Conditionally early termination – Newspaper Kommersant No. 63 (7508) of 04/12/2023

Despite the growth in vacant space in business centers in Moscow, the rental rate requested by the owners of such facilities has increased by 9% over the past year. However, they often conclude real deals at a price 20% below the market price, reserving the right to early termination of the contract with the tenant. This will allow office owners to find a new counterparty ready to pay more at the time of restoration of activity in the market. But such transactions carry high risks for tenants, experts warn.

In March 2023, the asking rental rate in class A and B Moscow business centers increased by 9% year-on-year to RUB 21.8 thousand. for 1 sq. m per year, according to the CMWP report. But the gap between the asking price and the rate at which the deal was concluded is widening, says Polina Afanasyeva, director of the company’s research and analytics department. According to her, in some cases, the discount can reach 20%.

Owners of business centers are forced to agree to serious discounts, as the demand for rental, according to CMWP, in the first quarter decreased by 20% yoy in the segment of class B offices due to the crisis due to the crisis. At the same time, the share of free space in Moscow continues to increase — since December 2022, according to NF Group estimates, it has grown to 13.3% in class A business centers and by 8.1% in class B.

To fill the empty space, a number of office owners in Moscow began to resort to a new format of transactions – the conclusion of new lease agreements with counterparties with the owner’s right to unilaterally terminate the contract, says Remain managing partner Dmitry Klapsha. Thus, he continues, tenants can get high-quality office space at below market rates, and owners fill vacant premises in anticipation of an increase in demand in the market and have the opportunity to conclude an agreement with a new tenant at higher rates in the future or renegotiate the terms with the current counterparty.

As an example, a Kommersant source in the real estate market cites a deal concluded by the operator of service offices Know Where in the center of Moscow, on Balchug Street. According to the interlocutor, earlier this year the company signed a lease for 300 jobs with an IT company, whose name he did not specify. Ivan Demidovich, COO of the Know Where flexible office space network, confirmed that such a deal had been struck.

Basically, small companies that are willing to take risks for the sake of savings go to such conditions, emphasizes Kirill Babichenko, head of the department for services to owners of the CORE.XP office real estate department. But most often, tenants want more stability and understanding that they will not be offered to conclude a new contract on less favorable terms, when the premises have already been renovated and staff has been hired, says Sofya Volkova, lawyer at Asterisk law firm. According to established practice, on the contrary, the tenant often tries to achieve the right to early termination, says Maxim Beletsky, director of leasing at KR Properties. Although earlier the owners were set on an agreement that does not provide for an early break, emphasizes Nellya Imametdinova, deputy director of the office department of Praedium.

According to NF Group partner Maria Zimina, there are now agreements on the Moscow office market with early exit rights for both parties. As a rule, owners of office real estate are forced to agree to more loyal lease terms. For example, the number of short-term lease agreements for a period of 11 months has increased, which is a consequence of the refusal of business from long-term planning, says Elena Medushevsky, deputy director of the office real estate department at Nikoliers. At the same time, the owners agree to such conditions for further replacement of the tenant or signing of the contract on new terms based on the market situation at the time of the end of the contract, she adds. Analysts at Stone Hedge expect a full recovery in business activity to occur no earlier than 2024.

Daria Andrianova, Khalil Aminov