Bargains and Busts in Petersburg

Now that the elections are over, many Moscow-based companies are beginning to expand to St. Petersburg. As always during any expansion, some of the first questions to arise concern real estate. How much will it cost to obtain an office and employee housing, how should real estate be acquired, and what else should one be aware of?


Those who are used to the heated business environment of Moscow may be in for a shock in St. Petersburg. Prices for top-quality commercial real estate are much lower there than in Moscow.


In Moscow top-quality Western office space starts at $650 per meter plus a build-out, and often requires a year's prepayment. In St. Petersburg, the same quality office space starts out at about $450, tops out at about $750 and often requires prepayment of only the first quarter's rent. Furthermore, prices are usually somewhat negotiable.


But there is a reason for the difference: St. Petersburg just does not have the same volume of business at present as Moscow does. Often companies that think nothing of paying $800 a meter in Moscow come to the realization that in St. Petersburg $500 per meter is unsustainable.


One pleasant surprise in St. Petersburg is the price of buying office space. The purchase price of real estate in St. Petersburg is much lower than in Moscow -- about half -- and it often makes economic sense to simply purchase an office. For the price of one or two years' rent, one can often buy and refurbish an office.


Unfortunately, the savings realized in commercial real estate are often not found in Western-standard residential properties. Rental prices in St. Petersburg for regular, unrenovated flats are considerably cheaper than in Moscow, and it is still fairly common to find some great deals. However, the prices for Western-standard flats do not differ significantly from Moscow rates. Prices for renovated three- and four-room flats are generally $2,500 to $4,000 per month, with prepayments of half a year or more typically required.


Again, St. Petersburg is a great place to buy, rather than rent, an apartment. As in Moscow, the laws surrounding apartment purchase are well tread and, with competent advice, purchasing an apartment is a relatively low-risk endeavor. The low prices in St. Petersburg make it possible to buy and renovate an apartment and begin saving money in about two years.


One pitfall to be aware of is the prevalence of apartment offices. As in the Moscow of yesteryear, many firms in St. Petersburg are located in apartments that have been converted into offices. Contrary to popular belief, it is just as illegal to use an apartment as an office in St. Petersburg as it is in Moscow. Although there is yet little enforcement of this law, sooner or later it is expected to be enforced. In most cases, the chances of converting the legally designated use a property from residential to office are zero. For this reason one should generally steer clear of apartment offices.


For the experienced Muscovite, the move to St. Petersburg will present few, if any, new legal challenges in the spheres of commercial and residential real estate. However, on the practical side, for those who are used to more business than they can handle and who take Moscow's sky-high rents for granted, take heed; many companies have been fooled by comparatively low office rents into biting off more than they can chew.





Jamison Firestone is an attorney and managing partner of Firestone Duncan which has offices in Moscow and St. Petersburg.