Moscow business increases its status
Business activity in the capital's office real estate market in the past year exceeded all analysts' expectations. Due to the massive departure of Western companies from the Russian Federation, records are being updated. The increased demand for space in prestigious business centers has, of course, whetted the appetite of landlords. According to experts, in 2024, against the background of inflation and a reduction in vacant space, rental rates will increase.
As reported by the head of the office real estate department at CORE.XP. Irina Khoroshilova, the volume of new lease and purchase and sale transactions based on the results of the first and third quarters of 2023 exceeded the results of last year by 20%, reaching 1.4 million sq. m. m. This is a record level of transactions for the first three quarters in the history of the market over the past 10 years. By the end of the year, the rate of new lease and sale transactions may reach 1.8–2.0 million sq. m. m.
Unlike 2022, when tenants were mainly engaged in optimizing existing space and moving, this year the number of expansion transactions has increased sharply. Russian business was actively increasing its presence in Moscow, occupying areas that had opened up with the departure of foreign companies. Most often, office space lease agreements were signed by representatives of IT and telecoms, as well as companies providing financial services.
The retail buying and selling segment was also developing rapidly. The development of this trend was influenced by the increased demand for the purchase of offices among investors, as well as the appearance on the market of high-quality affordable small-cut offers. “The total volume of purchase and sale transactions in 2023 may reach record values for the segment over the past 10 years of 450–500 thousand sq. m. m. At the same time, for transactions up to 1000 sq. m. m may account for more than 100 thousand square meters. m,” noted Khoroshilova. According to her, this year one of the trends of last year continued — the predominant part of transactions (78%) were for lots with finished finishing.
Against the background of high business activity in 2023, the volume of available offices decreased significantly: as of November, the average vacancy rate reached 7.8%. According to Khoroshilova, by the end of the year the vacancy rate will drop to 7.4%. The downward trend in available office space will continue in 2024. Due to the lack of available space, the demand for brick-and-mortar offices will likely return, or flexible office space will be in demand again.
Throughout 2023, the level of asking rental rates for offices remained approximately the same. According to Khoroshilova, the weighted average base rental rate in class A was 25,580 rubles. per sq. m/year, in class B — 18,030 rubles. per sq. m/year (rates do not include VAT and operating expenses). If previously a tenant could count on a discount (on average about 10%), now the requested and actual rates have aligned.
As Nikoliers partner Igor Temnyshev noted, in 2023 the difference between the commercial conditions of class A business centers in the capital, depending on location, has noticeably increased. At the end of November, the average rental rate in class A inside the Moscow Ring Road was 35,316 rubles/sq.m. m/year (excluding operating expenses, utility bills and VAT), which is 9.2% higher than the final value for 2022. At the same time, the rate outside the Moscow Ring Road over the same period decreased by 20% — to 12,570 rubles/sq. m. m/year. Considering the high rate of occupancy of office properties inside the Moscow Ring Road, Temnyshev expects a further increase in the average rental rate within the boundaries of old Moscow.
We would like to remind you that in 2024, a significant increase in the volume of new office construction is planned to 958 thousand sq. m. m. Against the backdrop of a reduction in vacant space and inflationary processes, rental rates will rise, experts are sure.
Due to the shortage of quality offices, business centers themselves will become more expensive. “In 2024, the Moscow office real estate market will experience a moderate increase in demand. Prices will also rise at the same pace. However, this option is feasible only in the absence of shock scenarios for economic development,” noted Kristina Dudko, commercial director of the development company Glincom.
“Prices for office space under construction may increase due to an increase in construction costs, as well as an increase in the cost of credit resources in connection with the increase in the key rate of the Central Bank. Following the increase in costs of new construction projects, prices for existing offices are expected to increase, but at a slower pace,” concluded Khoroshilova.