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. Last Updated: 07/27/2016

Promising Trends for Growing City Market

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Brick by brick, the Moscow real estate market is building up steam. Today, Colliers International, and I'm sure our colleagues at other agencies, are experiencing increased activity, and this time in the right direction. What's happening and why are more and more companies searching for space, upgrading their facilities and taking steps to prepare for the long term? In two words: increased confidence. Admittedly, we are not experiencing a real estate boom; we have a long way to go for that to happen, but recent developments in the office market, and with pending land rights, are encouraging.

In 2000, approximately 320,000 square meters of office space was leased or sold, which exceeded the preceding year by more than 50 percent and exceeds the pre-crisis figure by 28 percent. In the fourth quarter of last year, construction continued at a steady pace, with 60,000 square meters of office space completed, a 30 percent increase over the previous quarter. For the coming year, there are several new office projects scheduled to come on line. Encouragingly, many of these new projects will be of high-quality Western standards, which should further meet the needs of the market.

Another encouraging sign is the emergence of a new trend. A number of companies are acquiring office premises through a built-to-suit basis, with upward of 15 built-to-suit projects currently under way. One example is the 15,000-square-meter Ingostrakh building located on Novoslobodskaya Ulitsa. Built-to-suit projects are a noticeable change in a company's corporate real estate strategy. In the early '90s, as businesses entered the Moscow market, their approach was to lease space regardless of cost Ч taking the risk of purchasing a building was simply out of the question. Today, things are changing. We have increased stability, a leveling of base rents and a president who is actually trying to resolve the long-fought-over and contentious Land Code.

Ever since 1994, the Land Code has remained unresolved, and it continues to be hotly disputed by various factions in the State Duma. However, the tide is changing and President Vladimir Putin is taking steps to have the Land Code settled by the end of the year. The challenge is not the absence of the right to own land Ч it is already in the Constitution Ч but the lack of relevant and precise legislation regulating the act of transferring land.

The Duma recently passed a bill in its first reading on enactment of Chapter 17 of the Civil Code, which allows for the purchase and sale of nonagricultural land. Enactment of Chapter 17 could lead to land sales before the adoption of the Land Code and is a revolutionary step toward land reforms. In tandem, the government has recently adopted a basic structure for the Land Code, and it will be introduced to the Duma this spring. These steps are encouraging and long awaited.

We have come a long way in the Russian real estate market, and we have a way to go to reach the level of sophistication of Western markets. But today we are making incremental steps in the right direction. The intention of the president to finally resolve the land issue is a positive step and is sure to catch the attention of investors. If his initiative works, and the Land Code is adopted quickly, we will see a noticeable increase over today's already-active market, and the result will mean better options for businesses operating in Russia.

Chris King is director of business development and Irina Aloiants is a legal analyst at Colliers International.