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Drop In Office Vacancy Rates Signals Market Growth

August 09, 2010, 7:55 (PX Newswire)

Moscow, 9 August 2010 – Vacancy rates in Moscow’s office sector have dropped to 15% over the second quarter, according to a report by Jones Lang LaSalle. Buoyed by demand for quality office space, the decrease marks a significant departure from Q4 2009 figures (19.6%) and suggests a general trend towards lower vacancy and market growth.

Andrey Postnikov, Executive Board Member at Jones Lang LaSalle, commented: “The vacancy decrease in Q2 could well be a signal of a long-awaited trend towards better occupancy and a stronger market in general. After 2010, we expect the supply pipeline to slow considerably, while absorption will continue to grow. We may expect a slight correction with vacancy rates edging towards 15.5-16% over the next two quarters, but after that the figures will continue a steady decrease within the current cycle.”

Figures from H1 2010 show that the office market is rebounding faster than was previously expected. A frozen pipeline during the economic slowdown was expected to constrict supply in 2011, which in turn would have brought down vacancy rates. But according to Jones Lang LaSalle, is the pressure on vacancy rates has already begun.

Postnikov continued: “The chief factor behind the vacancy decrease is a sudden increase in demand from both state and private corporations in Russia and abroad. We saw a number of important deals over the quarter, such as the purchase of an office building on Malaya Dmitrovka Street by RusHydro, while major tenants included international corporations like Panasonic, Avon and Nycomed; and Russian companies like Acron and IT. At the same time, however, we saw no new Class A or B projects introduced on the market during the second quarter.”
Indeed, the first half of the year has demonstrated a strong acceleration on Moscow’s office market. Take-up volumes during the second quarter reached 406 850 sq m, bringing the H1 total to 718 650 – a two-fold increase year-on-year.

Meanwhile, the volume of completed space fell by 69% year-on-year, the lowest since 2004. These dynamics have been a boon for property owners.
The decrease in vacancy rates has caused base rents to grow. Rent rates for Class A space increased by 10-15%, with most properties leasing within the range of $500-$700 per sq m, while Class B+ rates were $400-$500 – a 15-20% increase from the previous quarter. Class B- rates reached $200-$400, reflecting a 10-15% increase.

Prime rates remained at the $800 level noted during the previous quarter. Vacancies were primarily seen in newer projects that hadn’t signed leases yet, or in less competitive properties.
Olga Rybakova, Head of Office and Warehouse Research Jones Lang LaSalle, said: “Take-up volumes for the first half of 2010 are near pre-crisis levels. Together with a slow in completions, this is driving rent rates, particularly in quality office projects that are still not very abundant on the market”.

Vacancy rate
Quarter Class A All office space

Q2 2009 22.5% 18.0%
Q3 2009 21.4% 18.9%
Q4 2009 29.2% 19.6%
Q1 2010 30.5% 18.6%
Q2 2010 23.4% 15.1%

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2009 global revenue of $2.5 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 149 million square meters worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with approximately $40 billion of assets under management.
In Russia and CIS Jones Lang LaSalle have offices in Moscow, St. Petersburg, Kiev and Almaty. Jones Lang LaSalle, Russia was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009 and 2010 at the Commercial Real Estate Awards, Moscow and Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg.

For further information, please visit our Web site www.joneslanglasalle.ru

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