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. Last Updated: 07/27/2016

Realtors Ride on the Back of Transport Projects

For Moscow's millions of inhabitants the daily commute to work on teeming public transport or clogged roads constitutes one of the major shortcomings of life in the city.

As a recent study conducted by Cushman & Wakefield Stiles & Riabokobylko showed, most Muscovites spend almost an hour commuting to work each day, with 66 percent of office workers relying on the city's public transport system.

And as the rate of commercial and residential real estate development continues to outstrip the capacity of the existing public transportation infrastructure, analysts agree that the correlation between the transport network and real estate prices has become more obvious and the problems more acute.

"Transport accessibility is, together with location, the most important factor affecting the cost of living accommodation," said Boris Flekser, director of the analysis department at Miel.

At a conference Wednesday dedicated to the city's transportation problems, First Deputy Mayor Yury Roslyak outlined plans to expand the transport network over the next few years.

According to the city's plans to upgrade the metro's capacity, the Mitinsko-Stroginskaya Line, which will serve as an extension to the existing Dark Blue and Light Blue lines, will be connected to Strogino metro station by this year and then to Volokolamskaya metro station by 2009, Roslyak said.

An extension of the Light Green Line, from Chkalovskaya to Trubnaya metro stations, will also open this year, while the stretch from Trubnaya to Marina Roshcha metro stations will be inaugurated in 2009, Roslyak said.

Roslyak also highlighted a series of road- and bridge-building projects intended to ease congestion in the city, including the reconstruction of Leningradskoye Shosse, the completion of work on Prospekt Marshala Zhukova and the extension of Kutuzovsky Prospekt.

As the capital's infrastructure expands, the state of the local transport network is also affecting the relative value of real estate around the city. Although only 4 percent of companies renting offices in the second half of 2006 listed transport accessibility as their top priority in Cushman & Wakefield's study, 32 percent cited geographical location.

The price for office rentals drops by approximately 25 percent, from around $600 per square meter to $444, when the site is located more than a 10-minute walk from the nearest metro station, the study showed.

"Despite the real estate market booming, properties with good accessibility command a premium," said Vladimir Pinayev, managing director at Jones Lang LaSalle.

One of the major factors increasing the importance of transport links was the growing number of commercial developments outside the city center, where transport infrastructure is less developed, analysts said.

"In 2003, 23 percent of these offices were built beyond the Garden Ring. But in 2009, 37 percent will be built there," said Sergei Riabokobylko, a partner at Cushman & Wakefield Stiles & Riabokobylko.

Nevertheless, choosing a strategic location in the hope of reducing rental costs is not an absolute guarantee of savings.

"One of the specifics of Moscow office real estate is that due to the high demand, the difference in rental prices between the central locations and those outside the center are quite minimal," Pinayev said.

The cost difference in Moscow is 10 percent to 15 percent compared with 20 percent to 30 percent in more developed markets in the West, Pinayev said.

The location of top-end office developments to the west of the center is sometimes determined by their proximity to exclusive suburban neighborhoods, where many executives live, said Konstantin Baranov, a managing partner at Colliers International.

As new developments shoot up in previously under-resourced areas, the Moscow city government is often overtaken by the pace of construction. Analysts said the necessity for simultaneous transport and real estate development is now well recognized.

"They usually go hand in hand. If a site has potential for better accessibility, this potential will be part of the decision to develop the project," said Anna Ivanova, associate director of office property development at Colliers International.

"Generally, it goes in parallel. It is not often that the location would have a good transport infrastructure before the real estate development kicks in," Pinayev said.

Pinayev stressed the need for cooperation between developers and the city government. Almost half of the offices currently under construction are located far from the metro, Riabokobylko said.

Unlike in London, where metro stations on the underground train system are a short walk from one another, Moscow's metro stations are often prohibitively far apart, Riabokobylko said.

Analysts cited the flagship Moskva-City development in the west of the city as an example of the kind of coordinated planning between developers and city government that the capital needs.

A new metro line has been built to link Moskva-City, a major business center modeled on La Defence in Paris, to the city center. A rail route linking the district to Sheremetyevo Airport is also planned.