Expert opinions, FORECASTS

Office market outlook in Russia

The pandemic and the widespread penetration of innovative solutions have had a significant impact on the office property market in Russia. Flexible comfortable offices have become so common that companies are reluctant to give them up even despite the new challenges.

Denis Grishkin / RIA Novosti

Companies had to become more flexible to survive – find new partners, rebuild their logistics, quickly analyze emerging opportunities and make decisions. The office, which is the heart of a company, must also fit with the new reality, becoming more and more flexible and digitalized. Almost all new clients are interested in a multifunctional transformable space, equally suitable for large meetings and receptions and for daily operation in a comfortable and convenient environment.

Despite some Western companies leaving the Russian market, the shortage of quality office space has not disappeared. On the other hand, the volume of new construction is not impressive either, mainly due to the shortage of long money and the growing costs of using imported materials and equipment. The cost of construction is now 10-30% higher for almost all groups of materials. At first, there were problems with the supply of sophisticated equipment, but even in this segment, it was possible to find replacements in the remaining friendly countries. However, it is certainly impractical to start construction projects during such turbulence, and most developers prefer to wait until things stabilize. According to our estimates, new office projects in 2022 will add up to no more than 140K-180K sq. m, which means rental prices for high-quality space are unlikely to go down; such premises continue to enjoy demand at current prices.

According to my forecast, at the end of 2022, the share of vacant space will remain at the level of 10–15%. The vast majority of Class A offices are occupied by international companies, but it is clear that not all of them are leaving. There is a demand for large spaces from government agencies and state corporations. New companies from Asian and Arab countries are interested in offices, too. In the past six months, the Russian companies that have filled the vacated market niches have grown; they now need offices that are more suitable for their new ambitions. This mainly includes mining businesses, professional services, IT and the media, and pharmaceutical companies.

The Class B office market segment looks quite stable, its only concern being to improve various amenities. The grown cost of doing business due to the need to restructure many processes has limited most companies’ budgets, which means many find it more efficient to improve the existing premises than to move into a more expensive office.

The growing subletting market is having a stabilizing effect on the commercial real estate market. As of H1 2022, around 150,000 sq. m. of rental properties were put on the subletting market in Moscow. In addition, office properties continue to migrate towards multi-purpose complexes. New types of tenants emerge, including pickup points of online stores and first-floor retail facilities, fitness and wellness centers.

By Alexei Bravin, CEO of G5 Architects

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