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. Last Updated: 07/27/2016

Commercial Real Estate Market: 2009

Maxim Gasiev
Managing Director
Colliers International (Russia)

The year of 2009 was difficult for all players on the commercial real estate market. However, despite the complicated economic situation and the consequences of the crisis, the market remained active, especially in the second half of the year.

Office Market

The office market in 2009 saw perhaps the most dramatic crisis scenario, namely, explosive growth in vacancy rates and a fall in rental prices, particularly for new properties that were just put into operation.

Despite the significant price reduction (down to 30-60 percent) in the primary segment, operating business centers on the whole managed to offer much lower discounts for valid and renewed lease agreements. There are still business centers where rents exceed $1,000 per square meter. It should be noted that there has been no massive office relocation in the last 12 months. Therefore, tenants mostly aimed their efforts at rent reduction, staying in the same premises and in some cases prolonging the lease term for 3-4 years. A number of companies tried to negotiate giving up a part of the leased premises in order to cut the lease cost, with possible penalty payment.

The extremely limited access to funding resulted in freezing a major part of projects, especially those at the early construction stage. Developers of those projects that are already at the stage when freezing can be very cost intensive try to complete the development and lease the properties out (often with big discounts).

Retail Property Market

Aggravation of the crisis in 2009 revealed the weaknesses of the market and its players as well as the mistakes made in project development during the years of extensive development. The most attractive properties of the highest quality managed to avoid an increase in vacancy rates as well as a decrease in rental prices.

In 2009, the total supply in the retail real estate market has increased by almost 900,000 square meters. As of the end of the year, the total supply amounts to 4,857,000 square meters (GLA — 2,538,000 square meters). In early December, the average vacancy rate in Moscow was approximately 5%. We do not expect it to change drastically until the year’s end.

By the end of Q3 2009, it became possible to speak of stabilization of rental rates in Moscow shopping centers. The situation with rents in properties offered for lease is often the following: The owner intends to reach a certain rent level in 2-3 years and, therefore, negotiates discounted rent for the first and second lease years. Formerly, if the rental rate was determined as a fixed rate plus percentage of turnover, the fixed part used to be very low, whereas today it is increasing. Annual indexation ranges from 3 percent to 7 percent. Moreover, by the end of 2009, owners of successfully operating shopping centers have stopped offering discounts, and it has become possible to say rental rates are likely to increase. Nevertheless, it is noteworthy that there are still many properties on the market that have difficulties with occupancy of their premises and continue to offer considerable discounts to tenants.

However, despite the difficult situation, this year has brought new brands to the retail market. These include furniture and household goods hypermarket Kika, department store H&M as well as brands such as River Island, Ipekyol, New Look, Bebe, Gap, Nucleo, Centro and Fun City. Despite the financing difficulties, development of a number of Moscow projects continues, though their completion may be postponed by 2-3 years (as far as large projects are concerned). However, there are no new projects in the market. Besides, regional projects are being unfrozen, especially in cities with high wages and a lack of quality retail properties.

Warehouse Market

Despite the evident difficulties in fund raising for project implementation, the supply in the warehouse real estate market has increased in 2009 by almost 600,000 square meters of quality warehouse space. This increase was coupled with a rapid vacancy rate growth. Before 2009, this indicator did not exceed 2 percent, whereas by the end of Q2 2009 it reached approximately 19 percent. Vacant premises include both the new projects that haven’t yet been occupied by tenants and the vacated space. The larger share of the latter is formed by premises that used to be occupied by logistics operators.

The demand structure in the warehouse real estate market has changed. H1 2009 could be characterized as the waiting period, when companies tended to study the market and analyze various offers waiting for rental prices to reach the minimum, while the second half of the year saw a definite increase in activity. A good example of it can be provided by the analysis of the Q3’s transactions share in the total amount of deals in 2009: Q1 — 15.9 percent, Q2 — 32.3 percent and Q3 — 51.8 percent. The total amount of deals concluded in the 11 months of 2009 is approximately 550,000 square meters of warehouse premises. The changes in the supply and demand ratio resulted in changes in lease terms: The agreement duration decreased from 7-10 years to 3-5 years, the security deposit changed from equivalent of lease payment for 3-6 months to 1-3 months, and the approach to the agreement currency is more flexible now. Rents fell to $100 per square meter per month for Class A (in early 2009 Class A rents reached $125 per square meter per month) and $90 per square meter per month for Class B (in early 2009 Class B rents reached $115 per square meter per year).


On the whole, it is rather difficult to predict the development of the commercial real estate market in 2010 because, judging from the experience of the last 18 months, the key development factors are not the trends of the commercial real estate market as such, but the economic situation in general. If the current economic situation does not change, we expect further active renewal of demand in the commercial real estate market, lowering vacancies, stabilization and rent growth (most likely, in H2 2010, with a lowering vacancy rate). However, the market’s sustainability will largely depend on the general economic events.