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. Last Updated: 07/27/2016

How Do I Negotiatethe Best Deal?

Making sense of the city's young and often opaque real estate scene often requires more than just common sense. Some of Moscow's more wizened real estate players told Andrew McChesney about the main challenges they see, their advice on avoiding major pitfalls and their forecasts for the future.


Jack Kelleher, director Noble Gibbons/CB Richard Ellis, real estate agency

Challenges: Identifying clients and partners who are willing to commit financially to see projects through and are genuinely interested in implementing best practices in Russia. Also challenging, of course, is the actual implementation of best practices. For instance, getting building approval officials to accept and implement best practices.

Getting them to accept Western technology and Western building materials can be difficult and requires a lot of diplomacy.

Advice: Whether someone's undertaking a development project or office relocation, early strategic planning is priceless.

A diverse variety of parties like Western businesses and local developers fail to adequately consider long-term issues or take a wholistic asset management approach. They end up suffering from delays, budget overruns and unsatisfactory results.

Forecast: I think anyone who's been here for a while is an optimist by nature. I'm in this group.

Realistically, our sense is that macro stability in the mid-term seems plausible, but that structural improvements to the economy will be a long haul.

We, like most Western businesses these days, are planning for steady growth, rather than the geometric growth foreseen in 1997.

The price of oil impacts more on real estate in Russia than the price of bricks.

Chris King, director of business development Colliers HIB

Challenges: Moscow's real estate market is becoming increasingly advanced but there are still many potential pitfalls. Problems range from lack of clear title to nonstandard lease terms and conditions, tax liabilities, and so on.

While an office relocation may appear to be as simple as identifying appropriate space and negotiating the transaction, challenges inevitably crop up at every corner.

Advice: Make sure to research all aspects of new space. Get a detailed description of the building, including date of construction, background on landlords and current tenant list. Ask current tenants what they like and/or dislike about their space. When searching for new office space you are best served by looking at all available options on the market.

Once you have determined what your requirements are - location, size and amenities - make sure that you obtain information on all available space that falls within your parameters. Too often we speak to tenants who have signed a three- or five-year lease without considering all options - and more often than not they missed out on a better, more appropriate space.

We liken the process to going out to dinner. Typically you don't simply take what the waiter suggests, you ask for a menu to see what all your options are before you order.

Forecast: We are optimistic. With President Vladimir Putin firmly in place and early signs of investment-friendly policies such as new land policies on the agenda, we see a window of opportunity for real estate investors and users.

The general feeling within the real estate community is that we have hit rock bottom and that the time to purchase or lease is now.

We have and will continue to see an increase in activity as business takes advantage of the current commercial terms before rates rise again.

Amanda Spring, managing director DTZ Zadelhoff Tie Leung

Challenges: I think a lot of the challenges of working in real estate here arise due to a general lack of long-term experience that is inevitable in any emerging market. Even the most experienced practitioner here can only have a maximum of 10 years' experience on the local market, and although the office sector has made great progress during this time the industrial and warehouse market remains in its infancy.

Advice: I would advise any company looking to move to ensure that adequate time is allowed for any acquisition - it is difficult to get the best deal if a landlord knows you have to move quickly.

You will need to consider not just how long it will take to agree on the commercial terms but also the time needed for due diligence and any fit out or alterations that may be required.

Finalize your requirements in good time and give your agent as much information as possible as it is a waste of everyone's time to see buildings that will not be suitable.

It is necessary anywhere to have a degree of flexibility and in Moscow this is even more true - identify at an early stage on which points you are able to compromise.

When negotiating the rent or purchase price always ensure that you know how the building has been measured - commercial terms can differ greatly depending on the proportion of the property that is taken up by unusable space.

Forecast: Although there remains an oversupply of office space, the total stock is relatively small for a city of this size. One or two large transactions could severely lower the supply of available space. I believe that toward the end of this year we will see some modest growth in rental rates and it may be that landlords will once again be able to pass to the tenant the costs and responsibility for fitting out premises.

Sergei Riabokobylko, partner at Stiles & Riabokobylko, in association with Healey & Baker and Cushman & Wakefield

Challenges: To continually exceed clients' expectations and be part of that 10 percent of the people who do 90 percent of all the work.

Advice: Talk to other tenants in the buildings you are considering. Negotiate on the artificial loss factor in an inefficient building. Check measurement standards for buildings under consideration. Do not make rental payments until lease registration.

Forecast: The biggest thing that will transform the property market in the next 12 to 18 months is the advent of proper retail shopping centers anchored by international hypermarkets.

Michael Lange, managing director Jones Lang LaSalle

Challenges: Despite the fact that some positive steps are being undertaken by the current government, the main challenges of this market remain the same: political risk, particularly in light of the latest constitutional changes proposed by the new president; uncertainty about the land ownership issue; and the second part of the Tax Code - particularly the laws on VAT recovery, interest deductibility and new building amortization schedules.

However, some obvious progress already has been made, and we feel the results of that in the increasing interest from foreign investors seeking our advice about this market. A first indication of this is the fact that required returns on investment are getting more in line with the returns generally acceptable for international investors.

Advice: We believe that all real estate property, whether owned or leased, should be treated as a valuable asset, one which requires serious attention from the owners and tenants. Things like determining area requirements, selecting an office location and deciding upon specific space quality should be addressed more responsibly than they often are.

Only careful planning and a more responsible approach can help tenants avoid some of the unpleasant situations that can occur when they do not think of their leases as being part of their company's overall assets.

Forecast: We believe the local real estate market, which is greatly underestimated at the moment, has remarkable potential.

If we compare our high-quality office stock to that of Warsaw or Prague - the two most commonly used comparisons - Moscow is still very much behind. Even though these two cities are not even close to this one in terms of sheer size, population or geopolitical importance, they have significantly more class A space per 1,000 inhabitants than Moscow. We believe that, with the economy improving, the mid-term prospects for Moscow and for the country as a whole are very good.

Engin Golpan, director Mosalarko, Alarko

Challenges: To work in Russia and in Moscow in particular is a challenge in itself. The bureaucracy is controlling each and every step, so you need to know the system very well to avoid time losses when developing a project.

Keep in mind that the system is constantly being developed and improved by the authorities, which is both an advantage and a disadvantage.

Advice: It takes time to learn to deal with the bureaucracy and I don't think that every foreign company should have to go and deal with red tape. The best thing to do is out source. If someone is going to build, they should first employ a company to deal with the government and the contractors. State-owned company Moskapstroi, for example, is very efficient in doing everything from choosing the contractor to controlling every stage of construction so that everything goes smoothly when the time comes for the state authorities to perform inspections.

Forecast: With the right governmental moves toward creating an investment-friendly climate, within a year or two the construction market will boom again.

There is much to be done here for the country to increase its industrial output and thereby increase the quality of life.

William Knopick, vice president of marketing Hines

Challenges: Tenants need to not only focus on properties that afford them competitive terms, but also scrutinize the locations they are considering. They need to make sure that the property can deliver the host of services they desire. Consultants need to appropriately evaluate their clients' needs and do their homework so they can present a satisfactory product and thereby save their clients time and eradicate any disappointments.

Advice: Exercise caution and be diligent in your efforts to align yourself with real estate entities that have a track record of excellent performance and high integrity. Seek advice from firms that have international breadth of experience and competent people.

Forecast: The market will gradually strengthen throughout the remainder of 2000 and thereafter. The improved market will be a result of the better economic and political conditions because of measures that will be implemented by the newly elected administration.