New Office Space Up for Grabs

Moscow is set to gain an unprecedented amount of new office space this year Ч but there will be no surplus as demand for offices is growing and the amount of unoccupied space has declined.

In 2001, 350,000 square meters of office space is expected to hit the market Ч around 135,000 square meters of that class A, according to Noble Gibbons/CB Richard Ellis. By comparison, in 2000 only 142,500 square meters of all classes opened.

During the first three months of this year, construction began of 85,000 square meters of new office space, including two buildings of class A space.

The business center at 24 Ulitsa Timur Frunze occupies 8,700 square meters, 6,100 square meters of which will be rented. The office and trading complex on Sukharevskaya Ploshchad has some 4,000 square meters of offices on the fourth through sixth floors. Only the 1,387-square-meter sixth floor is presently available, which the Stimul Group builder is prepared to rent out in full.

The largest transaction in the first quarter was LUKoil-Perm's leasing of 3,900 square meters in the Energy House business center at 16 Rauzhskaya Naberezhnaya. Rentals of such large spaces are rare, partly because the number of companies requiring large spaces is limited, and also because there are a small number of business centers in Moscow able to provide a single large space.

Among other large transactions, Siemens rented some 2,000 square meters at 15 Malaya Kaluzhskaya Ulitsa. Volgotanker rented 1,100 square meters in the Central Telegraph building on Tverskaya Ulitsa and Transaero rented 1,400 square meters in Paveletskaya Plaza.

The biggest demand is for office space of around 400 square meters, according to Colliers International.

Prices for office space are steadily growing, and though leasing rates do not change, they often exclude operating costs and value-added tax. The average price of office space in new business centers is around $500 square meters a year, plus VAT and operating costs of $70 to $100 per square meter a year.

Noble Gibbons/CB Richard Ellis estimates the average cost of class A office space at $560 per square meter a year, including operating costs and decorations but without VAT.

The most expensive office space on the market is in the Tsars' Gardens complex on Bolotnaya Ulitsa, measuring 6,000 square meters, according to Penny Lane Realty. Base rates are in the range of $620 to $750 per square meter a year, excluding operating costs and VAT, said Vladimir Neretin, director of the real estate management department at the Keystone builder. The minimal size for office space is 750 square meters. Slightly more than half of the space has been rented, and 2,000 square meters have been reserved for services.

Realtors complain about the shortage of office space in the high-class category, with the hope that new space will become available.

One location, the 2,700-square-meter business center at 21 Mytnaya Ulitsa, is almost complete. The builder, ALM-Development, is trying to find a buyer for the center, but has not excluded the possibility of renting out offices, a consultant at Penny Lane Realty said.

Other large projects to be completed this year include Bashnya-2000, the first major step in the $10 billion multi-building Moskva City project. As the name suggests, the tower, on Shevchenko Naberezhnaya, should have opened last year, but the process has been stalled.

"The complex will be put into operation in September," said Natalya Patrusheva, the senior marketing manager for Moskva City. "Most likely around City Day [the first weekend in September]."

Agreements are now being concluded on renting 75 percent to 80 percent of the offices, around 21,000 square meters, and half of the remaining space, which includes a cafe and service businesses.

Before year-end, more than a dozen large buildings, among them a 28,500-square-meter business center at 6/8 2nd Brestskaya Ulitsa and a 25,000-square-meter business center at 67 Novocheryomushkinskaya, are set to open.

The Turkish company Enka expects to complete construction by December of an office complex at 7/9 Dolgorukovskaya Ulitsa, 100 meters from the Garden Ring.