According to JLL, office completions in Moscow in Q4 2016 totalled for 60,300 sqm, the lowest quarterly level ever. Total 2016 completions reached 317,200 sqm, also the lowest level in the Moscow office market history.
Only three Class A office buildings of were delivered in 2016 with the total area of 70,500 sqm. That was five times lower than the 2015 volume and ten times less than in 2014.
The 2016 completions fell short of expectations as the delivery of about 90,000 sqm was delayed until H1 2017. It is expected that 2017 completions will reach 542,000 sqm, including 219,000 sqm in Class A. Besides delays, the completion volume was reduced as the functional use of some projects was converted into residential.
The occupier demand focused on Class A objects. With more than 51 percent of total new lease and purchase transactions in 2016, the segment enjoyed double the volume of 2015 transactions. The demand is decentralizing as well: out of 414,000 sqm transactions outside the Third transportation ring, about 178,000 sqm were done in Class A objects (a 54 percent y-o-y growth).
The total volume of transactions in 2016 was 1.06 million sqm, which is similar to 2015 due. The Q4 volume was about 200,000 sqm.
With low completion and growing demand, the vacancy rate in class A reached the lowest level of 18.1 percent since 2013. Modest vacancy rate growth was registered in Class B+, from 16.9 percent in Q3 to 17.3 percent in Q4, with most 2016 completions done in this segment. The overall vacancy rate at the end of 2016 declined to 15.5 percent from 15.7 percent in Q3 and from 16 percent in 2015.
Asking rental rates reached the bottom in 2016 and remained stable in Q4: 600- 750 USD/sqm/year in the premium segment, 400-600 USD/sqm/year in Class A and 360-600 USD/sqm/year in Moscow City. Asking rents in Class B+ remained unchanged as well, at 12,000-20,000 RUB/sqm/year.
“As the economy and the rouble stabilized, market risks became less significant in 2016. Using favourable market environment, tenants began to explore more actively the available options for relocation to new premises,” said Elizaveta Golysheva, National Director, Head of Office Agency, JLL, Russia & CIS. “At the same time, developers showed more flexibility in negotiations of rental conditions.”
“Economic forecasts for 2017 presume gradual demand recovery. We expect the Moscow office take-up to increase to 1.1 million sqm. Attractive market conditions and positive business outlook for many companies will encourage them to close new leasing transactions. This will support the rental rates, with potential rise in the second half of the year. However, this will be curtailed by the large volume of vacant office space,” added Alexander Zinkovskiy, Head of Office Research, JLL, Russia & CIS.