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. Last Updated: 07/27/2016

Fed Up With Rents, Some Opt to Build Own Office

If you can't lick them, join them.

Foreign companies, tired of the exorbitant rents in Moscow, are starting to do exactly that. A crop of builder-owners among Moscow's many foreign companies say building an office could be a more economical option than paying Moscow's sky-high rents.

"Companies can effect big savings when they go in for building instead of renting," said Charles Roarty, an expert with construction consultants Hanscomb. "We are going to see more and more companies either building their own offices or purchasing properties to renovate."

Others, such as the U.S. fast food chain McDonald's, have gone a step further, not just building Western-standard office buildings for their own operations but also letting extra space out to commercial renters.

After McDonald's built its first $16-million, glass-fronted building on Ulitsa Ogareva near the Kremlin, a second McDonald's project sprang up at Krasnopresnenskaya and a third is nearing completion at Tretyakovskaya Ulitsa.

McDonald's foray into real estate was motivated by its need for a mechanism to repatriate Russian profits and fuel further expansion in Moscow, but the main reason foreign corporations invest in their own office property in Moscow is economic.

"It's very competitive to be an owner-user," said Dan Druckman, head of property management at developers Cameron & Sawyer. "Companies still come into Moscow and rent, but as soon as possible they should switch over to constructing their own office if they plan on being in Russia long."

According to Hanscomb's Roarty, building an office is an increasingly attractive proposition as Russia's ownership laws become more concrete.

Reports estimate construction costs are about $2,000 per square meter, while rents, which have fallen over the past year, are still some of the highest in the world -- averaging $750 to $850 per square meter.

"In most large cities around the world, companies would normally not go into development themselves," Roarty said. Instead, they would usually buy or rent existing space.

The Korean electronics giant Samsung also has two office projects nearing completion -- a 4,500-square-meter project on Bolshaya Yakimanka and another 14,000-square-meter building on Bolshaya Krizhinovskaya Ulitsa near Pushkin Square.

Samsung, however, differs from other dilettante real estate developers. It has a powerful real estate arm with construction projects in many countries. Pyotr Sheshko, head of Samsung's real estate division, said his company had built a hospital and military housing complexes before its Moscow projects. Samsung plans to sell its Yakimanka building whole, and it will itself occupy a portion of the Krizhinovskaya project.

While not many will want to follow McDonald's and Samsung into the commercial property development business, the tendency for companies to build their own offices is likely to grow.

Alexander Eduardov, who heads Bank Austria's Moscow branch, said the bank's 4,000-square-meter office building on Pervy Kazachy Pereulok, scheduled for completion in December, will be retained for the bank's own use.

"We needed a building of a very specific type entirely suited to our needs," Eduardov said. He would not give the sum the bank had spent on its three-story office but said in comparison to renting, the price had been "very competitive."

However, Eduardov said Bank Austria had no plans to continue building.

Another company that found it could best meet its specific needs by constructing was Master Foods, which built a factory in Stupino outside Moscow.

However, the trend away from renting does not mean developers are left out in the cold. Druckman said his company was currently involved in a number of made-to-order office projects for foreign companies.