H2 Sees Flurry in Office Sector
Published: December 5, 2012 (Issue # 1738)
PENNY LANE REALTY ST. PETERSBURG
The Dom Mertensa A-class business and retail center on Nevsky Prospekt. Mining, IT and banking firms favor A-class offices.
The St. Petersburg office real estate sector has become more “civilized,” according to analysts from consulting companies. The city is attracting more and more large international and Russian tenants who wish to have an office here.
“The deadlines announced for launching new projects are being adhered to, and property owners and management companies offer commercial conditions with full services and maintenance,” said Marina Puzanova, head of the office real estate department at Knight Frank St. Petersburg.
Moreover, the residential rental real estate market has sparked the development of the apartment-hotels sector, which in turn attracts highly qualified staff to the city, she said.
“St. Petersburg is becoming an attractive place for business and successfully competes with Moscow with lower rental rates for the same quality offices and lower staff expenses yet with a comparable level of educated personnel,” she added.
A SOLID SECOND HALF
The second half of this year saw heightened activity on the office real estate market.
Since July 2012, eight office centers have been launched in the city. Five of them — two A-class business centers and three B-class centers — were opened in the final quarter of the year.
Analysts expect about 300,000 square meters of quality office space to be launched in 2013, according to data from Maris, part of the CBRE Affiliate Network.
“But taking into account that deadlines are often postponed, the actual volume of new office buildings could be smaller,” said Yelena Prozorova, a consultant at Maris’s evaluation and consulting department.
“According to our forecast, the figure will be 200,000 to 230,000 square meters, which is the optimum volume for St. Petersburg, as the level of new occupancy is about 200,000 square meters per year,” she said.
Currently, 47 percent of A-class offices and 51 percent of B-class office space sees 100-percent occupancy, according to Maris data. The occupancy of B-class business centers will increase next year by 1 or 2 percent each quarter, Maris predicts, while A-class occupancy will stay almost the same and will reach more than 90 percent on average for the city as a whole.
Fifty-four percent of newly constructed business centers will be classified as A-class. Most contracts signed on the office rental market in the third quarter of this year regarded premises in this category.
Overall, experts are observing increased demand for office premises.
“More than a fifth of all the companies that approached us wanted to improve their office premises,” said Tamara Popova, head of the real estate market research department at Knight Frank St. Petersburg. “The trend of moving from unclassified offices to high-class modern business centers continues,” she said.
The companies most actively renting premises in A-class business centers are those operating in the mining and extraction sector, IT and banking, according to Knight Frank data.
THE RISE OF VASILYEVSKY
Business centers located in the central districts of the city — Tsentralny (Central), Petrogradsky and Vasileostrovsky — are in highest demand.
“During the last few years, Vasilyevsky Island has begun to actively develop into the new business district,” said Puzanova. “The tenants of offices [in this district] are people living or working there or ‘patriots’ of the district. To develop the business activity of Vasilyevsky Island, it is necessary to increase the number of metro stations and the routes of overground public transport,” she added.
One of the trends observed in 2012 is the construction of office centers by large companies specifically for their needs. These are primarily oil companies that want to consolidate various departments in one building.
The highest demand is not for large office premises from 250 to 400 square meters, according to Knight Frank specialists, but for small furnished offices in existing business centers (mostly B-class) within walking distance of a metro station, and with convenient access to the office building and parking facilities.
“The presence of enough parking spaces is one of the determining factors for most companies in search of a new office,” said Prozorova. “With the lack of liquid premises on existing sites, large tenants are starting to think about renting offices not only in ready-built buildings, but in projects at the final stage of construction,” she said.
There is also demand for large office premises upwards of 1,500 square meters, of which there is currently a shortage.
“We expect that the lack of large office premises in one block will change in 2013 after the launch of several quality business centers,” said Puzanova.
The average cost per square meter as of late October of renting A-class office space is from 1,400 to 1,700 rubles ($45 to $55) per month (including VAT and operating expenses), while B-class space costs from 900 to 1,200 rubles ($29 to $39), according to Maris data.
“During the recent post-crisis years, the difference between rental rates in A- and B-class buildings was quite small,” said Veronika Lezhneva, head of research in St. Petersburg at Jones Lang LaSalle Russia CIS.
“But the third quarter of 2012 saw an increasing gap between rental rates in business centers of various levels based in comparable locations. This could potentially become an overall trend for all A-class objects in St. Petersburg,” she said.
Colliers International experts observed growth of 7 to 10 percent in rental rates for both A- and B-class office premises in 2012. Analysts say this is a result of the decrease in empty premises and the small number of new premises appearing on the market.
In spite of the high volume of new office premises launched in the second half of 2012, the average level of vacant premises has decreased, which reflects on the growing activity among tenants.
FORECASTS FOR THE FUTURE
With the development of the office real estate market and increase in competition, Maris experts do not predict significant growth in rental rates in 2013.
“An increase of average rental rates can be forecast of 5-7 percent, in keeping with inflation, for both A- and B-class premises,” said Prozorova. “For A-class office centers, the rental rate will be from 1,500 to 1,800 rubles ($49 to $58) including VAT and operating expenses, and 950 to 1,300 rubles ($31 to $42) for B-class,” she added.
“Rental rates for quality premises situated close to metro stations with maximum occupancy indicators will grow more rapidly — by 10 percent and upwards,” she predicted.