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Activity on the office real estate market is closely correlated with the performance of companies in various sectors, their financial stability and future plans. Macroeconomic environment change in the end of 2014 obviously had an impact on the position and expansion plans of companies. In these circumstances public sector companies demonstrated the greatest resistance to external environment change.
The research relevance is caused by the fact that the public sector was the major player in Moscow office market in 2015-2016 by transacting the largest deals during this period and supporting investment activity.
There were no shopping centres delivered in Q1 2017 in Moscow. The same situation was seen in Q1 2016, when zero delivery has been recorded in Moscow for the first time for the last decade.
Lower retail real estate completions will lead to further decline of vacancy rate. The average vacancy rate may go down to 8.5% by end-2017.
The international retailer interest to Russian market is kept high, despite the recession. This is facilitated by lower rental rates, rental payments based on a percentage of turnover and increased number of new sites for retailers’ development for the last two years. Six new international brands entered Moscow retail market, which is comparable to the average quarterly figure in 2016.
182,000 sq m was taken-up in Q1 2017. The indicator declined by 27% as compared to Q1 2016, but still stays at quite high level.
Lease transaction continue to prevail in demand structure – 94% of take-up. The most active sector was production companies of various types of goods (tires, household chemicals and home appliances) – 44% of all deals.
Rental rates grew by 6% entailed by stable demand activity, weighted average base rental rate amounted to RUB 3500/sq m/year getting back to 2016 mid-year level.
141,000 sq m of new warehouse space was commissioned in Q1 2017. After quite high delivery volumes seen in Q3-Q4 2016 development activity returned to moderate level. The majority of buildings were intended to specific clients while share of speculative development amounted to a mere 30% of quarterly completions.
Vacancy rate grew by 1 ppt and reached 13.8%. Almost the same level was already observed in the Q1 2016. At the same time lack of large space is still taking place on the market – area of average vacant block does not exceed 20,000 sq m.
Forecast for 2016 remains unchanged:
New supply is expected at level of 600,000 sq m. About 30% of it will be built for specific companies.
Take-up is likely to reach 1 mn sq m and may even exceed this level.
•The beginning of 2017, as well as the end of last year, was marked by a record low volume of completions. The new minimum is caused by the postponement of commissioning of many business centres, the construction of which is at high stage of readiness.
•Office real estate market almost did not feel the seasonal decline in activity in Q1 2017. Take-up amounted to 239,000 sq m, which is 45% higher than the value in the same period last year and 66% higher than in Q1 2015.
•In Q1 2017, the volume of renewals and renegotiations dropped to its lowest level in the last two years. They have a 19% share in the structure of total leasing activity. Thus, normal proportion of new lease and purchase deals and renewal and renegotiation transactions was reached in Q1.
•The investment volume in 2016 amounted to USD4.5 bn (or RUB315 bn), being 37% higher than the same period of 2015 in dollar terms. About 34% of this amount was driven by the government sector deals, while there were no such deals in 2015. There were also several large deals where state bank took on their balance sheet assets converted from debt. We do not include those into investment volume due to their non-cash nature.
•There was still significant mismatch between buyer and seller expectations that prevented deal closure. The volume of real market deals was down by 10% compared to 2015, and amounted to almost USD3 bn.
•The share of Moscow amounted to 71% in 2016 compared to 94% in 2015. At the same time deals were closed not only in St. Petersburg, but also in other regional cities, in Novosibirsk, Sochi. Regional Hotel Chain deal alone purchase covered 8 regional cities.
Intensified demand from the companies of IT, Oil & Gas sectors, new office buildings developed for the owner needs or leased out at the construction stage led to the record absorption figures in 2016. The annual supply of office space amounted to 272,000 sq m of leasable area. 62% of the premises was not offered in the open market.
The volume of construction of new retail space is continued to decrease. The number of trade centers, which held reconception and updated pool of tenants is rising. Shopping centers aim at increasing the share of entertainment component. Grocery chains of economy format, low budget food retail chains, baby-goods stores are actively developing.
The main activity in 2016 was concentrated in the built-to-suit segment. 62% of warehouse complexes commissioned in 2016 were built-to-suit projects. The main driver of demand in 2016 were logistics companies. There is increasing demand from manufacturing companies.
Growth of domestic tourism, stable foreign tourist flow led to an increase of ADR and RevPar in all segments. In 2016 St. Petersburg was granted as a World’s Leading Cultural City Destination and received World Travel Awards - the most prestigious award in the tourism industry.
•In H2 2016 13 new shopping centres with total leasable area of 596,000 sq m were delivered in regional cities (Moscow and St. Petersburg excluded).
•The total amount of new shopping space delivered in 2016 in Russian regions amounted to 862,000 sq m which is 28% lower than in 2015.
•The biggest shopping centre launched in 2016 was Gudok in Samara (115,000 sq m GLA). Technical opening of the shopping centre was marked with the launch of the city’s second “Lenta” hypermarket. Opening of the fashion gallery is expected in 2017.
•3 shopping centres with leasable area of 92,000 sq m initially announced for delivery in 2016, were postponed to Q1 2017.
•In 2017 a further decline in delivery volume is expected. The current delivery forecast for 2017 is 542,000 sq m – a 37% drop compared to 2016. However megacities account for only 4 new projects of 2017, while the rest will be delivered in cities with lower saturation, as developers are seeking new locations for shopping centre development.