21,5 aſter FRR 22/25 Bol. Strochenovsky SERCONS 6 500 lease Putnic Moscow City 10,1 5 '-* Pereuloc, Bld. 1
NED before FRR 3,2 11,3 0,4 Electronnaya Moskva 6 300 lease Yakovoapostolskiy 12 Yakovoapostolskiy, Bld. 1
RN-Shelf-Arctica, NED after FRR '-* 15,3 0,9 5 500 lease Atlantic 8 Mozhaysky Val RN_Exploration ED before FRR -5,5 -2,6 -6,2 Dochki-Sinochki 4 000 lease Na Bakuninskoy 71 Bakuninskaya St. Bld.1, 2 ED after FRR '-* -0,2 2 Bingo-Bum 3 600 lease Simonovsky Val 26A Simonovsky Val SED before FRR '-* -2 3,8 Shokoladnitsa* 3 015 lease Omega Plaza 19 Leningradskaya Sloboda SED after FRR '-* 0,7 -12,3 LCMG Group* 2 600 lease 38 Berezhkovskaya Emb. 38 Berezhkovskaya Emb. SD before FRR 2,6 77,7 5,7 Hays 2 500 lease Paveletskaya Plaza I, Bld. A 2 Paveletskaya Pl. Bld.1 SD after FRR '-* 5,6 -6,9 44 A Leningradsky Prospect, 44A Leningradsky Prospect, Novostrans* 2 386 lease SWD before FRR 2,1 11,5 3,3 Bld. 3 Bld. 3 Glonass* 2 256 lease Northern Tower, Entrance 2 10 Testovskaya St. SWD after FRR 13 -29,1 21,7 ECN24* 2 250 lease Imperia 6 Presnenskaya Emb. Bld. 2 WD before FRR aſter11,1 FRR 46,4 0,4 MOEK 1 700 lease 7 Pokrishkina St., Bld. 1 7 Pokrishkina St., Bld. 1 WD after FRR -2,7 34,9 15,4 SunRise Project 1 500 lease Rassvet 3 Stolyarny Pereuloc NWD before FRR '-* 7,2 0,4 Sol Russie 1 300 lease Peredny Dvor 40 Bol. Ordynka Bld. 1 NWD after FRR -12,8 16,6 1,0 Center of support aſter FRR 1 300 lease Sirius Park 3 Kashirskoye Sh. , Bld. 2 ND before FRR -1,6 19,6 -7,6 of small business* ND after FRR 40,1 -0,1 2,2 MALLTECH 1 200 lease Moskovsky Shelk 23 Savvinskaya Emb. Bld. aſter FRR Emelyanovskaya biofabrica* 1 000 lease Premier Plaza 1 Timiryazevskaya St. FRR – Fourth Ring Road * Buildings not applicable in the indicated district aſter FRR
* in this transaction ILM acted as a consultant
11 12 Office market report Vacancy rates | Q2, 2017
Vacancy rates
The decrease of the new space delivery continues In the CD vacancy rate is probably the lowest. By the end of March it has made up to impact the market calibrating the balance between 2,9 Millions sq.m 10.6%, however in absolute terms it makes up about 690,000 square meters or 1/4 of 14,2 % demand and supply. In the beginning of the year vacancy of office premises remain vacant. all vacant office space in Moscow. Average vacancy rate rates have dropped by 1.5 points averaging 14.2% in the makes up 14,2% as of The highest vacancy rate remains in Class A office buildings located in SED before H1 2017 office market. In H1 of 2017 the decrease of vacancy rates FRR (65.4%) and ED before FRR (55,4%). Some big Class A office projects are located touched all building classes. Vacancy rate dynamics, % here and are still unoccupied. In the CD vacancy rate in Class A office premises The greatest decrease of vacancy rates is noticed reduced by 1.5 points and by the end of the quarter reached 15.0%. in Class B+ office buildings. As a result of growing net 30,0% The number of vacant office space in MIBC Moscow City has made up about 182,000 absorption in this class the number of unoccupied office 25,0% square meters. Vacancy rate in this district is now 18.5%. space has decreased by 2.8 points and by the end of June 20,0%
made up 16,6%. 15,0% Analyzing vacancy rates in Class B+ office buildings, we came to the conclusion that the highest vacancy rate remains in SD after FRR (16.4%) and SED before FRR (15.8%). We are observing the same tendency in Class A office 10,0% 5,0% In CD vacancy rate has made up 8,9% and in the period of 3 months decreased by 0.4 buildings. The vacancy rates have dropped by 1.1 points 0,0% points. and reached 19.2% which now makes up 814,000 sq.m. At 2010 2011 2012 2013 2014 2015 2016
the same time the number of big office blocks in Class A Q1 2017 Q2 2017 buildings continues to decrease and big companies are now struggling while searching for new high-quality office Class A Class B+ Class B- space. Office space totaling more than 15,000 square meters is currently available only in 10 Class A office developments. In the context of positive net absorption in Class B- Vacancy rate by the end of Q2 in H1 the vacancy rate has decreased by 0.3 points and 2017 , millions sq.m reached 9,5% by the end of March. 25,00 Despite of constantly decreasing delivery of new 20,00 office space and a zero supply in the frst quarter about Sergey Kruzhilin | Director. Office agency department 2,900,000 sq. m remain vacant. Thus, every 7th square 15,00 meter is vacant at that moment, nevertheless it's worth 10,00 The number of vacant fitted out office noting that the allocation of new delivered office space is 5,00 uneven throughout Moscow districts. 0,00 premises is decreasing rapidly Class B+ Class B- Total
Total, million sq.m Vacant, million sq.m In the context of tenants’ migration to high-quality office buildings the number of vacant fitted out office premises is rapidly decreasing. Those companies that don’t have enough time to consolidate offices in already fitted out office premises will have to consider premises in shell & core condition. The vacancy rate in Class B- office premises will only grow. Furthermore we expect the shift of owners in Class B- office premises for redevelopment and modernization, while rental rates will be stabilized mostly by decline in the quality of facility and operating services. I think that in the next quarters we will continue watching the increasing net absorption in Class A/B+ office buildings mostly caused by relocation of companies focused on optimization of rent expenses.
13 14 Office market report Vacancy rates | Q2, 2017
Vacancy rate of high-quality office space as of the end of Q2 2017
aſter FRR District Class A Class B+ Class B– aſter FRR aſter FRR Central District 15,0% 8,9% 9,2%
Moscow City 18,8% 11,2% -* aſter FRR NED before FRR 9,6% 14,2% 10,1% NED after FRR -* 21,7% 7,2% ED before FRR 55,4% 25,2% 10,3% ED before FRR -* 1,1% 4,4% SED before FRR 65,4% 15,8% 5,5% SED before FRR -* 24,5% 19,7% aſter FRR SD before FRR 1,2% 16,4% 11,2% aſter FRR SD after FRR -* 27,2% 9,6% aſter FRR SWD before FRR 29,1% 8,7% 21,2% aſter FRR SWD before FRR 29,3% 34,7% 8,0%
WD before FRR 23,3% 26,9% 3,2%
WD after FRR 34,7% 26,2% 19,5%
NWD before FRR -* 52,1% 14,0%
NWD after FRR 47,7% 14,2% 5,3%
ND before FRR 9,9% 19,4% 9,3%
FRR – Fourth Ring Road ND after FRR 12,9% 25,6% 6,3% *Buildings are not available in the indicated district
15 16 Office market report Rental rates | Q2, 2017
Rental rates
The decrease of the average asking base rents in 6% Rental rates have been mostly affected by economic trends. Nomination of asking base rents in ruble Class A office building continues. By the end of H1 the terms will continue. In case of stable economic conditions we expect that current base rents will remain on drop of rental rates in ruble terms made up 4% (as Rental rates for Class B+ office premises the same level as compared to the end of 2016. The average level can vary depending on the offer terms and compared to the end of 2016) and achieved 24 500 have increased by 6% by the end of H1. conditions or on some landlords’ behavior that will gradually increase base rent due to market stabilization. RUB / sq.m / year. The decrease of the asking base rents is practically based on high vacancy rates of office premises out of CD which influences the average Average asking rental rates, RUB rental rates.
Within the last 3 months average asking base rents 40000 for Class B+ office premises achieved 17,000 RUB/ sq.m 35000 /year. The average rental rates have increased by 6% 30000 Director. Occupier services within H1. The increase of rental rates in B+ buildings 25000 Yuri Yudakov | 20000 can be explained by the changes in the vacancy 15000 structure, namely due to lower rental rates more and 10000 The majority of marketed office premises more expensive office premises remain vacant and 5000 determine the average rental rates in this class. The 0 haven’t exceeded 500-700 sq.m increase of rental rates was also influenced by the 2014 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 grow of vacant small units with higher asking base In H1 the majority of marketed office premises haven’t exceeded 500-700 sq.m. We come to the conclusion that small and rents for sq.m. At the same time some developers Class A Class B+ Class B- average companies are ready to relocate to new and modern offices while anchor tenants prefer lease renewals in more started increasing base rents as soon as they noticed profitable conditions. Economic recession doesn’t yet lead to business development and as a result to extensions or relocation the interest of the tenants to cheaper office premises. of big companies. Average asking base rents trend, During Q2 we have also noticed the grow of rental USD rates in Class B- office premises. By the end of June average asking base rents for this Class made up 14,500 RUB/sq.m / year. This tendency is directly Artem Nevolko | Director. Office agency department related to the changes in taxation of commercial real 900 estate. The increase of cadastral value has mainly 800 700 influenced ClassB- office premises. 600 Increase in base rents for the most 500 400 marketable office premises 300 200 100 0 We have noticed an increase in number of deals on commercial real estate market. The most desirable premises are offices in high-quality office buildings with convenient location and flexible owners. However the number of such offers is constantly 2010 2011 2012 2013 2014 2015 2016 decreasing. In the nearest 6 months we expect the increase in base rents for the most marketable office premises. Q1 2017 Q2 2017
Class A Class B+ Class B-
17 18 19 |Обзор Обзор рынка рынка офисной офисной недвижимости недвижимости RentalRental rates rates | |2 квартал 2 квартал 2016 2017 | 20
Average asking base rents for high-quality offices, Q2 2017
aſter FRR District Class А Class B+ Class B– aſter FRR aſter FRR Central District 29 700 rub. 25 700 rub. 17 700 rub.
Moscow City 31 200 rub. 22 500 rub. -* aſter FRR NED before FRR 23 100 rub. 14 700 rub. 12 000 rub. NED after FRR -* 9 800 rub. 11 400 rub. ED before FRR 20 400 rub. 15 500 rub. 11 400 rub. ED after FRR -* 15 600 rub. 10 400 rub. SED before FRR 22 600 rub. 15 100 rub. 11 000 rub. SED after FRR -* 12 300 rub. 11 500 rub. aſter FRR SD before FRR 27 200 rub. 14 900 rub. 13 000 rub. aſter FRR SD after FRR -* 13 800 rub. 11 800 rub.
SWD before FRR 18 200 rub. 27 500 rub. 11 400 rub. aſter FRR aſter FRR SWD before FRR 13 800 rub. 15 300 rub. 15 500 rub.
WD before FRR 29 400 rub. 21 500 rub. 12 000 rub.
WD after FRR 13 200 rub. 11 000 rub. 13 700 rub.
NWD before FRR -* 17 900 rub. 13 300 rub.
NWD after FRR 12 200 rub. 11 900 rub. 12 300 rub. FRR – Fourth Ring Road Rental rates VAT (18%) net of and OPEX. ND before FRR 28 000 rub. 17 200 rub. 13 800 rub. *Office space is not available in the indicated district ND after FRR 10 600 rub. 10 000 rub. 12 000 rub.
19 20 Office market report
Our experts
Andrey Dmitry Ekaterina Lukashev Myslin Volkova
Managing Partner Managing Partner Director [email protected] [email protected] Research and Market Analysis Department [email protected]
Margarita Andrei Sergey Trofmova Protasov Kruzhilin
Director Director Director Valuation and Consulting Investment and Asset Office Agency Department Management Department [email protected] [email protected] [email protected]
Anna Egor Artem Vorobyova Levchenko Nevolko Director Director Director Office Agency Department Retail Department Office Agency Department [email protected] [email protected] [email protected] 772 680 140 2009 139 deals sq. m marketed year of foundation empoyees
Alexander Mikhail Alexander Perfliev Kryuchkov Gurganov
Director Director Partner Industrial and Warehousing High-end residential Office Agency Department Department [email protected] [email protected] [email protected]
© ILM. All rights reserved. No part of this The information contained in this report is The aim of this report is to provide information publication may be reproduced or transmitted based on our own research and the provision of about the main trends in the commercial real in any form or by any means without the prior materials, which according to ILM are authentic. estate market. ILM Company shall not be Victor Yury Ivan written permission of ILM. Quoting the report Nevertheless, we can not guarantee the liable for any damages or losses incurred as of the materials is possible only with reference absence of errors of fact. We would be grateful a result of inaccuracy or incorrectness of the Reshetnikov Yudakov Ivliev to the company ILM. if you would inform us of such errors so that we information contained in this report. Director Director Chief Executive Officer can make the appropriate changes. Office Agency Department Occupier Services [email protected] [email protected] [email protected]
21 Office market report Our online services | Q2, 2017
Secure online agency service aimed at Skladium.ru is an online agency service helping providing a variety of offices available for warehouse and industrial occupiers find lease or sale. properties online in a timely manner. We rigorously collect information on available Skladium.ru tracks more than 2,500 warehouse properties and have built an extensive an up-to- properties in 90 cities across Russia. We provide full date property database perfect for a quick search access to the property online database without any of any office property. More than 700 companies registration or restrictions. This database contains have taken residence in different business centers detailed information about each property option, and business parks throughout Moscow and Russia rental rates, sale prices, photos and floor plans. We thanks to AMO.ru online service. The key principle provide a professional support at every stage of the of AMO.ru online service is to help you quickly find warehouse transaction beginning with a property the most suitable office. AMO.ru is the best and search all the way through a lease execution. most trustworthy website for commercial real estate and finding properties online.
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The online agency services have more than 1 million unique visits per month. Each service Online agency service designed to make the Online agency service for high-end residential contains 100% accurate and comprehensive information about commercial or residential investment market more transparent and properties located in Russia and abroad reliable properties including photographs, floor plans, prices, technical specifcations, etc. Thanks Gethome is all about a personal approach, excellent market knowledge and many years of residential to the advanced online technologies combined with professional services we have been We will help you find the most viable investment property taking into account your investment experience structuring complex lease and purchase able to create a very transparent and less overwhelming environment for leasing or criteria and return on investments and assisting transactions and providing security and confidentiality buying real estate in the Russian market. you with any other post-transaction services for each client. including asset management.
23 24 ILM provides comprehensive services to clients in the Russian real estate market:
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