HIGHLIGHTS • No growth of high-quality office space has taken place in Q1 2014. • Compared with Q1 2013, the take-up of high-quality office space in Q1 2014 has grown by 26%, amounting to 23.8 thousand sq m by the end of the quarter. • Compared with Q4 2013, the vacancy rate in Class A office centers has changed only slightly, with the index having grown by 0.2 percentage points. However, compared to the same period of the previous year, this figure grew by 16.1 percentage points due to the significant inflow of new supply in the last two quarters of 2013. • Compared with the end of 2013, a slight drop in vacancy rates by 1.1 percentage points has been noted with Class B office centers. In all, the vacancy rate has grown by 0.3 percentage points compared with Q1 2013. • A drop in average lease rates in dollar terms is recorded for A and B Classes due to the volatility of the exchange rate. Compared with the previous quarter, the decline amounted to 11% for both classes. In ruble terms, however, the lease rates remain stable. RESEARCH Q1 2014 OFFICE REAL ESTATE MARKET Saint Petersburg
“The office real estate market has not been very active in Q1. Leasing campaigns in the newly delivered business centers and projects close to delivery continued. The weakening of the ruble has affected tenants’ preferences: they now started favoring the projects with rates denominated in rubles. Business centers with foreign currency rates had to lower them and / or implement a “corridor”. The new major projects offer tenants high-quality facilities, most of which will be finished according to the requirements of the tenant. This new trend allows tenants to change their office space into a more comfortable one without significant one-time investment”.
Key events
• The official opening of two buildingsin the business-administrative districtNevskayaRatushawiththetotalleasableareaof40.5thousandsqmtookplaceinMarch.BothbuildingsareClassAofficefacilities.
• TheBalticMonolithCompaniesGrouphasstartedconstructionofamultifunctionalcomplex Docklands. This object willincludeClassBofficecenters,whichareplannedfordeliverybytheendof2016.
Thetotalvacancyratehasdecreasedby5%inthepastquarter.AttheendofQ1,over240thousandsqmofhigh-qualityofficespace inoperatingfacilitiesarevacantonthismarket. The highest vacancy rate of30% is noted in the business districtCentral-2.Suchahighvacancyrateresultsfromthefactthatmajorpropertiesthatweredeliveredlastyearhavenotyetbeenfilledwithtenants.
Overall, havinggrownby0.2percentagepoints, the vacancy rate inClassAofficecenters market segment has remainedvirtually unchanged compared with thepreviousquarter.By theendofQ12014,thefigurewas22.3%.Over12months, itsvaluehasgrownby16.1percentagepoints.Suchasignificantgrowthresultedfromthesituation where high-end price segmentpropertiesweredelivered, and thosearefilledwithtenantsataslowerpace.
Havingstartedlastyear,themarkettrendofliquidClassBofficecentersupply“washout”continues. For the quarter, vacancy ratehas shrunk by 1.1 percentage points.ComparedwithQ12013,therateremainedalmost unchanged, having adjusted by0.3percentagepointsupward.
High-quality office space stock dynamics, Q3 2009 – Q1 2014
Source:KnightFrankSt.PetersburgResearch,2014
Class A and B office centers shares in the total supply stock of Q1 2014
Source:KnightFrankSt.PetersburgResearch,2014
35%
65%
Class А Class B
Major business centers expected for delivery by the end of 2014
Name Address ClassLeasable
office space, thousand sq m
TrinityPlace 22AdmiralaLazarevaEmb. A 27.0
Flandria TashkentskayaSt.,Plot1 A 24.4
Congress-exhibitcenterExpoForum
Shushary,PeterburgskoeHwy A 20.0
Electro 156MoskovskiyAve A 15.7
Eightedges 45AMalookhtinskiyAve A 13.2
Senator 60/129A,BMoskovskiyAve A 9.5
Passage/Italyanskaya,17 17AItalyanskayaSt. A 7.0
Senator 1KropotkinaSt. A 6.7
Senator 22ABolshayaPushkarskayaSt. A 5.4
ECOStatus 140LigovskiyAve A 3.4
VictoriaPlaza 2APobedySq. B 15.0
PulkovoStar 2APulkovskoeHwy B 12.4
Formida UtkinAve,Plot1 B 7.9
H2O 28KhimikovSt. B 6.8
N/A 94AMoskovskiyAve B 5.6
Source:KnightFrankSt.PetersburgResearch,2014
4
Q1 2014OFFICE REAL ESTATE MARKET Saint Petersburg
Themarkettake-upinQ12014hasamountedtomorethan23.8thousandsqmofofficespace.Mostof thisspacewastakenup inthe peripheral business districtWestern,accountingformorethan60%ofthetotalleasedspace.
Market participants have noted a newtrend: inordertoexpeditethetake-upoftheir properties, the proprietors of newofficecentersarefrequentlyofferingtheirprospectivetenantstocarryoutofficeroomsfinishforthem.
Commercial terms
TheaverageaskingleaserateinoperatingClass A business centers at the end ofQ1 2014 amounted to 446 $/sq m/year
30%
22%
14%
8%5% 4% 4% 3% 2% 2% 2%1% 1% 1% 1%
0
Centra
l-2
Moskovsk
y Ave
Emban
kmen
ts with
view
s
Petro
gradsk
y
North W
ester
n
Sourt
h Eas
tern
Centra
l-1
Easte
rn
Admiralte
ysky
Obvodny
Vasile
ostrovsk
y-1
North Ea
stern
Vasile
ostrovsk
y-2
Outside
Sourt
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tern
5
10
15
20
25
30
35%
Vacancy rate shares distribution in operating business centers according to the business districts of Saint Petersburg, Q1 2014
