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+ has decreased by A offices for the first six months of 2017 have risen by 6%. This The office market continues to be driven by the post-crisis l ta 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 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 wasfi 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 fixed 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 financial 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.