Downturn brings cheaper office space

The economic downturn has crisis punished Moscow's office real-estate market, as demand for offices has slumped. As much as 20% of Grade-A and B space is being left vacant - in spite of price slashing.

Market surveys suggest that in the first quarter of 2009, the volume of deals for both buying and renting office space in Moscow is down – as much as 45% from a year ago.

In the last quarter of 2008, developers completed most of their existing projects – adding more space to the market, according to Valentin Stobetsky, Office Department Director, Knight Frank

"What we've seen is that since October to today the prices for Grade-A space went down about 40%. If you compare this to any European market, prices went down about 20% over the last three years. So we've seen a very sharp decline in rents."

A lot of sub-let properties have also come to the market – competing with offerings direct from landlords.

A central location with landmark views used to be highly sought after on the Moscow office real estate market – and picked up at a price. Now many business centers – including those in the heart of the capital – are cutting their rental rates. But that hasn't kept tenants from leaving – searching for cheaper space in the longer term.

The average price of B-Class property between the Garden Ring and Third Transportation Ring is $430 dollars for one square meter a year. The price for offices from that line out to the MKAD highway – $320 dollars for one square meter a year. Maksim Mokeyev, Executive Director at Evans, sees prices continuing to fall.

“The prices are going down and think they will keep on going down probably until the end of fall or the end of the year. And another 10 or 15% is not an impossibly.”

But developers are now putting more projects on hold. As the amount of new office space coming out each month declines, market watchers say there’s a chance that demand could soon once again outstrip supply.