Office Market Newsletter. January 2011

23 february 2011  Category: Forecasts Property type: Offices

2011-01_office_market_outlook_(eng).pdf (filesize 240.94 KB)

The improvement of the macroeconomic situation as a whole, as well as a recovery in the labor market will lead to the increase of demand for quality office space.

There is a tendency towards increase of lending, for instance, the loans for the completion of projects “Aquamarine III” and BC on Leningradsky Hwy were provided in 2010. However the banks demonstrate rather careful attitude towards new real estate projects, and as a consequence the volumes of the new delivery remain on the low level. The forecasted level of the delivery in 2011 is about 1million m2 in 2011 that is 15-20% higher than in 2010, but almost half below the pre-crisis volumes in 2008. Considering the duration of the construction period of the office projects in Moscow (4-5 years since the building permission is in place), w expect the only commissioning of the projects, that were started before the crisis.

For 2011 we forecast a slow, but steady growth of demand for quality office premises based on, in particular, continuing demand for quality office space from tenants that currently still occupy Class B- and C premises and would like to move to higher quality premises. The trend towards the acquisition of office space will continue in 2011, and the sale transactions will take up to 50% of the total absorption.

Due to the restriction of the construction of office buildings within the Third Ring Road and small volumes of the new delivery in this business area in 2011-2013 there will be a deficit of the quality office premises with the primary location. Against the background of the short supply the increase of the rental rates is certain and the demand may partly shift towards the Class B premises, which would be a factor for the growth of the rates in this segment.

For the Class A buildings we expect the decrease of the vacancy rate from 17% to 10-12% in 2011. We also consider that about half of leased and purchased premises is absorbed due to the migration of the tenants within the segment. The move to another building in the same class may be caused by proposal of more comfortable commercial terms, newer construction or a need to expand the space or change the location. In 2003-2010 the share of such deals was 40-70% of the total annual take-up.
In Class B segment the level of the demand is forecasted to be the same, that is not significant to take-up the vacant space on the Class B market, including the new delivery. In this context we expect the weak growth of the vacancy rate for 1-2 percentage points (to 22%) for Class B offices.