h1 2016 office market report - knight frank · office market report moscow class a class b total...

Class A and B new delivery volume has dropped by 20% compared to H1 2015.

Class A and B vacant office space volume is 2.8 million sq m.

Take-up volume in H1 2016 has increased by 25% compared to H1 2015 in Class A offices and by 33% in Class B offices.

HigHligHTs

OffiCe mArkeTrepOrTmoscow

H1 2016

reseArCH

2

Office market repOrt. mOscOw

New delivery volume dynamics for Class A and B offices

key indicators. Dynamics*

ʺMoscow office real estate market turned positive showing signs of stabilization after continuous fall. These signals found expression in the reduction of vacant space and slowdown of rental rate decline. However, the prospects of recovery are still uncertain, the process itself may last a long while. The achieved balance is the result of several major transactions, while most companies still follow the optimization strategy.

Today, it is still more of a tenant's market offering a wide range of options and attractive lease terms. Nevertheless, there are examples when landlords are beginning to slightly raise asking rates after letting part of their premises. The reason for this is expected reduction in the volume of new construction in 2017–2018. Then, there may be a decrease of options available for lease and purchase thus stimulating rental rates increaseʺ.

Konstantin LosiukovDirector, Office Department Knight Frank

Office market report Moscow

Class A Class B

Total stock, thousand sq m 15,714

including, thousand sq m 3,851 11,863

Delivered in H1 2016, thousand sq m 175

including, thousand sq m 30 145

Net take-up, thousand sq m 233

including, thousand sq m 168 65

Vacancy rate, % 20.5(-3.9 p. p.)*

17.0 (-0.5 p. p.)*

Average weighed asking rental rate**

UsD/sq m/year 465(-1.9%)*

262(-8.1%)*

rUr/sq m/year 24,662(-1.9%)*

13,899(-8.0%)*

rental rates range** UsD/sq m/yearrUr/sq m/year

280–85010,000–45,000

250–6507,500–35,000

OpeX rate range***, rUr/sq m/year 4,000–7,500 2,500–4,500

* Compared to Q4 2015** Excluding operational expenses utility bills and VAT (18%)*** OpeX rate does not consider change related to property tax rate increase

source: knight frank research, 2016


2000

400600800

1,000 1,2001,4001,6001,8002,000

2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

thousand sq mClass А Class В

3

ReseaRchh1 2016

key office projects delivered in H1 2016* and due to be commissioned in H2 2016

* Office properties that received the delivery act in H1 2016 The building class is indicated according to the Moscow Research Forum Office Classification of 2013source: knight frank research, 2016

supplyThe total stock of moscow office premises has reached 15.7 million sq m referring 25% to Class A and 75% to Class B office buildings.

Developers have postponed construction start of a number of office buildings since 2014: part of the projects are still at the design stage, other concepts have been revised. As a result, landlords have reduced office component or completely rejected it. The delivery volume of H1 2016 has become a record low equaling to 175 thousand sq m.

The vacancy rate of Class A was registered at the level of 20.5% and 17% in Class B. Class A index shrank 3.9 p. p. owing to completion of several large transactions along with insignificant delivery volume. An important event influencing the vacancy rate dynamics became the transfer of ownership of one of the office buildings to the lending bank. There is some evidence that it may accommodate some of its subsidiaries in this building. Thus, the building was withdrawn from the market.

Despite this, today moscow office market comprises 2.8 million sq m available for tenants and buyers in delivered office buildings, and about 3 million sq m including buildings in active construction stage.

Dynamics of new delivery, take-up and vacancy rates of Class A and B offices


Rublevskoe Hwy

Leningradskoe Hw

y

Volokolamskoe Hwy

Altu

fievs

koe

Hw

y

Dm

itrovsoe Hw

y

Ryazanskiy Hwy

Kashirskoye Hwy

TTR

TTR

GR

MKAD

MKAD

MKAD

Yaro

slavs

ko

ye Hwy

Lenin

skiy

HwyPr

ofso

yuzn

aya

St

Vars

havs

koye

Hw

y

Volgogradskiy Hwy

Entuziastov Hwy

Scholkovskoye Hwy

Kutuzovskiy Hwy

Class А Class ВExisting

Under construction

Knight Frank – exclusive/co-exclusive consultant

Pekin Gardens4,247 sq mFederation Tower (East)

82,610 sq m

G10 (phase I) 30,252 sq m

Oasis39,493 sq m

Selectica15,950 sq m

NEOPOLIS52,700 sq m

Loft Ville (bld. 2)21,500 sq m

Seven One20,000 sq m

Novator20,000 sq m

NTC of RF (II phase)7,500 sq m

Imperial Park7,500 sq m

Pekin Gardens4,247 sq mFederation Tower (East)

82,610 sq m

IQ-quarter75,196 sq m

VTB Arena Park (phase I)12,000 sq m

G10 (phase I) 30,252 sq m

Oasis39,493 sq m BC on B. Pionerskaya St

25,000 sq mBC on B. Pionerskaya St

25,000 sq m

Selectica15,950 sq m

NEOPOLIS52,700 sq m

Dekart (Nagatino i-Land)28,125 sq m

Loft Ville (bld. 2)21,500 sq m

Seven One20,000 sq m

Novator20,000 sq m

NTC of RF (II phase)7,500 sq m

Imperial Park7,500 sq m

VTB Arena Park (phase I)12,000 sq m

IQ-quarter75,196 sq m

Dekart (Nagatino i-Land)28,125 sq m

Otradniy (phase II)25 300 sq m

Otradniy (phase II)25 300 sq m

Rodionovskiy2 300 sq m

Rodionovskiy2,300 sq m

Mescherin (Danilovskaya Manufaktura)21,655 sq m

Mescherin (Danilovskaya Manufaktura)21,655 sq m

Riverdale16 500 sq m

Riverdale16,500 sq m

100

200

300

400

500

600

700

800

Take-up volume New delievery volume Vacancy rate

Class А Class Вthousand sq m %

2013 2014 2015 2016F 2013 2014 2015 2016F

16.2%

29.8%

24.4%

20.0%

11.5%

15.3%

16.5% 16.0%

0

5

10

15

20

25

30

4


DemandThe net take-up in Class A and B offices has totaled 233 thousand sq m, which is 25% higher against first six months of the previous year if excluding the largest Q1 2016 transaction (transfer of ownership rights for the business centre (85 thousand sq m) to VTB Group against loan debt). The average transaction size increased 1.6 times and reached 1.5 thousand sq m, while the average size of lease transaction has not change.

The share of lease renegotiations in the total volume of transactions in H1 2016 was 59% against 73% for the same period of the previous year. There are less revisions of lease agreements in order to reduce the risks of ruble exchange rate fluctuations: today we witness an increase in the number of extensions of agreements when the parties extend them close to the expiration of the lease term or due to the break option, agreeing lease terms at the current market rental rates.

The tenant mix structure is mainly formed by several large transactions of Q1 2016, therefore the breakdown has remained unchanged. The largest share of 32% was taken by financial sector companies as a result of the transfer of ownership rights for eurasia Tower to VTB group. The share of non-profit organizations was 22% due to the purchase of 55 thousand sq m of office space in mfC OkO by moscow City government. Another landmark transaction was the acquisition of 15 thousand sq m of office space in park pobedy business centre by rUsAl company. Thus, the share of the manufacturing sector in the total volume of transactions has amounted to 11%.

key lease and purchase transactions closed in H1 2016


Tenant mix

* fast moving consumer goods** Technology, media and telecommunications*** B2B: consulting, legal services/ Transport and logisticsource: knight frank research, 2016

Rublevskoe HwyLeningradskoe H

wy

Volokolamskoe Hwy

Altu

fievs

koe

Hw

y

Dm

itrovsoe Hw

y

Ryazanskiy Hwy

Kashirskoye Hwy

TTR

TTR

GR

MKAD

MKAD

MKAD

Yaro

slavs

ko

ye Hwy

Lenin

skiy

HwyPr

ofso

yuzn

aya

St

Vars

havs

koye

Hw

y

Volgogradskiy Hwy

Entuziastov Hwy

Scholkovskoye Hwy

Kutuzovskiy Hwy

Class А Class В

Knight Frank acted as a consultantof the transaction

VTB86,834 sq m FIFA World CUP

Russia-20184,416 sq m

Qiwi3,871 sq m

ITSC4,155 sq m

Moscow City Government55,123 sq m

RUSAL15,351 sq m

Ipsos5,100 sq m

Philip Morris4,784 sq m

Stroytransgaz1,127 sq m

Tele2 2,209 sq m

Smith & Nephew1,194 sq m

Rusatom Overseas3,010 sq m

REA Kapitalnoye Stroitelstvo3,720 sq m

PIK-Comfort2,825 sq m

Urban Group 1,600 sq m

INTREK2,068 sq m

Imperial Tobacco1,679 sq m

Parallels Desktop Research3,135 sq m

Eurasia Tower

Oko

Park Pobedy

Kuntsevo Plaza

SkyLight

Bolshevik

Vodniy

Delta Plaza

Simonov Plaza

Port Plaza

Sirius Park

Avignon II

Dom Park Kultury

WTC

Four WindsKrasnoselskiy

Eurasia Tower

Oko

Park Pobedy

Kuntsevo Plaza

SkyLight

Bolshevik

Vodniy

Delta Plaza

Simonov Plaza

Port Plaza

Sirius Park

Avignon II9 Akrov (phase II)

6 B.Yakimanka St

Dom Park Kultury

WTC

Four WindsKrasnoselskiy

9 Akrov (phase II)

6 B.Yakimanka St

AKIG 3,092 sq m

Pro Gres7,300 sq m

Alma Group7,300 sq m

AC Media3,000 sq m

Servier 5,982 sq m

Mercury City

Empirebusiness high-rise

Apelsin

White Gardens

Gazoil City

Mercury City

Empirebusiness high-rise

Apelsin

White Gardens

Gazoil City

Distribution of transactions by type and location


32%

22%

10%

11%

10%

4%3%

3%3%2%

Banking/ Finance/ InvestmentNon-profitManufacturingFMCG*/ PharmaceuticalTMT**Real estateEnergyOil/ Gas/ MiningOther***Confidential

32%

22%

10%

11%

10%

4%3%

3%3%2%

Banking/ Finance/ InvestmentNon-profitManufacturingFMCG*/ PharmaceuticalTMT**Real estateEnergyOil/ Gas/ MiningOther***Confidential11%

43%

65%

34%

20%

11%

4%12%

Lease & Sale Renegotiations

MKADTTR–MKAD

TTRGarden Ring

5

ReseaRchh1 2016

developed business districts in the city centre on rental rates comparable to the rates in the business centres in remote areas.

Commercial termsClass A rents denominated in russian rubles remained almost unchanged and amounted to 24,662 rUr/sq m/year and Class B rents were 4.9% down equaling to 13,899 RUR/sq m/year. Class A and B

UsD rental rates have reached the level of 465 and 262 correspondingly.

sustained rental rates decline of started from mid 2014 has slowed down today. The current downward trend is determined by the strategy of separate landlords, who were late adapting to a highly competitive market and, therefore, the level of vacant space in their facilities is quite high. Thus, another historical anti-record has been updated in the office real estate market of moscow.

Average asking rental rates dynamics for Class A and B offices denominated in rUr

Average asking rental rates dynamics for Class A and B offices denominated in UsD



RUR/sq m/year

RUR/sq m/year

Q1 Q1Q2 Q2Q3 Q4Q4

Q1 Q1Q2 Q2Q3 Q4Q4

2014 20162015

2014 20162015

Class А

Class В

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

Class А

Class В

RUR/sq m/year

37,311

21,284

23,086

24,39825,885 25,525

30,144

25,149

21,143

12,70713,821 14,110

15,009 15,698

17,150

10,000

15,000

20,000

25,000

30,000

35,000

40,000

15,331

15,103

24,544

13,863

20,569

30,144

28,09327,321

26,670

25,14924,726

24,000

25,500

27,000

28,500

30,000

31,500

17,150 16,769

15,73115,452

15,10314,613

14,000

13,000

15,000

16,000

17,000

18,000

24,662

13,899

805

600

1,500

670 760830 833 800

590

850

400 455480 483 492

314

200

400

600

800

1,000

1,200

1,400

1,600

USD/sq m/year USD/sq m/year

USD/sq m/year

2014 20162015

2014 20162015

Class А

Class В

474 463

285 256

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

Class А

Class В

590

530

508 506

474 467

450

490

530

570

610

314309

297 294285

276

260

280

300

320

465

262

Q1 Q1Q2 Q2Q3 Q4Q4

Q1 Q1Q2 Q2Q3 Q4Q4

The largest number of lease and purchase transactions was recorded in facilities located near the Third Transport Ring (65%). This was due to two major transactions with the total volume of more than 140 thousand sq m in moscow City business district. interestingly, the demand for decentralized offices has been falling since the middle of 2015: the share of lease and purchase transactions of office space located in the vicinity of the moscow ring road slumped from 21% to 4%. Today, there is still office space available in the

6


Submarket

Lease area,

thousand sq m

Class A Class B

Average rental ratesVacancy rate, %

Average rental ratesVacancy rate, %USD/sq

m/yearRUR/sq m/

yearUSD/sq m/year

RUR/sq m/year

Boulevard ring

Central business district 712 907 48,090 16.8 404 21,386 11.5

garden ring

south 918 476

532

25,215

28,208

21.3

17.0

507

432

26,875

24,298

16.3

12.1West 273 746 39,515 21.1 – 22,405 10.6North 660 – 26,885 8.7 – 25,144 11.3east 401 521 26,818 23.1 328 17,392 15.8

Third Transport ring

khamovniki 260 780

561

41,317

29,720

16.8

19.0

–

281

23,676

14,927

6.0

17.6

leninskiy 278 – – – – 15,998 20.6Tulskiy 959 – – – – 13,852 17.5kievskiy 424 – 29,661 10.0 – 14,050 55.9presnenskiy 357 528 27,962 6.8 – 19,187 15.4prospekt mira 162 – – – – 17,823 25.6Tverskoy-Novoslobodskiy 752 648 34,331 19.8 359 19,010 12.0

Basmanniy 532 – – – – 15,751 7.8Taganskiy 234 – – – 232 12,297 14.5Volgogradskiy 434 – 20,399 62.7 285 15,094 24.2MIBC Moscow-City 913 535 28,352 20.2 – – –

TTr–mkAD

North 627 –

363

25,000

19,265

6.7

20.0

–

252

12,564

13,340

14.2

15.9

Northwest 692 460 24,362 11.0 – 14,692 17.0south 1,149 – 18,222 – – 9,555 16.6West 550 – 26,860 – 327 17,323 17.8southwest 585 342 18,103 38.6 320 16,952 17.1east 658 – – 46.2 231 12,253 13.9

mkAD

North 362 –

244

–

12,918

–

36.0

–

–

7,304

9,736

7.2

23.1

Northwest 308 205 10,874 47.2 – 11,903 23.5south 260 – – – – 10,370 48.6West 1,789 283 15,024 24.0 – 9,987 26.7southwest 215 237 12,585 43.8 – 7,151 20.2east 248 – – – – 6,739 5.7

Total 15,714 465 24,662 20.5 262 13,899 17.0source: knight frank research, 2016

ReSeARChOlga YaskoDirector, russia & Cis [email protected]

OffICeSKonstantin LosiukovDirector [email protected]

+7 (495) 981 0000

moscow submarket data. key indicators

© Knight frank LLP 2016 – This overview is published for general information only. Although high standards have been used in the preparation of the information, analysis, view and projections presented in this report, no legal responsibility can be accepted by knight frank research or knight frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of knight frank in relation to particular properties or projects.

reproduction of this report in whole or in part is allowed with proper reference to knight frank.

forecastWe expect the H1 trends to continue in H2 2016 in the office real estate market of moscow.

most developers have suspended development of new projects due to uncertain prospects for economic and real estate market recovery. mainly office buildings scheduled for 2015 or earlier will be delivered in the next two years: 71% of the growth of office space will be formed by deferred delivery. in 2017 we expect a minimum growth volume in the history of the office real estate market of moscow.

According to our estimates, the 2016 take-up of office space may slightly exceed last year's figure. The stabilization of the

russian ruble and the improving outlook for the development of the russian economy may influence the company’s' sentiment towards lease and purchase of office space. According to our expectations, the revision of lease agreements will be the issue of tenants' activity in a lesser extent. The companies will choose moving to new offices or extending their lease terms on more favorable terms in the context of low rental rates.

Competition among landlords is still high, and therefore the rental rates will not demonstrate a significant dynamics, but the rents in some business districts may go down in connection with the delivery of new office buildings.

h1 2016 office market report - knight frank · office market report moscow class a class b total...

Documents