August 08, 2018

Moscow's CBD office vacancy reaches a ten-year low

Moscow's CBD office vacancy reaches a ten-year low

According to JLL, in Q2 2018, the vacancy rate on the Moscow office market continued to decline amid low completions and rising take-up. The current vacancy, at 12 percent, is the lowest since Q3 2008. The decline began in Q3 2015 when it was 17 percent. A year ago, the vacancy rate was 16.3 percent, and 13.1 percent in Q1.

In Moscow, the vacancy rate was declining since Q3 2015 when the vacancy was 17 percent. A year ago, the vacancy rate was 16.3 percent, in Q1 it was 13.1 percent already.

Lower vacancy rate was recorded in all classes. In H1 2018, the Class A vacancy rate declined to 12.9 percent, Class B+ to 11.6 percent, Class B- to 11.9 percent.

Geographically, the vacancy rate diminished strongly in key Moscow submarkets over the last year, by 6 ppt to 11.4 percent in the Moscow City and by 4.4 ppt to 8.9 percent in the Central Business District.

“The vacancy rate in the city centre reached the ten-year minimum, at 7.7 percent for both Class A and B+ premises there. The Central Business District net absorption was at 75,000 sqm in H1 2018, in H1 2017 it was negative,” comments Elizaveta Golysheva, Head of Office Agency, JLL, Russia & CIS. “The key deal was Aeroflot in the Arbat 1 business centre. Moreover, vacancy rates in such centres like Legend or Paveletskaya Tower diminished strongly. Considering the high demand and the lack of completions in the Central Business District, the vacancy rate there will continue to decline. Therefore, we expect the CBD to transition into a landlord market in H2 2018.”

In Q2 2018, only 2,300 sqm were delivered to the market. The single business centre completed, Nikolin Park, a part of a residential complex, was located beyond MKAD on Kaluzhskoe Highway.

“In line with recent construction delays, a part of planned H1 completions was postponed to H2 or later,” says Alexander Bazhenov, Office Market Analyst, JLL. “The overall H1 2018 completions were only 39,000 sqm, although 86 percent higher YoY. The delays resulted in the downgrade of overall 2018 expected completions to 217,000 sqm.”

At the same time, the take-up has grown, reaching 633,00 sqm in H1 2018, up 41 percent YoY. The most significant increase, 48 percent YoY, was recorded in Class A, to 220,000 sqm. The bulk of leased and purchased space was beyond the Third Transport Ring, 46 percent versus 35 percent a year ago. Such dynamics shows the current trend of the Moscow market, when companies prefer to occupy quality buildings outside the Central Business District, which is primarily due to the shortage of large Class A premises in the CBD.

Prime office asking rents were USD600-750 sqm, Class A rental rates were RUB24,000-40,000 sqm/year. Class B+ rents were RUB12,000-25,000 sqm/year. JLL analysts expect rental growth in H2 2018.

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