ST. PETERSBURG OFFICE MARKET Year-End Review 216 KEY MARKET INDICATORS 215 216 Total stock, million 2.49 2.76 > Class A.95 1.7 > Class B 1.54 1.69 Completions, thousand 179 262 Net absorption, thousand 14 279, % 12.2 9.2 > Class A 14.8 7.8 > Class B 1.6 1.1 Weighted average rental rates, Class A, RUB//month* 1,24 1,34 Weighted average rental rates, Class B, RUB//month* 92 957 Supply The total volume of quality office area at the end of 216 reached 2.76 million. During the year, 22 office buildings were added to the St. Petersburg market with a total leasable area of 262,. The current figure surpassed the previous year s completion volume by 46%, a record high for the last seven years. End-user office buildings constituted a significant share in the total volume of new supply in 216 the Bogatyrskiy, Elkus and PERCo office buildings, as well as an administrative building in the Nevskaya Ratusha business district, were put into operation. 262 262, of office area was put into operation in 216 The total area of new buildings intended for rental amounted to 144,, which is comparable with the 215 level. However, a part of new speculative supply had already been rented at the construction stage. New supply distribution by type of use 216 215 thousand Rent Sale Owner occupied 5 6% 39% 84% 11% Major office buildings completed in 216 For the third year in a row, the largest supply growth was recorded in the Moskovskiy district (over 84, ), where in 216 some of the largest office buildings were put into operation: FORT Tower, the second phases of Viktoria Plaza and Megapark office buildings. The development of new office building projects is currently paused. The completions volume for 217 might reach 175,. It is worth mentioning that a significant part of the office buildings being built (about 6%) consists of projects with completion dates postponed. Completions NAME ADDRESS CLASS Nevskaya Ratusha, Phase II OFFICE AREA, SQ M 2 Novgorodskaya St А 53,3 FORT Tower 139 Moskovskiy Ave А 3,84 Victoria Plaza, Phase II thousand 4 3 2 1 2 Pobedy Sq В 27,5 27 28 29 21 211 212 213 214 215 216 217F Research & Forecast Report 217 Russia Colliers International 1
Demand The total volume of net absorption for 216 is a record for the St. Petersburg quality office market and amounts to 279,, which is twice as much as in the previous year. Almost one-third, or 8,, of net absorption is constituted by end-user office buildings. In terms of completed transactions, the market also witnessed a record. In total, no less than 225, were rented in 216; an increase of 22% in comparison with the previous year. The largest office rental transactions were completed by Gazprom: including Renaissance Business Park, which is currently under construction, and FORT Tower. In their turn, IT&T companies also intensified their activity on the rental market. About twice as much office space was rented in 216 (64,1 ) in comparison with 32,8 a year ago. For example, EPAM, Sperasoft, Peter-Service, SEMRush and ITSK rented offices with a total area of more than 2, each. Development and engineering companies complete the top three, with a (45,6 ) share in the total amount of transactions. Two-thirds of this volume is accounted for the rental of two towers in the Flandria Plaza office building by Stroygazconsulting. 64.1 thousand Demand distribution by tenant type 1% 9% 8% 7% 6% 4% 3% IT&T companies leased 64,1 in 216 A lot of large companies jumped at the opportunity to improve the quality of their office or make a rental saving. In 216, large office premises (from 3, ) vanished from office buildings where potential tenants were offered a discount. In addition, in the buildings where these options were available, office area was rented before completion. For example, office buildings such as Megapark and Smolenskiy at the moment of completion were not exhibited in the rental market as they were already occupied. Deals distribution by rented area, number of deals 4% 3% % <1 1 25 216 215 25 5 Persistently high demand for office area led to a decrease in the share of vacant space in the market to 9.2% in total against 12.2% as of the year-end 215. In absolute terms, in comparison with the previous year, the amount of vacant space reduced by 48,. The most noticeable reduction of 7 p.p. occurred in Class A, which is 82,8 in absolute terms. At the same time, Class B displayed a reduction in vacant space of.5 p.p. as a result of the completion of new office buildings that had not reached high levels of occupancy, which resulted in an increase of free office area of 8,9 at the end of the year. by class 2 5 1, 1, 2, 2, 5, >5, % 212 213 214 215 216 Energy and resources IT&T Professional services Financial companies and banks Pharmacy and life science Development, engineering Retail Manufacturing Public authorities Other % 212 213 214 215 216 Class A Class B 2 Research & Forecast Report 217 Russia Colliers International
Total stock, under-construction volume, vacancy and rental rates* 1 ADMIRALTEYSKIY 193,9 3% 31,8 $27//year 2 VASILEOSTROVSKIY 216,2 5,8 $158//year 3 VYBORGSKIY 148,1 17% 23,1 $191//year 4 KALININSKIY 119,4 8% 19,4 $215//year 5 KIROVSKIY 1 3 4,3 9% 2, $166//year 2 9 12 4 6 6 KRASNOGVARDEYSKIY 23,6 53, $19//year 7 MOSKOVSKIY 537,4 6% 1 3,5 $227//year 8 NEVSKIY 13,7 16% 5 8 $154//year 9 PETROGRADSKIY 7 11 342,1 7% 39,1 $231//year 1 PRIMORSKIY 262,7 9% 174,7 $192//year 11 FRUNZENSKIY 52,1 4% # DISTRICT NAME Existing stock Construction volume Average rental rate 24,1 $189//year 12 CENTRALNIY 486,5 14% 9,8 $26//year * Rates presented include OPEX and exclude VAT. USD-denominated values were calculated using the exchange rate USD1 = RUB62.9 3 Research & Forecast Report 217 Russia Research Colliers & Forecast International Report 217 Russia Colliers International 3
Commercial terms During the year 216, a recovery of rental rates was observed. The weighted average asking rental rate in Class A increased by 8% over 216 and at the end of Q4 it amounted to RUB1,34//month, including operating expenses and excluding VAT. In Class B, growth over the year amounted to 4%; the weighted average asking rental rate equals to RUB957//month, including operating expenses and excluding VAT. 6% Average asking rental rate increased by 6% in 216 In recent years, a trend of offering rental rates including VAT and operating costs has evolved. Therefore, in 216 the rate range for Class A was RUB1,4-2,1//month, and for Class B RUB95-1,45//month, including operating expenses and VAT. Asking rental rates RUB//month* USD-denominated rental rates and the exchange rate $//year* 1,5 1,4 1,3 1,2 1,1 1, 9 8 7 6 5 4 3 2 1 Class A 212 212 213 214 215 216 Class B 213 214 215 216 8 7 6 5 4 3 2 1 RUB/$ Trends and forecast Following the record figures for office space completion in 216, the coming year is expected to demonstrate a decrease in the volume of completions to 175,. No new large-scale office projects have been announced. Development companies are moving on to the construction phase of some projects slowly, as they will only start on-site works provided they have a major tenant for the whole building (in the built-to-suit format). In the coming year, tenants will face additional difficulties while searching for large premises there is a shortage of such office units offered at a moderate rental rates in the market. A number of speculative buildings under construction with completion deadlines in 217 are not being offered for rent: they are either rented or at the negotiation phase. Amidst the low volume of new construction, the market of Class C office buildings which can be renovated into quality supply could become a window of opportunity for both developers and potential tenants. Expected volume of new supply in 217 equals 175, In 217, IT&T and Gazprom satellite companies are likely to remain the main consumers in the office market. In the context of leasable space shrinkage, further growth of rental rates is likely to continue; at the end of 217, this may amount to 8-. In new upscale office buildings, the rental rates announced will stay higher than the market average. Net absorption and vacancy rate thousand 175 thousand 4 35 3 25 2 15 1 5 27 28 29 21 211 212 213 214 215 216 Net absorption 2 % Class A Class B USD exchange rate Major office buildings for completion in 217 NAME ADDRESS DEVELOPER CLASS OFFICE LEASEABLE AREA, SQ M Renaissance Business Park* 6 Smolyachkova St Renaissance Development А 21, Premier Liga, Phase III 266 Ligovskiy Ave Mashstroykonstrukciya В 14,5 * The office building is fully occupied by Gazprom subsidiary 4 Research & Forecast Report 217 Russia Colliers International
554 offices in 66 countries on 6 continents USA: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112 $2.5 billion in annual revenue 185.8 million under management 16, professionals and staff Colliers International Russia 1 Presnenskaya Embankment BC Naberezhnaya Tower, block C, 52 floor 123112 Moscow, Russia +7 495 258 51 51 3 Volynsky Lane BC Northern Capital 191186 St. Petersburg, Russia +7 812 718 36 18 Nikolay Kazanskiy Managing nikolay.kazanskiy@colliers.com Vladimir Sergunin vladimir.sergunin@colliers.com Stanislav Bibik stanislav.bibik@colliers.com Anna Nikandrova anna.nikandrova@colliers.com Eleonora Bogdanova Regional Director, Warehouse & Industrial Department eleonora.bogdanova@colliers.com Amel Djerroudi Executive Director, Project Management & Building Consultancy Department amel.djerroudi@colliers.com Vera Zimenkova Regional Director, Corporate Solutions & Office Agency Departments vera.zimenkova@colliers.com Andrey Kosarev Managing Director, St. Petersburg andrey.kosarev@colliers.com Vladislav Nikolaev Regional Director, Strategic Consulting Department vladislav.nikolaev@colliers.com Dmitry Romanov Regional Director, Valuation Department dmitry.romanov@colliers.com Kermen Mastiev Head of Division, Sales & Acquisitions Office Department kermen.mastiev@colliers.com Francois Nonnenmacher Director, Occupier Representation francois.nonnenmacher@colliers.com Ekaterina Podlesnykh Head of Street Retail Group ekaterina.podlesnykh@colliers.com Ekaterina Fonareva Director, Residential Department, Moscow ekaterina.fonareva@colliers.com Elizaveta Conway Director, Residential Department, St. Petersburg elizaveta.conway@colliers.com Olga Bakulina Regional Director, Marketing & PR Department olga.bakulina@colliers.com Veronika Lezhneva Director, Research Department veronika.lezhneva@colliers.com Colliers International Group Inc. (NASDAQ and TSX: CIGI) is an industry leading global real estate services company with more than 16, skilled professionals operating in 66 countries. Colliers International opened their office in Russia in 1994. Today, the offices in Moscow and St. Petersburg have more than 25 employees. Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation; customized research; and thought leadership consulting. Colliers professionals provide a comprehensive range of professional services for developers: a full range of exclusive and co-exclusive professional consulting services for residential real estate projects from sales/purchases of land plots for residential construction to the development of sales concepts, brokerage and marketing. Colliers has been ranked among the top 1 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 11 consecutive years, more than any other real estate services firm. Colliers International in Russia is a member of the Guild of Property Managers and Developers (GUD), the Russian Council of Green Building and the Russian Council of Shopping Centres (RCSC), as well as the Russian Managers Association. www.colliers.ru www.colliersdom.com Copyright 217 Colliers International The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Research & Forecast Report 217 Russia Colliers International 5