MOSCOW OFFICE MARKET Year-End Review 2016

Transcription

1 MOSCOW OFFICE MARKET Year-End Review 6 KEY MARKET INDICATORS 6 Total stock, > Class A.8.9 > Class B.9. Completions, thousand sq m 7..6 Take-up, thousand sq m Vacancy rate, %.9. > Class A. 8. > Class B..6 Weighted average rental rates in CBD*, $/sq m/year 9 7 > Class A 6 8 > Class B 9 * Central Business District Supply The volume of completions fell two-fold to,6 sq m, which is the lowest figure since. In general, new construction was low over the year but the lowest level of office space delivered to the market was seen in October-December 6 6, sq m..6 thousand sq m of office space was completed in 6 In the last ten years, the total stock of office real estate has increased. times, and today stands at more than 7 of quality office premises. Buildings completed in Q 6 PROPERTY Total stock and completions CLASS DEVELOPER/ OWNER OFFICE AREA, THOUSAND SQ M /7 Pionerskaya B. St A JSC Helicopters.8 of Russia Zhukov B+ ICM Company. Seven One B+ Stone Hedge..8 8 The internal structure of completions redistributed towards Сlass B due to the shift of delivery dates for several Сlass A properties to the next year. The share of Class B+ accounted for 7% and Class A % (% in ). In the last five years, the market has reached a new level of construction quality as confirmed by the decrease of Class B- properties in the total completions volume since, this segment has formed less than % of new completions. In recent years, the market has also significantly decentralised a considerable part of the new offices located outside the CBD, what confirmed by the distribution of completions in 6. Thus, 8% of the annual completions volume built in a ring zone between Third Ring Road MKAD, and % outside MKAD х. times Total stock (right scale) Completion A B+ B Research & Forecast Report 7 Russia Colliers International

2 Demand Q 6 was the most active quarter of the year in terms of demand, sq m of office space was leased and purchased. The total volume of office transactions in 6 exceeded, which includes the transfer of ownership of two large assets to VTB and Sberbank. Excluding these transactions, the real volume of leased and purchased office space in 6 amounted to 8,7 sq m % lower than a year earlier. Demand was still assessed as weak, with the main activity being relocations and renegotiation of existing contracts. Deal size in 6 decreased significantly compared to last year s level the average size of a leased unit amounted to 77 sq m against, sq m in. Take-up distribution by sector % 9% 8% 7% 6% % % % % % 6 * Other sectors include individual enterpreneurs, media. Manufacturing Public IT & Telecom Retail Energy & Industrial Professional services Construction & Development Banking, Insurance & Investment Pharmacy and life sciences Other* The greatest amount of take-up concentrated in the CBD, where more than 6% of transactions were closed. The next popular office location was in the south, in MIBC Moscow City, and within the borders of the Leningradskiy submarket. These submarkets had a comparable volume of transactions and comparable share in the structure of transactions 8%. In 6, an increasing trend towards the consolidation of large companies was observed. On the one hand, current market opportunities caused by a decrease in prices became the driver of the process. On the other hand, some developers had certain difficulties with the debt repayment. Mainly, this process of consolidation was observed by banking institutions (VTB, Sberbank), which have taken over developers assets because of debt repayment defaults. As long as in the current market conditions, the asset prices have declined below their collateral value, it has become more profitable for new owners to allocate their own offices in such properties rather than try to sell or lease them at current price rates. Take-up by type of deal % 8% % 9% Lease Sale There were no significant structural changes recorded in demand, except the increase of the share of public and nonprofit organisations in the structure of transactions. In previous years, their demand was much less active, but due to the largest transaction concerning the acquisition of, sq m in BC OKO, they formed % of total demand in 6. In general, the volume of transactions in 6 was distributed relatively equally between all sectors of the economy. For the second year in a row, manufacturing companies occupy the leading position (%). The IT&T, Retail, Energy and Industrial segments also remained active tenants: their combined share was about % in the annual volume of demand. Key deals in 6 CLIENT % 8% % 6% AREA, THOUSAND SQ M PROPERTY TYPE Moscow Administration. OKO Purchase Samsung. Novinskiy BC Lease Miratorg 8. Lotos Purchase Servier 6.6 White Gardens Lease 8GOLD 6. 7 Zubovsky Blvd Purchase JSC OSK 6. Legion II, Phase II Lease Ancor. Golden Gate Lease Ipsos Comcon. % 8% 8% 8% % 79% 7% 8% Office Park Krasnoselskiy 6% 7% 8% 9% Lease 8% 8% Research & Forecast Report 7 Russia Colliers International

3 Vacant premises Significant changes were noted in vacancy rates. Available supply declined by almost, sq m because of the purchase of Eurasia Tower and President Plaza as well as the slowdown in completions in 6. Therefore, the vacancy rate fell from.9% to.%, although in spite of this the market is still far from pre-crisis indicators. A deficit was only observed in ready office space with over, sq m in high-quality business centres in a good location, and in offices over, sq m within the CBD. A significant change took place in the Class A segment, where the volume of vacant supply equaled 76, sq m, and the vacancy rate fell 6.9 percentage points from.% to 8.%. While in Class B+/- segment offices,.6% of the office space were empty, the same as in the previous year, corresponding to.. Most available facilities (7%) are concentrated in the CBD, in the Kutuzovskiy submarket and in the west of the city. Despite minimum occupancy in the Kutuzovskiy submarket as well as in the south-west of the capital, a decrease in vacant space here was recorded during the last year as well. Thus, vacancies decreased from 8% to % in the Kutuzovskiy submarket and from % to 8% in the south-west. annual decrease in the vacancy rate in MIBC Moscow City A reduced vacancy rate was registered in MIBC Moscow City, where the annual decrease amounted to percentage points. An increase in interest was observed, especially from Russian companies, which investigated this area as a location for their business in more detail, resulting in the amount of available supple not exceeding 8% or 6, sq m by the end of 6. Average sale prices thousand $/sq m p.p Sale prices in dollars Sale price in roubles Class А Class А Class B+ Class B+ thousand RUB/sq m Vacancy rate by class % 6. %..9 % % % % Class A Class B Vacant space distribution by submarket in Q 6 thousand sq m CBD Kutuzovskiy West South-West South Moscow City Leningradskiy North-West North Elektrozavodskiy Suschevskiy Leninskiy East Tulskiy South-East North-East А B- B+ Average vacancy rate, % Sale prices Since current prices are in the vast majority nominated in rubles, the average sale price was stable throughout the year. 7, 86, RUB RUB the average price of sq m in Class A the average price of sq m in Class B+ Prices for Class A office facilities and blocks were in the range RUB,-, per sq m depending on the property s characteristics. In the Class B+ segment, the average price range was between RUB, per sq m and RUB9, per sq m and for Class B- the average price was RUB,-, per sq m. A noteworthy detail is the deficit of quality supply for sale in different segments, particularly in facilities with a total area over 6, sq m. % % % % % % % % Research & Forecast Report 7 Russia Colliers International

4 Sales increased in both absolute and relative terms over the year. The share of acquisitions increased from 8% to 8% and amounted to more than 6, sq m, while in the amount of sold office space was 67, sq m. During the year, the average transaction size decreased slightly from 69 sq m to 6 sq m ( 76 sq m). Rental rates After gradual strengthening of the national currency, the office market has stabilised in terms of commercial conditions. In fact, asking rental rates in US dollars and roubles for new tenants in Class A projects did not change throughout the year. A slight increase was recorded in the weighted average level recalculated in US dollars in Class A % per year due to the stabilisation of the national currency. > The weighted average rental rate recalculated into US dollars for Сlass A was $/sq m/year and the rental rate recalculated into roubles was RUB6,7/sq m/year. On the contrary, asking rental rates nominated in US dollars and roubles has decreased in Class B+/-. This is mainly due to tenants relocations into better properties, along with cheaper space release to the market. > The weighted average rental rate recalculated into US dollars for Сlass B+/- was $6/sq m/year and rental rate recalculated into roubles was RUB,7/sq m/year. Before autumn 6, owners continued to shift asking rental rates from dollars to roubles. In Q 6, an increase in the share of rouble supply in Class A was not observed, and the ratio remained at the proportion 6:, which is an indicator of market stabilisation. Average sale prices by distance from the centre in Q 6 thousand RUB/sq m BR-GR GR-TTR TTR-TR Moscow City TR-MKAD outside MKAD Class A Class B+ Class B- Base rental rates for Class A offices $/sq m/year Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 6 Q 6 Q 6 Q 6 RUB/sq m/year,7 7, 6,7,,9 7,,6,6 7,,6 7,7,,7 9,8,8 8, 7,8,7 6,7 6,7 6/ the ratio of rouble and dollar supply in Class A. 9% of Сlass B+/- supply priced in roubles. Base rental rates for Class B offices ,,9,6,97,7, 6,,8 6,,7 7,7 9, 6,8,8,8,,86,,9,7 $/sq m/year Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 6 Q 6 Q 6 Q 6 RUB/sq m/year Research & Forecast Report 7 Russia Colliers International

5 Vacancy, rental rates and key buildings expected to be completed in SUBMARKET VACANCY RENT, $/SQ M/YEAR A B+ B- A B+ B-,, 9 Premium % % % 7* 9** 7** - (excl. Premium) CBD % % 6% 9** 6** 9** Moscow City 9% % - 9* ** - 6 Leningradskiy % % 6% * 9* 6** 7 Suschevskiy 9% % % 7* 88* ** 8 Elektrozavodskiy 8% % % * ** ** 9 Tulskiy % % 7% - * 9** Leninskiy % 7% 8% 9* ** 6** Kutuzovskiy % % % - * 8** SUBMARKET VACANCY RENT, $/SQ M/YEAR A B+ B- A B+ B- North - % 7% - 7** 9** North-East - % % - 7** 88** North-West % 6% % 8* * 6** West 8% 9% % 98* 7** 6** East - % 7% - 8** ** South - % 7% - 76* 9** South-East % 8% 7% 7* 8** 88** South-West 9% 7% 6% * 86* * * Mainly for shell&core premises ** Mainly for fitted-out premises Research & Forecast Report 7 Russia Research Colliers & Forecast International Report 7 Russia Colliers International

6 Trends and forecast Despite the stabilisation of rental rates and a decrease in the level of vacant space, it is early to talk about the beginning of a supply recovery. In 7, the market will reach the bottom and a significant increase in the rate of construction will begin in 8. After the deterioration in the business environment in - when developers stopped searching for development sites and froze projects, construction activity declined greatly as demonstrated by the results of 6. In 7, completions were announced estimated at, sq m of office space more than 9% of which will be Class A. This exceeds the annual result of 6 by %. Nevertheless, the amount of quality space will remain limited, particularly in the segment of large units (>, sq m) and ready buildings, because the pace of new supply in 7-8 will remain low in comparison with the pre-crisis level. We expect the vacancy rate in 7 to stay close to the level of.-.%. However, due to the pending release of previously occupied space by VTB, Sberbank and MegaFon, the vacancy rate might increase more. The increase in demand will reach -%, i.e. the total annual volume of transactions will exceed 9, sq m. Flexibility among owners will continue in 7, which will facilitate the conclusion of new deals. Rental rate decrease reached its peak in and then during 6 rents gradually stabilised. We expect the current level of asking rental rates to remain the same in H 7. Later, owners will test the market on the acceptance of higher rates. Top business centres expected for completion in Moscow in 7* # PROPERTY CLASS DEVELOPER IQ Quarter А CiTer Invest B.V., Hals Development OFFICE AREA, THOUSAND SQ M. Office space in MIBC Moscow City TYPE OF BUILDING NUMBER OF BUILDINGS OFFICE AREA, SQ M Completed 9, Class A 8 79, Class В+ 6,8 Under construction,7 Total 6,6,7 Vacancy rate, take-up and completions Completions Take-up Vacancy rate We also do not see prerequisites for sale prices to decline. Rather, given the wash-out of the completed quality supply in the pre-crisis period and the current low rates of new construction, a moderate price increase is possible in the medium term and only in the situation of growing demand. Other growth factors for prices will be new quality supply, which will be formed over not less than years. Interest in development plots is only beginning to appear and if it converts into the actual implementation of new office projects, the market will become more balanced in terms of supply and demand. 8. % F % % % 9% 6% % Delovoy Kvartal Neopolis А A-Store Estates 6. Oasis А BIN Group. Fili Grad A MR Group 6.9 Kvadrat B+ Lenhart Global 9. * Business centres are marked on the map, p. 6 Research & Forecast Report 7 Russia Colliers International

7 offices in 66 countries on 6 continents USA: Canada: Latin America: Asia Pacific: EMEA: $. billion in annual revenue 8.8 under management 6, professionals and staff Colliers International Russia Presnenskaya Embankment BC Naberezhnaya Tower, block C, floor Moscow, Russia Volynsky Lane BC Northern Capital 986 St. Petersburg, Russia Nikolay Kazanskiy Managing Partner nikolay.kazanskiy@colliers.com Vladimir Sergunin Partner vladimir.sergunin@colliers.com Stanislav Bibik Partner stanislav.bibik@colliers.com Anna Nikandrova Partner 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 6, skilled professionals operating in 66 countries. Colliers International opened their office in Russia in 99. Today, the offices in Moscow and St. Petersburg have more than 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 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 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. Copyright 7 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 7 Russia Colliers International 7