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. Last Updated: 07/27/2016

Small Firms Struggle to Find Good Spots

A growing number of businesses looking to rent small-scale office space in Moscow are facing increasing difficulties as developers focus their attention on larger tenants, a report from Jones Lang LaSalle released Thursday said.

Over the past few years, the number of companies looking to lease small-scale office space has boomed. Currently ,around 10 percent of the total office space in the city is occupied by small-scale renters.

The report attributes the rising demand to several key factors.

First, an increasing number of foreign companies, attracted by the fast pace of economic development in the country, are setting up shop in Moscow.

As they dip their toes into the Russian market, many of these companies are only looking to rent relatively small offices. Many global majors keep their presence restricted to small representative offices.

Another contributing factor is the influx of companies into Moscow from the regions, the report said. In addition, some companies tend to lease large spaces for their main offices and then require smaller office spaces for specific secondary business needs, such as training centers.

One-third of the city work force, approximately 2 million people, currently works in small companies.

As profits at these small businesses have soared, so has demand for higher-end office space in the center of Moscow. In 2005, reported profits for small businesses rose by 42 percent, meaning that they are now increasingly seeking to upgrade their offices.

From the second quarter of 2006 to the first quarter of this year, small-scale office rents for properties of less than 250 square meters made up 1 percent of Class A premises, 11 percent of class B+ and 18 percent of class B-.

Among the most overlooked category of small businesses are those that currently occupy Class C buildings, such as former Soviet research institutes and the ground floors of residential buildings.

Commentators said one solution to the current problem was for developers to start catering specifically to the small-scale tenants.

"Taking advantage of the situation by paying attention to small-scale tenants is a way for developers to diversify their businesses and to raise earnings," said Vladimir Pantyushin, head of the economic and strategic research department at Jones Lang LaSalle.

"Developers may consider tailoring part of their projects, for example, some floors in an office building, to accommodate smaller tenants," Pantyushin said.

The demand for small-scale office space has led to the development of a considerable subleasing business, with a number of companies running subleasing operation as their primary activity.

Companies such as workplace solutions provider Regus rent out large spaces and then divide them up. Since 1998, Regus' leased office space has leapt from 2,214 square meters to around 13,500 square meters.