2013 office real estate market - knight frank · 2013 office real estate market saint petersburg 4...

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2013Office real estatemarketSaint Petersburg

HiGHliGHts• Thetotalleasableareaofhigh-qualityofficespaceexceededthemarkof2millionsqm.

• 247thousandsqmofhigh-qualityofficespacehavebeenaddedtothemarketstockin2013,thusdemonstratingagrowthofnewsupplyby15%.

• Aslowdownintake-upcouldbeobserved:duringthe2013,itamountedto109thousandsqm,whichis62%lessthanforthepreviousyear.

• AtrendofgrowingvacancyratesinClassAbusinesscentersisobserved:theirfiguregrewby15.6percentagepointsreaching22.4%bytheendoftheyear.

• AslightgrowthofvacancyratesoccurredinClassBbusinesscenters:bytheendof2013,thefigurehasreached7.5%.

• Forthepastyear,therubleleaserateforClassAofficefacilitiesgrewduetothefluctuationsincurrencyexchangerate.

• Duetothetake-upofliquidsupplystockindowntownareas,averageleaseratesforClassBofficebuildingshavedropped.

2013Office real estate market Saint Petersburg

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Key events

• Anumberofthecity’slandmarkprojectsgotdeliveredlastyear:twobuildingsofthebusiness-administrativedistrictNevskayaRatusha, the Leader Tower skyscraper,twoprojectsofadevelopmentcompanyRenaissanceDevelopment:RenaissancePravdaandRenaissancePremium,the2ndstageof Technopolis Pulkovobusinesscenter,thenewbusinesscenterofSenator

network (37Prof. PopovStr.), ZolotayaDolinaofficecenter.

• Severalmajortransactionsoccurredontheleasemarket.CompaniesengagedinITandtelecommunications,development,and oil and gas sector have beenparticularly active. For example, theLuxoftcompanyleased5thousandsqmintheZimabusinesscenter,whileLOESKcompanyleasedawholeofficebuildingof3.9thousandsqm(businesscenteron42PesochnyEmb.).

• Major investment transactions onthe officemarket became known: theFORTGROUPcompanyacquiredfiveofficecenters from the LSR. Nedvizhimost-North-Westcompany.FinancialHoldingcompany Empire has acquired thebuilding of Frunzenskiy departmentstore,whichwillbereconstructedintoaClassAbusinesscenter.

Office real estate market

Marina Puzanova, Headofofficedepartment, KnightFrank St.Petersburg

ʺAddition of new decisively high-quality supply to the stock of office market, which has provided the tenants with a large range of options was one of the main trends of the past year.

Among the entrenched trends of 2013, one could name a growing importance of resettlement expenses invested into refurbishing of new properties for the companies considering moving to another office. Hence, in our opinion, in the current year, in the face of growing competition, the projects that will provide customers with finished facilities, whilst taking into account individual characteristics of each company, will be the most successful in terms of occupancy.

In ruble terms, the lease rates last year have shown gradual growth. Most likely, this trend will continue in the future, though one should without a doubt consider the weakening of the ruble and high costs of financing commercial real estate projects when making forecasts. In the coming year, we expect a number of major companies to relocate: taking advantage of the favorable situation for tenants, they will be able to move offices to more comfortable buildings of higher qualityʺ.

Key indicators. Dynamics

Indicator Class A Class B

Totalhigh-qualitystock,thousandsqm 2,019.8

including,thousandsqm 699.9 1,319.9

Changessince2012,% +34 +5

Deliveredin2013,thousandsqm 247

including,thousandsqm 178.9 68.1

EndofQ42013vacancyrate,% 22.4 7.5

Changessince2012p.p. +15.65 +1.75

Askingleaseratesinoperationalbusinesscenters*, $/sqm/year 277–870 185–780

Leaserateschangesinthefunctioningbusinesscenterssince2012,% +15 -86

Askingleaseratesinbusinesscentersunderconstruction*,$/sqm/year 480–660 185–416

*excludingVAT(18%),includingoperationalcosts,1USD=33RUB.Source:KnightFrankSt.PetersburgResearch,2014

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Supply

By theendofQ42013, the total leasableareaofhigh-qualityofficespaceexceeded2millionsqm.

Oneof themaineventsontheofficerealestatemarket of St. Petersburg last yearwasthedeliveryofalargequantityofhigh-qualityofficespace–247thousandsqm.Thenewsupplygrowthfortheyearwas15%.Geographically,thehighestgrowthofnewsupplyhasoccurredinthebusinessdistrictMoskovskyAveaccountingfor40%ofnewsupply.

TheupwardtrendingrowthofClassAofficecentersisalsoworthanotice:inthepastyear,72%ofnewsupplybelongedtothiscategory.

By the end of Q4 2013, Moskovsky Avebusinessdistrictbecametheleaderintermsofhigh-qualityofficespaceinSt.Petersburg.Thisresultsmainlyfromthefactthatmostofthenewsupplyof2013wasdeliveredhere.ItisfollowedbyCentral-2businessdistrict,inwhichthevolumeofhigh-qualityofficespaceisonly1%smaller.

Business centers delivered in 2013

Name Address ClassLeasable

office space, thousand sq m

NevskayaRatusha(Buildings2,3) 11ABDegtyarniyLn. A 40.5

LeaderTower 153LeninskiyAve. A 38.0

RenaissancePravda 12–14KhersonskayaStr. A 21.8

Senator 37SH’ProfessorPopovStr. A 19.1

TechnopolisPulkovo 40/4PulkovskoyeHwy. A 18.8

RenaissancePremium 14AReshetnikovaStr. A 14.2

Faberzhe 26LiteyniyAve. A 11.5

Zima 44SverdlovskayaEmb. A 8.4

Osen 44SverdlovskayaEmb. A 5.8

VelikanPark Alexandrovskypark,4 A 1.0

ZolotayaDolina 8FaberzeSq. B 16.7

MegaPark 22AZastavskayaStr. B 11.8

Bazel 23NovgorodskayaStr. B 9.8

Alfa/Universal 19EPulkovskoeHwy. B 5.6

Mariinskaya 158BMoskovskyAve. B 5.0

Fabrika 140MoskovskyAve.Bld.2 B 5.0

Magnitogorskaya,51MagnitogorskayaStr.,property1,southwesternintersectionpastEnergetikovAve.

B 5.0

Administrativebuilding(partofRC) 5KovenskyLn. B 4.9

Al'piyskiy 29AlpiyskyLn. B 2.4

HaninPlaza 6-8ADrovyanayaStr. B 1.9

TOTAL 247

Source:KnightFrankSt.PetersburgResearch,2014

thousand sq m

Class BClass A

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

High-quality office space dynamics, 2002–2013


2013Office real estatemarket Saint Petersburg

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Demand

Throughout the year, one could observea trend of growing vacancy rates in thesegment of Class A business centers.ComparedwithQ42012,thisfigurehasgrownby 15.6 percentage points reaching 22%growthbytheendof2013.Suchdynamicsisassociatedwiththemarketentryofnewfacilitieswithlowoccupancy.

As to theClass Boffice centers segment,thistrendisnotsoobviouslypronounced,thevacancyratesgrowthsincetheendofQ42012amountedtoonly1.7percentagepoints.TheendofQ42013figurewas7.5%.

A slowdown in take-up rate on the high-qualityofficerealestatemarket isworthanotice.During2013,themarkettake-uphasreachedafigureof109thousandsqm. Incomparisonwith2012,thefiguredroppedto62%.ThemostpopularbusinessdistrictofthepastyearwasMoskovskyAve:about50%ofallthedeliveredhigh-qualityofficespacewasconsumedthere.

0%

2%

4%

6%

8%

10%

12%

14%

16%

Moskovsk

y Ave

Centra

l-2

Emba

nkmen

ts with

view

s

Petro

gradsk

y

North W

ester

n

Vasile

ostrovsk

y-1

Centra

l-1

Obvodny

Sourt

h Eas

tern

Easte

rn

Vasile

ostrovsk

y-2

Admiralte

ysky

North Ea

stern

Sourt

h Wes

tern

Outside

Vacancy rate, Class AVacancy rate, Class B

Vacancy rate volume, Class AVacancy rate volume, Class B

2009

thousand sq m %

2010 2011 2012 2013III IV I II I IIIII IV I II III IV I II III III IVIV

0

50

100

150

200

250

0

5

10

15

20

25

30

35

Distribution of high-quality offi ce space according to business districts of St. Petersburg, Q4 2013

Vacancy rates and vacancy shares dynamics in Class A and B business centers



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Companies operating in the oil and gassectorwerethemostactivetenantsin2013:theyaccountedfor18%ofalltransactions.Followingarethecompaniesengagedinthefieldof ITandtelecommunications, leavingthethirdplacetodevelopers.

Despitetheslowdownintake-upontheleasemarket,majortransactionstookplace.Firstly,thisgoesfortheleaseofawholebuildingwithanareaof3.9 thousandsqmbytheLOESKenergysectorcompany.ClassAofficebuildingis locatedat42PesochnayaEmb.Furthermore,LuxoftITcompanyleasedfivethousandsqminthebusinesscenterOsenand the logisticscompanyModule leased5thousandsqminthebusinesscenterSt.Petersburg Plaza. In addition, the oil andgas sector companies concluded severaltransactionsofmorethan3thousandsqminhigh-qualitymodernbusinesscentersofthecity.

Commercial terms

Theaverageweightedaskingleaserate inoperatingClassAbusiness centers at theendofQ42013amountedto499$/sqm/year(includingoperatingexpensesexcludingVAT),whileforClassBitwas347$/sqm/year(including operating expenses, VAT notincluded).

Duringtheyear,onecouldobserveatrendofgrowthinaverageaskingleaseratesforClassAofficecenters inrubleterms.AscomparedwithQ4 2012, the average lease rate hasgrownby7%inrubleterms,whileindollartermsithasgrownonlyby1%.Theaveragerates fluctuation is causedmainly by thechangesofcurrencyvalue,asasignificantpart of Class A office properties bids isdenominatedindollars.

Areversetrendwasobservedinthesegmentof Class B office centers: there occurredagradualdropinaverageaskingleaseratesinbothrubleanddollarterms.AscomparedwiththeendofQ42012,thedropwas3%and8%respectively.

Gas, oil, raw materials

IT / Telecommunication

Construction / Development / Engineering

Distributors

Logistics

Banks & financial companies

Government / Consulates

Health & Beauty / Tourism

Industrial Companies

Consulting, audit, law companies

Advertising, media

HoReCa

Education

18%

18%

16%12%

6%

5%

5%

5%4%

4%3%

2% 2%

Transactions structure according to the tenants profi les, 2013


AdmiralteyskyNorth Western

Embankments with viewsOutside

ObvodnyNorth Eastern

Vasileostrovsky-2Central-2

Sourth WesternVasileostrovsky-1

PetrogradskyEastern

Central-1Sourth Eastern

Moskovsky Ave

-10% 0% 10% 20% 30% 40% 50% 60%

Distribution according to business districts of St. Petersburg, 2013


2013Office real estatemarket Saint Petersburg

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This trend is associated with thepredominanceofleasableofficespacesupplyinbusinesscenterslocatedattheperipheryofSt.Petersburg,wheretheratesarebelowthemarketaverageby5%.Furthermore,itisworthnotingisthat liquidspaceinClassBbusinesscenterslocateddowntownisscarceandisquicktoleavethemarket.

Itshouldbenotedthatasking leaseratesinthenewbusinesscentersofClassAaresignificantlyhigherthanthosestatedforthealready functioning objects. The averageaskingleaserate inbusinesscentersunderconstructionwheretheleasecampaignhasalreadystartedis578$/sqm/year(includingoperatingexpensesexcludingVAT).Needlesstosay,suchhighratesofnewfacilitieshaveanegativeimpactonoccupancy,astheydonotreflecttheexpectationsofpotentialtenants.

Forecast

Morethan290thousandsqmofhigh-qualityofficespaceareexpectedtobedeliveredin2014.ActivedevelopmentoftheMoskovskyAvebusinessdistrictcontinues:morethanathirdofthedeclaredspacewillbelocatedinthisbusinessdistrictofSt.Petersburg.

Highrateofnewfacilitiesconstructionmayentailcontinuingthetrendthathasalreadyemergedlastyear:agrowingvacancyrate.Bytheendof2014,thisfigureisexpectedtogrowby2–3percentagepointsupto15%.

However, considering the conditions ofgrowingcompetition,askingleaserates inthenewbusinesscenterswitha lowshareofoccupancymaydrop.Thisfactmayhavea positive effect on the take-up rate andoccupancyofnewprojectsonthemarket. Source:KnightFrankSt.PetersburgResearch,2014

Business districts of St. Petersburg

Class BClass A

$/sq m/year

2009 2010 2011 2012 2013III IV I II I IIIII IV I II III IV I II III III IVIV

0

100

200

300

400

500

600

Lease rates dynamics for Class A and B offi ces for Q3 2009–Q4 2013$/sq m/year (excluding VAT, including operating expenses)


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EstablishedinLondonmorethanacenturyago,KnightFrankistherenownedleaderoftheinternationalrealestatemarket.TogetherwithNewmarkCompany,KnightFrank’sstrategicpartner,thecompanyencompasses370officesin48countriesacrosssixcontinents.KnightFrankhasbeenasymbolofprofessionalismfortensofthousandsofclientsallovertheworldfor117years.After17years,KnightFrankhasbecometheleadingcompanyinthecommercial,warehouse,retailandresidentialrealestatesegmentsoftheRussianrealestatemarket.Morethan500largeRussianandinternationalcompaniesinRussiahavealreadymadeuseofthecompany’sservices.ThisandotherKnightFrankoverviewscanbefoundonthecompanywebsitewww.knightfrank.ru

RetailSergey GipshPartner,Director,Russia&[email protected]

ResidentialEkaterina [email protected]

Strategic ConsultingIgor [email protected]

ValuationOlga KochetovaDirector,Russia&[email protected]

Marketing, PRGalina CherkashinaMarketingDirectorgalina.cherkashina@ru.knightfrank.com

Market ResearchTamara [email protected]

Investment and SalesNikolai [email protected]

International InvestmentsHeiko [email protected]

Property ManagementDmitry AtopshevPartner,[email protected]

Project Management Andrew [email protected]

OfficesMarina Puzanova [email protected]

Industrial & WarehousesMikhail Tyunin [email protected]

ST.PETERSBURG

191025,3BMayakovskogoStAliaTemporaBCPhone:+7(812)3632222Fax:+7(812)3632223

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115054,26ValovayaStLighthouseBCPhone:+7(495)9810000Fax:+7(495)9810011

research

© Knight Frank 2014

Thisoverviewispublishedforgeneralinformationonly.Althoughhighstandardshavebeenusedinthepreparationoftheinformation,analysis,viewandprojectionspresentedinthisreport,nolegalresponsibilitycanbeacceptedbyKnightFrankResearchorKnightFrankforanylossordamageresultantfromthecontentsofthisdocument.Asageneralreport,thismaterialdoesnotnecessarilyrepresenttheviewofKnightFrankinrelationtoparticularpropertiesorprojects. ReproductionofthisreportinwholeorinpartisallowedwithproperreferencetoKnightFrank.

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