Only London and Paris are more expensive

6 June 2007

Prices for office properties in the most prestigious districts of Moscow are increasing again

As per Q1 2007, the average weighted rate for office premises lease in Moscow business centers Class A and B has reached $770 and $682 per sq m per annum respectively. The growth in prices in this segment of the market during the first three months of the current year is estimated to be 10 – 15 per cent. An absolute price record was set at MMDTs Moscow City, where offices located on the top floor cost as much as $2,500 per sq m per annum. For the Moscow market, where after a rather slow period of relative stabilization in prices growth (during 2006 the prices increased on average by 8 – 11 per cent), a quarterly increase of 10 – 15 per cent for office properties still in the under construction stage can be said to be an absolute record.

According to Andrey Petrov, one of the Partners at Knight Frank Russia, the Moscow office market is currently undergoing a period of rapid development, which is characterized by a rather quick construction of new buildings and a dramatic deficit of high quality properties on the market. It is exactly these last two factors that lead to such a substantial increase in prices.

“Many of the projects that were initially declared to be completed in Q1 2007 are still under construction. The deficit of properties on the market is likely to continue pushing up the prices with vacancy rates in Class A and B business centers reaching their lowest” – says Adam Sherriff-Scott, Director of Office Leasing & Tenant Representation Department at Knight Frank.

In comparison with other cities in Europe, Moscow has the third most expensive rents for office premises falling behind only London and Paris. In the British capital the average base rent for high quality office premises in 2007 is estimated to be $1840 per sq m per annum, in Paris – $960. The fourth place is hold by Dublin – $690, then Milan – $580, Madrid – $500, Amsterdam – $454, Frankfurt – $520. These data is summarized in the analytical report produced every year by Knight Frank – “Global Real Estate Markets: Annual Review and Forecast”.

Amongst the most expensive and prestigious office sites in Moscow are: business centre Bashnya na Naberezhnoy (developer – Enka, 3rd phase), Voentorg (developer – AST Group), Four Winds Plaza (developer – ST Group), Severnaya Bashnya (ZAO Severnaya Bashnya), Shkola Zhurnalistov office centre on 22 – 24 Malaya Dmitrovka (developer – concern KROST), business centre Citidel on 11 – 19 Zemlyanoy Val (developer ZAO Tema), business centre on 7/9 Malaya Dmitrovka (developer Ferro-Stroy), and others.

The psychological barrier in prices of $1500 per sq m per annum (often found in high quality business centers with good transport access and professional management) has been overcome at the beginning of 2007. For comparison, the most expensive rent on the Moscow market in 2006 was estimated to be $1350 per sq m per annum (excluding VAT and utility costs). The average weighted lease rate for Class A and B premises was $735 and $535 per sq m per annum respectively.

According to the analyses conducted at Knight Frank, in the Q1 2007 around 218,000 sq m of high quality office premises have been delivered to the market, of which around 27,000 were Class A (12 per cent), around 155,000 Class B+ (71 per cent), and around 36,000 Class B- (17 per cent).

Maria Kotova, Director of Professional Services at Knight Frank, emphasizes the big potential of the Russian office market in comparison with that in other major European cities. The aggregate supply of high quality premises in Moscow is estimated to be 5.8 million sq m, whilst the same figure in London is 20 million, and in Paris is 40 million.