office market overview 211 The recovery of the office market continued in 211. completion volume was 198,8 sq m. Several large deals were signed. Prime rents reached USD 1, per sq m per year, a 11% growth QoQ. Classes A, B+ and B- rents remained unchanged. Vacancy rate declined to 15.1% at the end of.
Supply Some of 198,8 sq m were completed in 211, brining the total stock to 12,9 mn sq m. The following large-scale projects were completed in this quarter: Diamond Hall with 38, sq m office area, Lincor 31,3 sq m, Trio 27,3 sq m, Unikon 21,1 sq m and Leipzig 17,8 sq m. completion is still low comparing pre-crisis and crisis levels. Modern office stock in is still modest relative to other major European capitals. Stock per capita for is utterly low and equals 1,2 sq m. The figure reflects potential growth in the future. mayor Sergey Sobyanin announced several proposed changes in March: o o Restriction for large-scale commercial projects Restriction of any new development in the Central Administrative District and limiting it in the outskirts o Projects under development will be re-concepted as hotels, residential housing and apartments in the CAD Due to active market development in previous years and despite of new restrictions the current office pipeline is still high about 2.2 mn sq m will be completed in future 3 years. This figure exceeds most European cities. Market decentralization will be more strengthening due to above-mentioned restrictions. ' sq m 6, 5, 4, 3, 2, 1, ' sq m office market overview, 211 Office stock benchmarks 211 Total Stock (in 's) Stock per capita (right scale) Modern office stock dynamics 14, 12, 1, 8, 6, 4, 2, 2 21 22 23 24 25 26 27 28 29 21 211F Class A Class B+ Class B- sq m 18 15 12 9 6 3 Modern office stock and pipeline distribution by location 1% 9% 8% 7% 6% 5% Office stock, sq m 2,1,9 6,591,68 4,25,28 12,852,86 Completions, 211, sq m 61,5 19,5 27,8 198,8 Completions, 21, sq m 295,63 539,5 79,58 914,26 4% 3% 2% 1% % Stock Pipeline Source: Jones Lang LaSalle
Demand An improving economic situation resulted in a confident demand recovery. 211 take-up was 372,6 sq m, a 19% increase YoY. As usual held the second-highest position in take-up in Europe after. Some big deals were signed in this quarter: Credit Europe Bank leased 7,6 sq m in Diamond Hall, Russian Bank of Development fully let Progress BC (6,1 sq m of office area) and Pfizer leased 5,8 sq m in Naberezhnaya Tower block C as well. Over recent years, developers have paid particular attention to large tenants, but now they have to accommodate tenants with smaller requests as well, due to changes in demand. At the same time, a number of big companies, which had postponed their expansion plans due to the crisis, are currently looking for large premises. As take-up is less active among other periods of the year, average deals size slightly declined to 1,69 sq m. Pre-lets are becoming popular on the market due to decreasing volume of high-quality spaces with affordable rents. Pre-lets reached 8% of 211 take-up while this share did not exceed 3% in 29. Meanwhile a current period of pre-let is quite less comparing pre-crisis levels (from some months to few years). office market overview, 211 Office take-up benchmarks, 211 1 2 3 4 5 6 7 ' sq m ' sq m Modern office take-up dynamics 1,8 1,6 1,4 1,2 1, 8 6 4 2 2 21 22 23 24 25 26 27 28 29 21 211F Class A Class B Class B+ Class B- 3, 2,5 2, Average deal size, sq m Market activity Number of deals 4 35 3 25 Take-up, 211, sq m 9,5 198,6 83,5 372,6 Take-up, 21, sq m 561,73 645,97 255,83 1,463,53 1,5 1, 5 6 6 6 6 7 7 7 7 8 8 8 Average deal size 8 9 9 9 9 1 Number of deals (excluding renewals and renegotiations) 1 1 1 11 2 15 1 5 Source: Jones Lang LaSalle
Market balance / Rents Vacancy rate remained stable since the end of last year and ended at 15.1% A considerable part of vacant space is represented by new completed non pre-let buildings and by those less competitive buildings (with subpar technical features, inconvenient locations, etc). Demand recovery together with supply reduction will result in further vacancy rate decrease in 211. Prime rents reached USD 1, per sq m per year (excluding operating expenses and VAT)*, a 11.1% QoQ growth. After crisis prime rents increased by more than 42%. Class A, B+ and B- base rents remained unchanged at USD 75 per sq m per year, USD 4-6 and USD 3-4 respectively. Market segmentation continues to increase and rental levels for buildings of the same class vary significantly, depending on the financial position of the landlord, geographic location, building quality, tenant reputation, bargaining power and deal size. For instance, the vacancy rate for projects located in Zones 1 and 2 is lower (11%) than the overall market level. Lease renegotiations result in widespread variation of lease terms however renegotiation s share in total deals is decreasing. Many companies prefer renegotiation to relocation due to: the current premises quality fitout, termination penalty, remaining payment balance and relocation costs. Rents in similar deals can differ significantly from those listed here and show wide variation. There is a strong competition among developers on the office market. At the same moment there is a developer s domination in deal discussion process with potential clients in successful projects. Additional incentives, including a lower rental rate for the first year of the lease, longer rent-free period and partial fit-out compensation are offered to tenants only in less competitive buildings. office market overview, 211 Vacancy rate benchmarks, 211 % 2 4 6 8 1 12 14 16 18 2 22 ' sq m 2,1 1,8 1,5 1,2 9 6 3 USD/sq m/year 1,8 Market balance 22 23 24 25 26 27 28 29 21 211F Take-up Completions Vacancy rate (RHS) Class A market dynamics % 25 2 15 1 5 Vacancy rate Prime base rents (USD/sq m/year) 19.6% 15.3% 12.7% 15.1% 9-1, Base rents (USD/sq m/year) 55-75 4-6 3-4 Operating expenses (USD/sq m/year) 11-15 1-12 7-9 * These figures apply to newly constructed shell-and-core areas on the primary market for the first year of the lease. Source: Jones Lang LaSalle 1,6 1,4 1,2 1, 8 6 4 2 2 21 22 23 24 25 26 27 28 29 21 211F Prime rent Class A base rent
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