OFFICE MARKET IN SAINT-PETERSBURG
In H1 2008, the real estate market for office premises continued its steady growth as demonstrated by all basic indices: demand, supply, vacancy rate and rental rates. The distinguishing characteristics of the St Petersburg office market are the high level of occupancy in business centers, postponement of commissioning (at least 50% of the projects are being delayed for a period of around 6 months on average) and the growth of rental prices, which are running ahead of inflation.
A the end of H1 2008, the overall volume of high quality office premises (class ? and ?) in St Petersburg mounted to 1,252,000 sq m. Out of this total, 183,000 sq m are in class A and 1,069,000 sq m are in the class B category. In the first two quarters of 2008, around 160,000 sq m of office premises were brought on line, which is nearly twice as much in the same period last year. A large part of the newly commissioned business centers is in class Â (122,000 sq m), whereas only 2 office centers (38,000 sq m) are in class A.
The biggest projects, delivered in 1H 2008:
•Renaissance plaza (class A) - 28,000* sq m
•B&D (class A) -10,000 sq m
•Lider (class B) - 38,000 sq m
•Avenue (class B) -16,500 sq m
•Vyborgskaya zastava (class B) - 11,000 sq m
*Here and further on we show the total surface area of a business centre (without considering parking places, retail and other functions if the business centre is situated within a multi-functional complex).
On average the vacancy rate of office premises within existing business centers amounts to 4-6%. The vacancy rate of class A premises has remained at the same level for the last several years and comes to around 2%. At the same time, the level of vacant premises in class B properties has gradually been rising to reach 5-6% and 650,000 this is related to the fact that the volume of new premises on offer exceeds aggregate demand. In recently opened business centers, the level of vacant premises constitutes 30-40% and more. They reach the average annual level of occupancy in the course of the year following commissioning.
/ Source: ?B Richard Ellis
Out of the 600,000 sq m of warehousing premises expected to be commissioned in 2008, during the first half year 3 class A warehouse complexes were opened, with a total area of 200,000 sq m:
•Utkina Zavod (2nd phase) –110,000 sq m
•Teorema (2nd phase) –33,600 sq m
•Neva (1st phase) – 56,000 sq m
In the second half of 2008, the following warehouse complexes are planning to open:
AKM Logistics (1st phase) – 52,000 sq m
Evrasia Logistic (1st phase) – 210,000 sq m
Neva (2nd phase) – 76,000 sq m
Energo –20,000 sq m
The transport routes in greatest demand today are to the South – freight movement towards the capital and the regions of Russia, and the North – one of the main routes for import of goods. Therefore parcels to the North and South of Petersburg which are close to the main arterial roads enjoy highest priority for setting up logistics complexes.
At present market supply cannot adequately satisfy the growing requirements of tenants. Demand for high quality logistics facilities is constantly growing and in the coming 3-4 years it will not be satisfied. Among tenants, warehousing facilities measuring 1,000-3,000 sq m are most popular.
The growth in rental prices for warehousing premises during the first half of 2008 amounted to around 5-6%. A fall in prices will be possible only after the market is saturated.
In 1H 2008 capitalization rates in all segments of the real estate market have stabilized on the reached level. The yields are still significantly higher than that of developed European countries and the USA.
The demand for high quality real estate on the part of investment funds still exceeds supply. Transactions to purchase the objects which bring income, are single. Most of the finances are being invested into project development.
WAREHOUSES MARKET IN SAINT-PETERSBURG
The market for warehousing in St Petersburg still is considered one of the most promising areas for investors. However, notwithstanding the increase in the number of sites under construction or in the planning phase, the market for logistics services cannot be said to have taken definitive shape. Firstly, the tendencies for high demand continue and demand exceeds supply several times over. We can trace a high but uneven growth pattern.
The number of tourists visiting St Petersburg is growing every year. In 2007, around 4.6 million tourists visited the city. Russian tourists form a growing share of the visitors.
Two basic groups can be noted among the consumers of hotel services in the city: business visitors (35%) and tour groups. In the first group, St Petersburg substantially loses out to Moscow. In the national capital, 80% of visitors arrive for business reasons.
The main problem of the hotel market in Petersburg is the high seasonality. The period from May to September is high season. The lowest occupancy rate is from December through February, when it is around 68%. Due to shortage of rooms in hotels in the summer period, around 40% of the reservations placed by tourists cannot be satisfied.
The prices for lodging in St Petersburg hotels remain rather high and are 400 comparable with ‘expensive’ European cities. In terms of growth in 300 revenue from hotel rooms, Petersburg hotels hold first place in Europe.
In the first half of 2008, 3 hotels were opened (not including mini-hotels):
• Holiday Club -278 rooms, 5*
• Sokos Hotel Olympic Garden - 348 rooms, 4*
• Park-Hotel «Potemkin» -166 rooms, 3*
By the end of the year, there are plans for commissioning a further 8 hotels, with a total of 1,190 rooms. Furthermore, there are at least 160 projects in the stages of planning and construction. More than 50% of all hotel rooms in St Petersburg are concentrated in the Admiralteisky, Vasileostrovsky, Petrogradsky and Tsentralny Districts. The Tsentralny District is the traditional leader, with a 28% share of aggregate supply.
HOTEL MARKET IN SAINT-PETERSBURG
Since 2005, the 2005-1010 Programme for Development of the City as a Tourist Centre has been underway. Its objective is to accelerate the development of the tourist sector in St Petersburg and to raise the level of revenue from this area of the economy. In the course of five years, the city is supposed to become one of the five biggest tourist centers of Europe, with a flow of 5 million tourists annually. For this reason it has been nicknamed the ‘5-5-5 programme.’ The task of the programme is to promote the image of Petersburg on the international market for tourist services, i.e., to create and enhance consumer demand for the hotel industry.
Demand for premises in high quality shopping centers in St Petersburgremains stable. Premises measuring 150-200 sq m enjoy greatest demand. Anchor operators occupy an entire floor as a rule (up to 10,000 sq m). Occupancy of most shopping centers remains at the level of 90-95%, but it is gradually going down due to increasing supply and competition. Nevertheless, the best shopping complexes are 100% occupied and there are waiting lists.
Rental rates and sale prices
The high demand for office premises facilitates a further increase in rental prices. The growth in rents in H1 2008 amounted to around 10% (5-7% in class ? and 10-14% in class ?). The forecast growth in office rental prices during 2008 will amount to 15-17%, which should exceed forecast inflation. As a rule, rental prices are reviewed each year in accordance with a percent stipulated in the lease or relative to the growth in the Consumer Price Index.
Sales of office premises occupy an insignificant part of the overall number of transactions, most of which are concluded in the rental segment. Nonetheless, in the last quarter a transaction was completed for purchase of a 6,000 sq m office building in the Tolstoy Square multi-functional complex. Prices for office real estate depend on the class and location of the buildings. Prices for offices in class A business centers on average are between $5,000 and $8,000 per sq m, while they are between $3,500 and $5,000 in class B.
RETAIL MARKET IN SAINT-PETERSBURG
At the end of H1 2008, the total volume of modern retail premises in St Petersburg amounted to 2.8 million sq m. During H1 2008, a total of 251,200 * sq m of shopping centers were opened:
•Felichita – 63,000* sq m
•Atmosfera –40,500 sq m
•Severny mall (1st phase) – 34,000 sq m
•Interio - 15,000 sq m
•Eurogarden –8,000 sq m
Despite the fact that the market for retail premises is already saturated, it is expected that towards the end of the year a further 600,000 sq m will come onto the market.
* Here and further on, we give the total premises of a shopping centre (without considering parking places, office and other functions if the shopping centre is situated within a multi-functional complex)
The structure of demand has not changed substantially versus the same period of 2007. As previously, premises measuring up to100 sq m. enjoy greatest demand (around 60%). However, there is a steady tendency towards increasing demand for large surface areas, meaning 500 sq m and more. Demand for such premises comes mainly from financial institutions, insurance companies, law firms and consultancies. There is a gradual increase in the share of foreign companies opening their representative offices in Petersburg.
From a geographical point of view, there is high demand for new, high quality office premises in the city centre, however in light of the limited supply in the central districts, the complicated transportation situation and the absence of a large number of parking places, tenants are quite ready to examine properties offered in areas adjacent to the business centre.