Moscow Rents Wake Up at No. 2

MTJones Lang LaSalle says prime rates are at $1,200, second only to London.
Moscow office rents have soared past those in Paris to become the second-highest in Europe, real estate consulting firm Jones Lang LaSalle reported.

Using a new calculation model, the city's prime rents are now 60 percent higher than they were earlier -- jumping to $1,200 from $750 per square meter per year, putting Moscow behind only London, according to a report recently released by the firm.

Prime rents, the highest rates that can be sought for 1,000 square meters of office space, are a yardstick used for gauging the commercial real estate market.

Moscow's figure of $1,200 compares with prime rents of $1,710 in London, $933 in Paris and $819 in Zurich.

Real estate prices have risen rapidly across the board in the past year -- in the residential sector, for instance, the average price for a square meter of space has doubled -- while construction of new buildings is down 30 percent.

But the main spur driving Moscow rates was the revised method of calculating the city's prime rents, the report said.

Whereas Moscow's prime location had previously been considered anything within the Garden Ring, Jones Lang LaSalle last week readjusted its definition of prime location to encompass only the area immediately around the Kremlin.

"We can't ignore the area any more," Jones Lang LaSalle spokeswoman Natalya Ivanova said, listing eight or nine office centers that had opened in recent years in the area.

The main development underlined by the overnight increase in Moscow's prime rent, Ivanova said, was the emergence of a business district in the vicinity of the Kremlin.

While financial and legal firms are now scrambling to buy office space with a view of the Kremlin's towers, two years ago there were not enough high-quality offices in the absolute center of the city to constitute a separate market, she said.

But with "a majority of modern high-quality buildings" around the Kremlin able to achieve the prime rent, the consultancy tightened its definition of prime location.

Oleg Myshkin, a partner at the real estate consulting firm Colliers, said economic growth and the related surge in office prices was not only a matter of recalculating rents or narrowing sample sizes.

"The cost of development is increasing, reflecting economic growth," he said. In particular, he noted a rise in demand for office space from local companies -- a trend he did not think would end any time soon.

"There aren't any large-scale projects that will be completed in the coming year, so there won't be any price correction," Myshkin said. Noting that Colliers calculated office rents differently, pegging them at $750 to $850 per square meter, he said that Moscow's precise ranking was unimportant; that the costs of living and doing business are rising were indicative enough of a strong market.