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Commercial real estate market overview 2006. Main data and conclusions

At the beginning of 2007
The total Class A and B office stock is estimated at 7.5 mil. sq. m. Class A comes up to about 51% and Class B Ц 49%.
Results of 2006
The quantity of new delivery of Class A and B office space is estimated at 1,000,000 sq. m., of which Class A runs up to about 513,000 sq. m. and Class B to 487,000 sq. m.

Rental Rates ($/sq. m./year)*
Format (examples are provided in brackets)Rental rateOperational costs
Class A business centres (Hermitage Plaza, Ducat)700-90090-150
Class A highЦrise office buildings (over 30 floors) (MoscowЦCity)1 100-1 200120-150
Mixed use complexes offering class A office space (Lotte Plaza, Metropolis)700-900100-120
Class A business parks (Krylatskie Hills, Greenwood)400-70060-80
Mansions650-1 000
Class B business centres Ц new built (Novosyshchyovsky)520-70080-90
Class B business centres Ц renovation (LeFort, Krugozor)450-68070-80
Class B business parks (Derbenyovsky, Novospassky dvor)450-65050-70

Sale prices ($/sq.m.)
- Class A business centres: 5 000 Ц 8 000
- Class B business centres: 2 500 Ц 4 500
- Mansions: 4 000 Ц 7 000

Vacancy rates
- Class A: approximately 3%
- Class B: approximately 5Ц6%

Forecast for 2007
Key indicators:
- Despite growing demand a shortage of class A office space will persist in the year 2007;
- Vacancy rates will still amount to approximately 3% for class A office spaces and 5Ц6% for class B office spaces. An insignificant increase in the vacancy rates might occur at the end of the year 2007 due to the growing supply of office spaces;
- A decrease in the growth rate of class A office space rental rates is anticipated;
- 1,600,000 sq. meters of top class office spaces are scheduled for the year 2007.

At the beginning of 2007
The total of quality retail space is estimated at 2,850,000 sq. m.
The total amount of shopping centers in Moscow is approximately 170.

Results of 2006
The total delivery of quality retail spaces in 2006 was about 850,000 sq. m.
The total amount of retail centers delivered in 2006 was 18.

Rental Rates ($/sq.m/year)
- Shopping centres in trade corridors: 600 Ц 4000
- Shopping centres within the Garden Ring Road: 500 Ц 2500
- Shopping centres along the Moscow Ring Road: 300 Ц 2200
- Shopping centers in suburban areas: 300 Ц 2500

The vacancy rate is estimated at a level of 3Ц5%.

Forecast for 2007
Key indicators:
- Shortage of supply of high quality retail spaces will persist in the year 2007;
- The vacancy rate will remain at its current level of 3Ц5%;
- Growth in rental rates will continue and will amount to approximately 3Ц5%;
- Approximately 1.5 mln. sq. m. of quality retail spaces are scheduled for launch in 2007.

Key trends:
New construction sites
- The tendency towards construction of conceptЦbased shopping centres in suburban areas will persist;
- A number of retail projects is scheduled for construction in the 3rd Transportation Ring area;
- Development of underground shopping centre projects will continue;
- The number of announced projects to be developed in the 4th Transportation Ring area will grow.

- Increase in the number of high quality retail centres with similar tenant mixes will result in tougher competition. Developers will try to attract retail operators entering the Russian market;
- The tendency towards creation of a significant leisure zone within a retail centre will persist. The emergence of new major entertainment sector operators is anticipated;
- Less successful shopping centres will undergo changes in their concepts;
- The number of specialized shopping centres will increase.

Retail real estate will keep the leading position in attracting investments comparing to other commercial real estate sectors. A sharp increase in the volume of investment in the retail segment will result in lower capitalization rates.

At the beginning of 2007
The total amount of quality warehouse space is 2,106,000 sq.m.

Results of 2006
The amount of new qualitative warehouse construction delivered in 2006 is estimated at 456,000 sq.m.

Rental rates ($/sq.m./year) (net of VAT, including operational costs)
- Class ?: 140-160
- Class ?: 110-130

Operational costs ($/sq. m./year)
- Class ?: 25-30
- Class ?: 10-15

Forecast for 2007
Key indicators:
- The shortage of high-quality warehouse spaces will persist in the year 2007;
- Reduction of the gap between supply and demand will result in tougher competition among properties;
- The vacancy rate will grow up to 1.5-3% for class A warehouse spaces, and approximately 3-5% for class B warehouse spaces;
- Stabilization of rent rates is anticipated in the year 2007;
- Approximately 1.5 mln. sq.m. of warehouse spaces are scheduled for launch in the year 2007.

Key trends:
- The market will witness continued high investment activity both in the Moscow region and in other regions of Russia;
- An increase in the number of investment transactions is anticipated: both purchases of completed projects and acquisition of shares of Russian developers operating in the warehouse segment;
- An increase in the amount of high quality warehouse spaces put into operation is anticipated;
- A further increase in demand in the class A warehouse segment is anticipated, particularly in the Western region;
- The tendency towards renting warehouse spaces instead of build-to-suit will be maintained by logistics operators;
- An increase in the volume of sale-lease-back transactions in the warehouse segment is anticipated.

/ Source: Praedium

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