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Office supply deficit leads to slight decrease of take-up in Moscow

According to JLL, Moscow office completions declined 26 percent y-o-y in Q1 2019. Despite the slight reduction of take-up volume, the vacancy rate continues decreasing towards new minimum levels.

In 2019 the volume of offices announced for completion in Moscow amounts to about 400,000 sqm, more than three times higher than last year, when the indicator was at a 10-year record low (125,000 sqm). There were 27,500 sqm delivered in Q1 2019, a 26 percent y-o-y decline. The market has received only Class B+ objects in the first three months, namely, NPK Krunit, reconstructed building Rassvet, and multifunctional complex at 2nd Brestskaya Street, 6.

Taking into account the tendency for the postponement of delivery dates, the actual new supply will likely be 20-30 percent lower than planned, albeit higher than last year.

“The volume of Q1 2019 take-up declined by 8.6 percent compared to 2018, and amounted to 285,000 sqm,” comments Elizaveta Golysheva, Head of Office Agency, JLL, Russia & CIS. “This dynamic can be explained by two factors. Firstly, the supply deficit complicates the office search for companies. Secondly, the effect of Q1 2018 high base came into play. At the same time, the Q1 2019 take-up volume was in line with the 10-year average. Despite the slight decline, the annual take-up is expected around the level recorded in the two last years of about 1.4 million sqm.”

Low completions and stable demand resulted in a decline in the vacancy rate in all office segments. Average indicator reached a 10-year record low – 10.0 percent (-0.3 ppt in Q1 2019), as the indicator declined in all submarkets and classes of the city. The vacancy rate declined in Class A by 0.5 ppt, to 10.5 percent; in Class B+ by 0.2 ppt, to 10.6 percent and in Class B- by 0.4 ppt, to 8.4 percent.

“The vacancy rate further declined in the two key business districts of Moscow, from 7.8 percent to 7.3 percent in Q1 2019 in the Central business district (CBD) and from 7.3 percent to 7.0 percent in Moscow City,” comments Olesya Dzuba, Head of Research, JLL, Russia & CIS. “After almost zero deliveries here last year, new projects are expected for delivery this year. At the same time, the new supply in Moscow City this year is limited by the 2nd phase of OKO business centre of 27,000 sqm, more than half of which has been already pre-let by Rosbank (JLL deal). The new 53,000 sqm in the CBD will be fully Class A, where a mere of 6.8% of premises is available, thus new premises will be quickly absorbed. The deficit in these submarkets will not change and offices in these locations, especially of large size are, becoming less available.”

The rental rates have continued increasing since last year. In Q1 2019 asking prime rental rates remained unchanged, at USD750/sqm/year. The average asking rents in Class A increased by 1 percent in Q1 2019, to RUB24,400/sqm/year and in Class B+ by 3.8 percent, to RUB17,600/sqm/year. Whilst average rents are increasing because of the current deficit in central submarkets, JLL expects growth to spread outside the Garden Ring and Moscow City in 2019.

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