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. Last Updated: 07/27/2016

Renters Negotiate to Pay More

For MTBoth Intercomplex tenants in the Technopark project wanted to extend their leases.
The first successful negotiations to raise the rental rates of industrial property involving a professional real estate consultant have been conducted in Moscow, Jones Lang LaSalle said.

"We have done such work for a large number of clients on the office sector over the past few years," Rouben Alchoujian, associate director of Jones Lang LaSalle, said in a statement, but "in the warehouse segment, such services have been used very rarely."

Although rents for office and industrial space have gone up before, the negotiations have usually been conducted by the landlord, Alchoujian said.

The deal involved Russian company Intercomplex, one of the pioneers in the warehouse market. Intercomplex is the developer of the Technopark project, which has more than 30,000 square meters of modern warehouse and office space located in northwest Moscow, just inside the Moscow Ring Road.

The complex consists of three buildings, each about 10,000 square meters, that have been fully leased for several years. One of the buildings was sold to Mary Kay Cosmetics in 1997.

"Intercomplex had two leases expiring in one of their buildings, almost at the same time, for space totaling about 10,000 square meters -- 8,500 square meters of warehouse space and about 1,500 square meters of office space," Alchoujian said.

"The leases had been signed in 1999, when the market was at a low point and rental terms were still at the same level. Both tenants wanted to prolong their leases."

He declined to name the tenants or the rental level.

With demand outstripping supply and prices rising, it was clear that prices should rise if the leases were extended, Alchoujian said.

"The big question was: by how much? ... And, would it be worthwhile to continue the relationship with the existing tenants, or identify alternative ones?" he added.

"Together with our client, we worked out a strategy to answer these questions," he said.

Jones Lang LaSalle approached the tenants to find out where they stood. One tenant signed a new three-year lease after about six months of negotiations that ended in mid-March. That tenant not only chose to remain at Technopark and pay higher rates, but also took over the space of the other, smaller user, thus expanding by about 18 percent. No agreement was reached with the smaller tenant, who moved out.

David Birnbaum, chief executive of logistics firm Tablogix, the tenant that stayed on at Intercomplex, said Moscow had a tight supply of quality industrial space. Tablogix provides services to multinationals in Russia, Britain, Ukraine and Greece.

"We are considering building our own premises, but that doesn't solve the problem today," he said in a telephone interview from London. "There are lots of firms looking at that. In a year or two, there will be an increase in the amount of property on the market."

A local company called PMC negotiated the deal on behalf of Tablogix. PMC had also negotiated Tablogix's first lease three years ago, Birnbaum said.

Rents in Moscow are high and unlikely to come down soon, he added.