The Moscow office market will recover at best in a year

The Moscow office market, which has faced serious problems after the departure of international corporations – large tenants of business centers, will recover at best in a year, consultants predict. They expect the current year to be just as difficult as the previous one, as the demand of Russian companies cannot yet cover the growth in vacated space. The calculation of office owners on Asian companies that can replace Western business is also not particularly justified.

The sharp gap between the vacated and leased or purchased areas, which developed last year in the office segment of Moscow due to the withdrawal of large international companies from the Russian market, will be leveled not earlier than 2024, the Commonwealth Partnership (CMWP) predicts. By this time, the volume of net absorption, that is, the difference between the occupied and vacated areas, may reach 495 thousand square meters. m, which will be transferred to other tenants or owners, the consultants specify. IBC Real Estate expects a figure of 400-500 thousand square meters. m.

At the same time, consultants expect that 2023 will continue to be a difficult year for the segment in terms of excess free space. This year will be purchased and rented for 115 thousand square meters. m of office real estate is less than free, calculated in CMWP. This is a continuation of last year’s trend, which was caused by the mass exodus from Russia of international companies – large tenants of the capital’s business centers.

According to Natalya Nikitina, head of the office real estate department at CMWP, in 2022, 630,000 sq. m, of which 35-40% were occupied by foreign tenants. According to Ricci, from April 2022 to March 2023, due to the early termination of lease agreements in Moscow, 202.4 thousand square meters were vacated. m of quality space – international companies accounted for 71% of failures.

In addition, there is a hidden vacancy for office space in the capital – these are premises offered by assignment of lease rights or sublease, says Irina Khoroshilova, head of the department of office real estate and integrated solutions for CORE.XP clients. At the end of March, according to her, the volume of such areas reached 240 thousand square meters. m.

The main demand in the office real estate market for more than a year has been formed by Russian companies from the public sector and segments of the economy where business is growing, says Elena Medushushskaya, deputy director of the office real estate department at Nikoliers. Russian companies have historically found it difficult to compete with Western corporations that rent office space at higher rates, adds Christina Nedrya, director of commercial management at Stone Hedge. But so far, local players, on whom the owners of business centers rely, according to Ms. Nikitina, “do not show a geometric increase in requests for large office spaces.”

Now the demand for quality space is really declining. If, until 2021, the demand for such real estate at the level of about 2 million square meters was considered normal. m, then in 2022 it decreased to 1.6–1.8 million sq. m, explains Natalia Nikitina. By the end of the current year, this figure may already be reduced to 1.2 million square meters. m, predicts Irina Khoroshilova.

Now foreign companies remaining in the country are looking for smaller areas, explains Ekaterina Kryukova, asset manager for office real estate at Accent Capital. Many owners of business centers are counting on Asian companies entering the Russian market, which will also need offices. But, according to Alexei Bogdanov, managing partner of Ricci, such players are unlikely to be able to fully replace Western corporations leaving the market in the medium term.

Daria Andrianova