Сommercial real estate market review in the third quarter of 2016: careful optimism

The speed of commercial real estate construction with vague concepts makes experts wonder when the quality of projects will be paid due attention.

 

Office realty

Let’s start with a positive: vacant premises were slowly filling in the third quarter of 2016. The share of vacant offices in Moscow is 17.3%, which is 2.8 m square of 16.2 m sq. of the total volume of office premises. 

Take-over and new construction

Information presented by Cushman & Wakefield

The demand for old offices is higher than new offers, experts note: since January, 2016, the volume of new constructions has reached 257,000 m sq., while that concerning take-over was 445,000 m sq.

This process, however, has only occurred in A class, while B class shows negative dynamics. It proves that companies are taking advantage of the more attractive conditions proposed by leaseholders to improve the quality of their offices. 

Take-over according to classes (quarterly)

Information presented by Cushman & Wakefield

According to Cushman & Wakefield, A class rent costs on average $451 and B class $224 per square meter.

About 1 m sq of office premises are now at different stages of construction, although the process is rather slow and putting the objects in operation will take at least three years, experts think.  The situation regarding vacant spaces may go better on condition that favorable conditions would be retained, but it will take time.  

The low implementation of operations is caused, firstly, by a great number of delayed projects (the new stages of already existing business parks and trade centers are postponed until 2017 and 2018) and, secondly, because some business center spaces have been converted to apartments, Managing Partner of the Praedium company, Alexander Oshurko, explained.

The format change also added to the decrease of vacancies in the office sector.

According to Aleaxnder Surmenev, Marketing Director of the Commercial realty department of the MR Group company, renter demands are growing, and many of them prefer to buy premises instead of renting, which is, from the expert’s point of view, a strategic and forward-looking solution.

The market of office realty of Saint-Petersburg has grown two-fold when compared with 2015, showing a record of 250,000 m sq. Such results were registered in 2011 and 2012.

Mainly, renters of office premises are IT companies and those dealing with oil and gas. Pure take-over reached 55,000 m sq. in the third quarter of 2016. Thus, the resulting index of the three quarters is higher than in 2015, on the whole. 

Office premises’ pure take-over in Saint-Petersburg (volume)

Information presented by JLL

Due to an increased interest in offices, the share of vacant spaces has decreased in both the A (from 8.5% to 7.3% within a quarter) and B (from 12.6% to 11.1%) classes.

After the development of some business centers, including the largest one, Fort Tower, with an area of 26,000 m sq., an insignificant increase of vacancies is being forecast.

 

Saint-Petersburg office premises’ share per class

Information presented by JLL

On the whole, there are about 60,000 m sq. of vacant spaces in A class, and about 230,000 m sq. in B class related to small spaces. But large spaces from 1,000 m sq. which may rented at once are lacking. 

Rent rates in the third quarter have not changed significantly: in A class it is on average 1,586 roubles a sq. m a month, and in B class 1,135 roubles a sq. m a month (including VAT and operating charges). According to experts’ prognosis a slight growth in prices is probable during the coming periods.

Saint-Petersburg office market (rent rates)

Information presented by JLL

Only two B class business centers entered the market of office realty in the third quarter: Office L27 (8,500 m sq.) and the business center in Arsenalnaya street, 66 (7,800 m sq.).

The entrance to the market of all the objects claimed for the final quarter will add 200,000 m sq. to the office market, and the total area will surpass 3 m sq.

Saint-Petersburg office spaces (being put into operation)

 

 

Information presented by JLL

Warehousing property: Moscow region

Storage real estate grew 3-fold in the third quarter in the Moscow region when compared to the previous year, but since the beginning of the year it fell by 14% to 614,000 m sq.

The most important objects commissioned in the third quarter are the 100,000 m sq. large industrial park, “Southern Gates”, the 85,000 m sq. “North-2 Logopark” and the 23,000 m sq. “Synkovo” logistics park.

New offer and demand

 

 

Information presented by JLL

The number of bargains in the sector of warehousing property decreased by 40%, with only 616,000 m sq. being sold during three quarters. Meanwhile, the volume of vacant spaces reached a maximal index of 13.6%. Thus, about 1.7m sq. of storage warehouses are empty in the Moscow region.

For the last two or three years the volume of build-to-suite warehouses’ construction has increased, which makes it possible to minimize the commercial risks of a developer and provides full correspondence concerning the infrastructure and key performances of the object to a customer’s demands, Igor Kabatov, Partner and Development Director of the “ITKOL” company, thinks. 

Rent rates and vacancies level

 

Information presented by JLL

Putting warehouses in operation in Saint-Petersburg has grown significantly and when compared with the same period of 2015, it constitutes 152,500 m sq. versus 61,800 m sq. 

Adding this figure to the new projects announced for the last quarter with an area 61,900 m sq, we can see the growth as large as 214,000 m sq. during the current year, which is 56% higher than the results of 2015 and almost two-fold more than those proposed for 2017.

Only one storage premises by the Wurth company (13,900 m sq.) was sold in Saint-Petersburg. The volume of quality warehousing spaces in Saint-Petersburg now totals 2.72 m sq.

 

The most interested tenants are trading operators (36% of the total volume of bargains in a given sector, according to the results of the first three quarters of 2016) and logistics companies (35%).

Requested rental rates in Saint-Petersburg quality warehousing complexes stayed the same and reach 450—500 roubles ($7—8) a square meter a month (including VAT and operating charges).

The tendency of the sector as defined by specialists is the construction of distribution centers.  These constitute about 10% of the total market structure of A and B classes, and the total volume of spaces put in operation in 2016 reached 138,000 m sq.  

 

Retail property: Moscow

From June to September retail properties put into operation grew 2.4-fold when compared with the previous quarter and reached 283,200 m sq. of rentable spaces. Since the beginning of the year the market has grown by 478,200 m sq., which is 25% more than during the same period last year.

Main object put in operation in the third quarter

Information presented by NAI Becar

It should be noted that the majority of projects were opened with a low occupancy rate: for example, when opening the “Riga-Moll” retail center only anchor tenants occupying about 50% of the spaces worked there, experts say.

The highest occupancy rate was shown in the “Oceania” retail center opened in the third quarter of 2016. At that time 55% of the tenants with agreements signed for 75% of the spaces functioning there.  By November, 2016, agreements for 95% of the spaces had been signed, Alexander Shibaev, Director of Consulting, Analytics and Research Department of the Blackwood company, shares his information.

Presently, all marketing activity of the retail center is directed at attendance increase and the average ticket increase. However, owners are not yet ready for cardinal quality changes at their objects, according to Alexander Surmenev, excluding the “Enka” company’s retail centers. 

 The decision on repurposing and new commercial conditions for tenants are more often taken by the owners who have just opened or are at the beginning of a crisis, as they are more motivated to adapt to the market.

On the whole, the vacancy level throughout the Moscow market is growing, having increased by 7.9% when compared with the second quarter of 2016, meaning it is 12.0% of the total volume of spaces. 

Information presented by NAI Becar

The average rental rate decreased during the quarter by 5.5% and equaled 38,300 roubles a sq. m a month.  Analysts note the decrease of the upper boarder of the price range. The price also went down by 5,6% for anchor — to 13,200 roubles a sq. m a month. 

Experts also noted an important factor regarding the input of the Moscow Ring Railroad in September, 2016, whereby 31 new railway stations appeared in the city. Some of them are situated near large retail centers. The shorter time to get to a retail center is supposed to attract additional buyers.

In Saint-Petersburg the share of vacant spaces in retail centers grew to 6.9%, which is the largest figure since 2011. Experts think it is due to two super-large retail centers put into operation, “Okhta-Moll” (78,000 m sq.) and “Port Nakhodka” (10,900 m sq.). The total growth of the spaces reached 88,900 m sq., with the total volume standing at 2.25 m sq. 

For the first time since 2003 new retail centers are not expected to be put in operation here, although the sales area availability is still high at 430 m sq. per 1,000 citizens.

 

Street Retail: Moscow

The share of vacant areas in the sphere of street retail in Moscow decreased to 10.2% during the third quarter. The lowest vacancy level was shown at Miasnitskaya street and Patriarshiye Ponds (5,6% and 6,8% respectively).

The market and investments analysts of the JLL company, Ekaterina Andreeva, think that it is connected with the changes in the consumers' sector and the increase of retail turnover.

The number of vacant spaces in the center and on central streets is growing and is to a great extent connected with toll parking in the center of the city.

The demand for small spaces is rather high, but the number of offers is limited. Among the most active tenants of small street-retail are drugstores, and alcohol retailers. They are interested in spaces under 100 m sq.

There are also many caterers on the Moscow street-retail market, accounting for 31.3% of all tenants in the center of the city.

 

Saint-Petersburg

Maximal rental rates on the central retail streets of Saint-Petersburg had grown from June to September from 12,000 to 13,000 roubles a sq.m (including VAT).

Rental rates – street retail, Saint-Petersburg

 

Information presented by JLL

The growth of rental rates led to the increase of vacant spaces to 7.1% by the end of the third quarter. Experts think it is due to the change in the retail profile: tenants dealing with staple consumer products prefer to rent spaces in trade centers, and vacant premises are occupied by cafes and restaurants. 

 

Share of vacant spaces and rental rate range on the principal trade streets of Saint-Petersburg in the third quarter of 2016

MinMax 3,5%7 50013 000 

Trade street	Share of vacant spaces in the 3d quart.	Level of rental rates, roub. A sq.m a month (incl.VAT)
Nevsky avenue
Staro-Nevsky avenue	11,4%	2 500	6 000
Bolshoi Avenue	7,0%	2 500	5 000
Srendy avenue	4,9%	1 800	4 500
6-7 lines	8,9%	2 500	5 000
Kamennoostrovsky av.	5,0%	2 500	5 000
Vladimirsky av.	10,3%	2 900	5 000
Moskovsky av.	5,7%	2 000	6 000
Sadovaya str.	10,1%	2 000	5 000
B.Konyushennaya str.	11,4%	3 500	9 000

 

Information presented by JLL

The number of closed retail centers on the central trade highways of Saint-Petersburg surpassed the open ones by 10% for the first time. Mainly foodstuff shops closed, accounting for 15%.

 

On the whole, the third quarter hinted at improving the situation in special sectors: there is no growth, but there is no fall either. However, it is still far from being positive.

 

Olga CHUDINOVA