Take-up in Moscow Office Market in 2017 broke the record of the seven-year period
CBRE Research Department indicated the key trends of Moscow Office Market in 2017 and give forecast for 2018.
According to the report, take-up in 2017 (1.28 mn sq m) broke the record of the seven-year period, becoming the highest value since 2010.
In 2017, 408,000 sq m were commissioned in the Moscow office market. Even though this volume exceeded the previous year by 29%, business construction activity remains low.
In 2017, overall vacancy rate was reducing by 0.4-0.9 ppts each quarter and by the end of the year amounted to 13.7% (2.7 ppts lower than Q4 2016 value).
Net absorption also showed a positive trend in 2017, reaching 675,300 sq m against 526,900 sq m in the previous year.
In 2017, financial sector representatives that were mostly companies with state participation or state companies (82% of take-up in the sector) remained active on the office market.
Interest in medium-sized office space (33% of take-up in 2017) is one of the indicators of the demand stability and less impact on it of the crisis period effects.
In 2017 a competition between large users for quality space occurred for the first time since 2007 on the office market.
Elena Denisova, Senior Director, Head of Offices CBRE in Russia, said: "The recovery process of both the national economy and the commercial real estate market is proceeding at a restrained pace. Nevertheless, for the office real estate market, 2017 was marked by several turning points in terms of further development. One of them is an increase in the activity of private companies for leasing and purchasing new office space. Private business demand, which has been strongly sagged in 2015-2016, coupled with a public sector interest in high-quality offices that is declining but still has significant impact on market indicators led to a record for the market take-up. In addition, the trend to reduce available supply of large office space (more than 10,000 sq m) in the best quality business centres, which began to appear in the middle of 2016, in 2017 for the first time caused the competition of large users for selected premises. This phenomenon has not been observed since 2007, and, like private sector companies’ restoring activity, is a prerequisite for the rental rates growth in 2018 and the beginning of a gradual shift of the balance towards "landlords" on the office market."
In Q1 2018, the volume of growth in new supply showed an extremely low value and amounted to 37,100 sq m. In January-March 2018, four Class B office buildings were commissioned, the largest of which was the business centre "La-5" near Vnukovo airport.
The limited completions volume will also be common for the following quarters of 2018.
Overall vacancy rate continues to decline for the tenth consecutive quarter, beginning in the second half of 2015. According to Q1 results, this indicator decreased by another 1.3 ppts compared with the value at the end of 2017 and amounted to 12.4%.
In Q1 2018, take-up amounted to 365,000 sq m of office space. This is a record value of the new transactions volume executed for the first three months of the year since Q1 2010 (375,200 sq m).
Users demand was still mainly focus on the lease of office premises. This type of transactions is accounted for 83% of take-up in Q1 2018.
In Q1 2018 the average level of rental rates remained in the ranges of the end of last year.
Despite zero new delivery of shopping centers in regional cities in Q1 2018, construction activity remains high: 10 shopping centers with total leasable area of 298,655 sq m are announced for delivery by the end of the year.
58% or 173,855 sq m of 2018 forecasted new delivery of shopping centers accounts for major cities: Novosibirsk, Yekaterinburg, Ufa, Samara and Rostov-on-Don.
Average vacancy rate in large shopping centers in major cities fell to 6-8% as of the end of Q1 2018. Key trigger of this decrease was low supply volumes over the last two years.
In Q1 2018 a new project of shopping center Mall of Baltia was announced in Kaliningrad (GLA: 42,000 sq m) with opening in 2019.
•According to Q1 2018 preliminary results real estate investment volume in Russia has totaled $150 mln, 4.7 times lower than Q1 2017. For year-beginning low transactions conversion is typical, especially after high conversion level of Q4 2017. Furthermore, investors sentiment was moderate in terms of decision making before March President elections typically resulting to markets volatility.
•Q1 2018 investment volume by 95% is formed by overseas capital, compared to Q1 2017 with overseas investments share of 22%
•Residential real estate investment has totaled $71,5 mln (47% in Q1 2018 investment volume). Office segment share according to preliminary results is 34%, retail sector – 12% and industrial real estate – 7%. A total of c. 80 mln was invested in commercial real estate segments in Q1 2018.
•Prime office yields in Moscow in Q1 2018 were 9.00-9.75%, prime shopping centres – 9.00-9.75% and logistics centres – 11.50-12.00%. In Q1 2018 prime yields range was revised by compressing the lower boundary. Based on further real estate markets recovery and key rate decrease, in 2018 we expect further prime yields compression, started in the 2017 year-beginning.
Russian real estate investment market with a total of $4.9 bln in 2017 has recorded a 3-year maximum with a 9% growth Y-O-Y. To compare, 2016 investment volume totaled $4.6 bln, 2015 - $3.3 bln.
Due to a number of large transactions closed in 2017 retail segment is responsible for a prevailing 32% share in the total investment volume, first time since 2013. Retail segment has experienced the largest in 2017, as well as one of the largest in Russian market transaction on the purchase of Immofinanz shopping centres portfolio. Office real estate segment was second in terms of investment share with 29% in the total investment volume. Industrial and hotel segments were responsible for 10% and 6% respectively.
The volume of overseas investments has reached $785 million in 2017 which is 16% in the total investment volume. Foreign investments has recorded a 4.4 times volume growth and 12 percentage points increase compared to the 2016 historically the lowest result in terms of foreign investors activity.