In Moscow, 14-15% of offices will be vacated by the end of the year. In the northern capital in category A, the volume of vacant meters has already increased by 19%.
Negative The effect on the business center market will only increase by the end of the year, Maria Zimina, Director of Office Real Estate at Knight Frank Russia, predicts. The expert explained that throughout the year, market participants are preparing to observe a decline in the activity of developers and tenants, an increase in areas for sublease, and a change of tenants.
And at the moment in Moscow, the growth of vacancy in sublease, according to Maria Zimina, has already increased dramatically: about 5 times.
At the same time, the trend of “getting up and leaving with the whole office” will stretch until the first quarter of 2023, because not all companies will be able to resolve issues with document management and transfer offices to owners before the end of this year.
“Therefore, presumably, by the end of 2022, tenants will be in the process of negotiations with current landlords. Thus, the final vacancy of the space will take place no earlier than the first quarter of next year,” Maria Zimina specified.
Both Russian and foreign companies are leaving the rental real estate market. In Moscow, where there are 17.6 million square meters of offices, foreign tenants account for approximately 500-600 thousand elite square meters.
According to Kommersant with reference to the Commonwealth Partnership (CMWP), by the end of 2022, according to the CMWP forecast, an additional 800,000 sq. m. will be vacated in the Moscow office market.
“If by the end of the year the situation remains the same as it is now, then there is a possibility that the vacancy will rise to 14-15%,” Maria Zimina gives such a forecast. We note that in the first quarter, the vacancy rate in Moscow offices A and B was fixed at 9.8% and 5.8%, respectively.
In St. Petersburg, where class A and B office space is several times less (3.9 million sq.m), 245.1 thousand square meters were vacant in the first quarter. “The largest increase in the volume of vacancies was noted in class A - by 19%, due to the release of space by tenants in objects of this class,” says Regina Voloshenko , director of the office real estate department at Knight Frank St Petersburg .
In the Northern capital, one of the main tenants of high-quality office space has traditionally been IT companies (the share of IT specialists in the structures of lease transactions over the past three years has ranged from 30 to 40%). “After the termination of the activities of these companies, large office blocks with an area of 6-10 thousand square meters are released. m. The amount of office space occupied by IT companies and having the potential to be vacated (including their own buildings) by the end of this year is about 115 thousand square meters. m,” said Regina Voloshenko.
It is worth noting that the trend, typical for both capitals, is not fixed yet in other megacities, where there was a shortage of high-quality rental real estate. The situation in Yekaterinburg, for example, was called unique by Andrey Braude, Director of RED Management Company .
“Even before all these events, since the end of last year, there was a shortage of high-quality office real estate in the city, since new large objects were not commissioned. So there are no releases. On the contrary, companies cannot afford to find large areas. This applies to both the rental segment and the sales market, which, by the way, is now very active. Lots of space purchased. Moreover, companies bought both for themselves and for investments, having potential tenants,” Andrey Braude explained.
According to the forecast of Maria Zimina, director of the office real estate department at Knight Frank Russia, Moscow will not actively grow new office space this year either. At the end of 2021, the forecast for the commissioning of office space in 2022 was 620-660 thousand square meters. m. The current annual result for Moscow is projected at the level of 230-340 thousand square meters. m.
St. Petersburg is also preparing for a two-fold reduction in the construction of office workers. As Regina Voloshenko explained, this is primarily due to the optimization of the costs of many companies, as well as an increase in the cost of construction and finishing services. “In St. Petersburg, there are about 160 thousand square meters under construction in total. m of office space, which are planned to be commissioned before the end of the year. Most of them (94%) are intended for leasing,” the expert specified.
Regina Voloshenko notes that the average weighted rental rates in the city on the Neva in the first quarter have already begun to grow. Thus, in class A (the most sagging segment) the rate rose by 2.4% (up to 2,365 rubles per sq.m.). “Such dynamics was due to the release of high-quality and expensive office blocks in the premium locations of the city,” the expert explained. Rent of class B office meters, on the contrary, in St. Petersburg slightly decreased - by 0.3% to 1,520 rubles per square.
Maria Zimina adds that in Moscow, where sublease growth has been recorded, it is still difficult to track the growth in rates. “These processes - the growth of sublease, do not yet have a strong impact on rates, because there is no direct exposure from the landlord yet - only through tenants. And they, in turn, show flexibility in the process of dialogue, so it is rather difficult to derive the average cost of the rental rate in this case. Accordingly, we expect a drop in rates when all these free meters are transferred to landlords, and they will already be forced to sell them on the open market,” the expert explained.
In Moscow, the highest rates are traditionally observed in key business districts. Thus, at the Moscow City International Business Center in class A, the current vacancy rate is 3.8% at a rate of 39,877 rubles per sq.m (excluding VAT and operating costs). In the Leningrad business corridor (including the northwestern direction behind the third transport ring), the vacancy rate is 4.3%, tenants pay more than 35.9 thousand rubles per square for offices.
Kommersant, based on the opinion of experts, reports that office real estate will be able to recover from the crisis no earlier than 2024. Maria Zimina suggested that in the long term, one can predict an increase in demand for flexible spaces, an increase in the number of M&A transactions, as well as a greater demand for office real estate among companies with state participation.