Offices: Struggle for a New Life
The office real estate was probably the most affected by the crisis segment of the commercial real estate market. Sharp decreases in demand and rent rates, growing vacancy rates, inability to pay off credit debts – all these factors have resulted in a growing number of frozen projects while many real estate assets became the property of banks. For example, Sberbank is now a co-owner of Capital City project that Capital Group has been building in Moscow-City. VTB has acquired a 51% stake in Sistema-Hals developer company; the bank became the owner of Detsky Mir retail store located in the very center of Moscow and is now the major shareholder (75% minus 1 share) of MC Dynamo that owns a project to build two stadiums and a number of office and retail centers in Petrovsky Park. VneshEconomBank (VEB) has received all real estate assets of Globex bank (the total area of 700,000 sq m), Alfa-Bank acquired two business centers that earlier belonged to Kopernik Group. The banks now create special structures to manage the given assets: Sberbank has established Sberbank-Capital, VTB – VTB Capital, VEB – VEB Invest, etc.
Many office projects were actively developed when the current crisis reached Russia. Because of the new economic reality, developers have corrected their plans, decreased volumes of construction and postponed project inauguration dates until 2009-2010. These are the office projects that entered the real estate market this year. According to analysts at CB Richard Ellis, approximately 1.4 million sq m of office space entered the market in the first three quarters of the year. Another 300,000 sq m is expected to be finished in IV quarter (that is Russia`s all time highest volume of construction). As of the end of 2009, the total volume of office premises in Moscow may reach 11 million sq m.
As for the properties coming to the market this year, many of them are half-empty. Developers need to flexibly approach tenants and offer favorable terms of lease. As Colliers International experts say, currently property owners use two strategies – either calculate a rent rate for each particular tenant company depending on its importance and leased space, or propose a low rent rate for the first year of lease to then raise it. In addition to that, many property owners offer to rent fully finished premises or to lease them in small blocks. As far as we can judge by tenant requests that Blackwood has received in 2009, one-third of all requests applied to office blocks of 200 sq m and less.
CB Richard Ellis analysts draw attention to other concessions that property owners make to attract tenants: rent holidays, no rent indexing, shorter deposit periods (earlier, an average deposit period was 3 months, now – 1-2 months), short-term lease agreements (as for class B office premises, a major part of lease deals is signed for 11 months).
Vacancy rates were growing throughout 2009. As of the end of Q3 of the year, the vacancy rate reached 18.9%, according to Jones Lang LaSalle. Vacant spaces generally appear in new projects that were not a success to find their tenants. High vacancy rates also apply to less competitive buildings. Many office premises are offered to sublease, as currently tenants need less space to lease. According to Jones Lang LaSalle, a share of office premises offered for sublease now makes approximately 95,000 sq m.
On the other hand, some experts say that the demand for office space has stabilized in the second half of the year. As analysts at CB Richard Ellis estimate, in Q3 2009 the aggregated volume of deals reached 420,000 sq m that significantly exceeds the results of the first half of the year. The growing volumes of deals on the market were stimulated by developers and property owners who started making concessions to tenants in order to fill vacant spaces. They now allow big discounts on rent rates and lease terms. Another reason for the market growth was that some major tenants who initially waited for much lower rent rates have finally signed lease agreements in the second half of the year.
According to Jones Lang LaSalle, the quality and type of tenants have been also changing on the market. In 2008, international production companies, banks and financial organizations were the most active tenants in the office segment. Under the crisis conditions, state-owned companies are expanding their market share. As of the end of Q3, the share of Russian tenants was 62%; foreign tenants were leasing 38% of office space.
As Blackwood analysts say, rent rates in class A office premises now make $350–700/sq m/year, in class B – $200–500/sq m/year. Purchase prices for class A facilities now make $3,000–5,000/ sq m, in class B - $1,500–2,500/sq m. Rates and prices vary depending on property location and size.
In case we do not see further economic downturn, then the office real estate market will preserve the current positive dynamics: the market and investment demand will gradually recover (especially if the prices stay as low as they are now), take up volumes will keep growing while vacancy rates will continue to decrease. Let us hope for the better! Happy New Year!
White Square Business Center
White Square A-class business center officially opened its doors in Moscow in late November. Coalco Group and AIG/Lincoln Russia were the project developers and investors. ABD architects and APA Wojciechowski were the architects. The Turkish Enka acted as the builder. Cushman & Wakefield Stiles & Riabokobylko and Jones Lang LaSalle were consultants. HSG Zander Rus was responsible for technical maintenance.
The center is located 3 km away from Kremlin on the intersection of 1 Tverskaya-Yamskaya St., Leningradsky Prospect and Butyrsky Val St. not far from Belorusskaya metro station. The GBA is 104,000 sq m, GLA – 71,000 sq m. The business center consists of three buildings (15, 15, and 6 floors) that are fully equipped with modern engineering systems. A three-level underground parking is designed for 840 cars. According to the architects` plan, the unique Nicholas the Wonder-Worker Cathedral is the center of the whole layout. All restoration works in the church have been completed and soon the restorers will finish assembling the backlighting.
Many unique designer decisions were used in the project. For instance, Crystal Fountains, a company specialized in fountains, did its job perfectly. A fountain with a colour dynamic backlighting faced with back granite is located in the center of the square in front of office buildings. Regardless of Moscow traditions, the fountain will not be closed in winter, although only a dynamic backlighting will work when it gets really cold outside. This will add to a strict working atmosphere in the daytime and a festive mood in the evening.
All corresponding lease agreements were signed before the construction started. The list of tenants contains such international companies as PricewaterhouseCoopers, Deloitte & Touche, McKinsey and Microsoft. The average term of lease agreements is 11 years. In addition to the modern office premises, White Square will also host a chain of restaurants and shops. Starbucks coffee house, Torro Grill restaurant, Yo! Sushi bar, Khleb Nasuschny bakery, Bio-market store, Barclays Bank and Coffeemania are the tenants of the center.
Investments in the project are estimated at $400 million
Pavlovsky Business Center
In July 2009, phase 2 of Pavlovsky Business Center was put into operation. Central Properties acted as the project developer. ARS ZAO Mospromstroy was the project architect, ZAO Mospromstroy acted as the general contractor, MC Moy Dom was the property management company.
Pavlovsky Business Center is a office center that consists of two buildings. Phase 1 of the project finished in 2006. The construction of phase 2 started in 2007. Investments in the projects totaled to approximately $60 million. OAO Bank ZENIT opened a credit line to finance the construction (about 70% of the total investments); the project investors have invested the rest 30%. The total project area makes approximately 30,000 sq m.
The 21,000 sq m second phase of the class A Pavlovsky Business Center defines the architectural image of the complex and has 10 aboveground and 3 underground floors. A three-level underground parking is designed for 175 cars. In addition, there will be an overland guarded parking for 20 cars.
The business center is located in the established business district Pavaletsky on 7 Pavlovskaya St., 7 minutes walk from Serpukhovskaya or Dobryninskaya metro stations. Distinctive features of the center include good access by transport from the Garden Ring (lss than 1 km) and Boulevard Ring (less than 3 km) as well as an adjacent park granting a good opportunity to comfortably spend leisure hours.Phase 1 of the project has been fully leased out by CB Richard Ellis. Energy Consulting, JDSU, Staffwell and Central Properties are major tenants of the center.
As of today, phase 2 of Pavlovsky Business Center has been actively leased: over 50% of premises are negotiated with prospect tenants to lease. The agreements will target 7+ years of lease, average rent rates will be $600–700/sq m/year. Lease agents for phase 2 are CB Richard Ellis, Colliers International, Cushman & Wakefield Stiles & Riabokobylko, DTZ, GVA Sawyer, Jones Lang LaSalle, Knight Frank and other major consulting companies.
Nordstar Tower Business Center
A class A BC Nordstar Tower was put into operation in 2009. DS Development was the project developer, Tromos architecture bureau was the architect and Enka a general contractor.
The construction of the business center started in February 2007. The 42-storey skyscraper is located on 2-20B Khoroshevskoe highway, 3 minutes walk from Begovaya metro. A proximity of such big transport highways as the Third Transport Ring, Khoroshevskoe Highway, Kutuzovsky and Leningradsky avenues, Zvenigorodskoe high-speed motorway (currently under construction) give the center a perfect transport accessibility. The GBA is 147,000 sq m, GLA – 80,000 sq m. The parking is designed for 1,200 cars.
S.A.Ricci/King Sturge was the consultant and the exclusive agent of the project until the end of 2008. The company managed to lease 86% of the office space. Such companies as IBS, Eurasia Logistic, Ren TV, Nvidia Corporation, Halliburton, Alfa-Capital, and High Raised Floor signed preliminary lease agreements. Currently none of them occupy office space. When the crisis broke out, all of those companies revised their development plans and annulled the preliminary lease agreements with Nordstar Tower.
As of today, some new tenants have signed preliminary lease agreements, although DS Development did not disclose their names. Rent rates in Nordstar Tower are $550/sqm/year less operating costs and VAT. Lease agreements are signed for three years.
Автор: Tamara Elbakidze
Commercial Real Estate №24 (130), December,16-31 2009
