2009 - CRE

48
Property Management:
2009­will­see­a­significant­increase­in­newsupply­on­the­market­because­the­majority­of­projects­in­Moscow,­scheduled­forcommissioning­this­year,­had­obtained­financing­before­the­onset­of­the­crisis­in­Russia­andtheir­construction­is­not­far­behind­schedule.­So­this­year,­developers­have­announced­thecommissioning­of­1­million­square­meters­ofoffice­space.­Last­year­231­office­buildings­wereconstructed­with­a­total­area­of­2.15­millionsq­m­–­breaking­another­construction­volumerecord,­
according­ to­ analysts­ at­ Cushman­ &­
Wakefield­Stiles­&­Riabokobylko.­In­contrast,the­retail­real­estate­sector­has­seen­a­decline­inactivity.­According­to­Panorama­Estate,­of­the­20commercial­facilities­which­were­announced­for­2008,­only­7­were­actually­completed.­The­totalarea­of­the­projects­was­550,000­sq­m,­of­which­
230,000­sq­m­were­actual­retail­floor­space.­
According­to­experts­at­Cushman­&­Wakefield­
Stiles­&­Riabokobylko,­this­year­the­volume­ofnew­construction­will­not­exceed­the­level­of­2008­and­remain­in­the­order­of­200-250,000sq­m.­In­the­warehousing­real­estate­segment,according­to­Colliers­International,­last­year­sawover­450,000­sq­m­of­storage­space­come­online.­
This­year,­the­estimated­total­is­600,000­sq­m.­
Due­ to­ the­ large­ number­ of­ new­ properties­brought­onto­the­market­and­the­reduceddemand,­the­level­of­vacancies­has­increased.­Therefore,­according­to­Colliers­International,­atthe­end­of­2008­this­indicator­for­Class­A­buildings­stood­at­10.3%,­and­Class­B­–­8.7%,­but­bythe­end­of­February­it­climbed­to­20%­in­the­Class­A­and­17%­in­Class­B­office­sectors.­"Thislevel­of­vacancies­has­not­been­seen­in­8­years­in­Moscow.­We­can­expect­further­increases­in­thepercentage­of­vacant­areas­as­new­office­buildings­are­brought­online­during­the­year,"­noted­Paul­Blackman,­regional­director­of­the­officereal­estate­department­at­Colliers.­And­of­those­properties­which­came­ontothe­market­in­the­autumn­of­last­year,­manyare­still­less­than­half­full­–­a­discouraging­sign,given­that­most­of­these­were­completed­beforethe­crisis­started.­As­Cushman­&­Wakefield­Stiles­&­Riabokobylko­report,­more­than­60%­of­all­
In pursuit of tenants
office­projects­built­in­the­period­between­thesummers­of­2008­and­2009­will­have­80%­orgreater­vacancy­rates.­For­example,­according­to­Colliers­International,­two­Class­B­business­centers­–­the­Chaikovsky­House­and­Favorit­–­cameto­the­market­almost­completely­empty.­Andin­the­warehouse­sector­virtually­all­real­estateproperties­which­are­to­come­online­this­yearare­empty­(approximately­134­thousand­squaremeters­in­the­1st­quarter),­so­say­Cushman­&­
Wakefield­Stiles­&­Riabokobylko.­
At­ the­same­time­there­are­new­projectswhich­can­boast­high­occupancy­rates.­Someexamples­
of­ these­ include­ office­ complexes,such­as­the­White­Square­(fully­leased­to­largeinternational­companies),­Yuzhniy­Port­(fullyoccupied­on­its­opening­day­and­subsequentlysold­to­Sberbank),­Capital­City­(1st­phase­wenton­the­market­with­an­occupancy­rate­of­63.5%).­How­did­their­owners­manage­to­attract­so­manytenants­given­the­overall­decline­in­demand?­Was­it­by­offering­attractive­leasing­rates­or­arethere­other­ways­to­attract­customers?­
Retail:­frozen­demand­
Leasing­negotiations­for­retail­premises­alwaysinvolved­
compromises­ and­ mutual­ concessions.­Today­in­the­best­retail­projects­–­tenantsdemand­reduced­security­deposits,­in­averageprojects­–­they­also­demand­lower­rental­rates,and­finally­in­the­weak­ones­–­they­simply­abandon­them­altogether.­"Much­of­this­has­not­yet­
become­commonplace,­but­tenants­are­beingcourted­
more­ attentively­ than­ ever­ before,"notes­
Alexander­ Tishkov,­ national­ director,­
Russia­&­CIS,­Head­of­Retail­Agency­Departmentat­Jones­Lang­LaSalle.­Tishkov­has­seen­owners­of­some­shopping­centers­providing­greatconcessions­to­tenants,­especially­if­the­tenantis­a­well-known­international­retail­chain­whichcan­attract­financing,­other­tenants­or­increasethe­capitalization­of­the­project,­but­especiallyif­it­can­attract­the­most­important­element­–shoppers:­"In­such­situations,­the­rate­can­bereduced­
practically­ down­ to­ just­ the­ actualoperating­costs."­And­Omar­Gadzhiev,­managingpartner­of­Panorama­Estate,­adds­that­owners­oflarge­shopping­centers­often­grant­large­tenants­–­capable­of­increasing­consumer­traffic­tothe­center­–­free­rent­for­several­months.­
According­ to­ the­ London­ Consulting­ &­
Management­Company­|­LCMC,­in­new­shoppingcenters­rents­have­dropped­by­at­least­15-20%.­At­the­same­time,­brokers­say­that­even­thoughrates­are­important,­they­are­not­the­prime­consideration­when­making­decisions­on­openingshops:­with­dropping­consumer­demand,­thelocation­becomes­of­prime­importance.­­We­should­also­note­the­increasing­demandof­tenants­to­fix­foreign­currency­exchange­rateswhen­signing­leasing­contracts.­"Real­estateprices­are­directly­dependent­on­the­fluctuationof­exchange­rates­and­the­current­fluctuationsin­the­ruble­has­exacerbated­the­situation­and­
author:
Olesya­Kruglova­
........................
photography:
Dmitry­Chetverukhin,­
Jones­Lang­LaSalle,
Archive­CRE
­ Despite­the­decreased­activities­of­developers,­new­facilities­continue­tocome­onto­the­market.­However,­as­a­result­of­falling­demand,­many­of­theseare­less­than­half­full­today.­For­the­first­time­in­several­years­the­absorptionrate­is­well­behind­the­rate­of­new­construction.­Experts­are­convinced­that­inorder­to­attract­tenants­owners­will­need­to­make­significant­concessions.­
­ Vyacheslav­Kaminsky,­president­of­DVI­Holding­
– What concessions does your company make in order to lure tenants to the new
projects?­
–­As­regards­our­company,­we­are­ready­to­fix­all­the­rates­in­rubles­over­the­nextyear­or­two­and­to­assume­all­property­marketing­and­promotion­expenses.­Inaddition­we­compromise­the­rental­payment­over­half­a­year­or­a­year;­this­isinevitable.­The­main­flow­of­buyers­is­now­generated­by­movie­theatres,­bowlingalleys­and­children’s­leisure­centers,­so­we­are­willing­to­be­more­flexible­in­ournegotiations­with­these­lessees.­There’s­also­a­trend­to­sign­short-term­leasesfor­two­years­or­so,­while­we­earlier­signed­them­for­5-10-15­years.
led­to­uncertainty­in­the­market,"­says­Natalya­Oreshina,­general­director­of­Art­Properties.­"Thecurrent­unstable­situation­has­completely­paralyzed­the­decision-making­processes­of­all­players."­Therefore,­contract­articles­which­specifythe­currency­ratios­in­leasing­agreements­havebecome­more­flexible.­In­parallel­many­tenants­are­seeking­tohave­leasing­rates­based­on­a­percentage­oftotal­sales­turnover­with­only­a­minimal­baserental­payment­–­something­very­common­inthe­markets­of­other­countries.­One­exampleof­this­was­the­Eldorado­network,­which­last­December­sent­a­letter­to­its­landlords,­statingthat­in­January­it­would­pay­4%­of­its­totalsales­volume­as­rent­–­and­should­the­landlordrefuse­this­offer,­the­company­would­abandonthem­on­February­1.­Attitudes­towards­security­deposits­havechanged­radically:­landlords­are­more­willingnow­to­hold­negotiations­on­security­depositsand­advance­payments.­"Standard­practice­inthe­past­was­to­demand­pre-payments­of­2-3months­rent,­while­in­the­best­projects­andfor­anchors­this­level­was­4-6­months­rent­–but­today­many­landlords­are­content­with­justa­one­month­rental­advance,"­says­Oreshina.­According­to­Tatyana­Klyuchinskaya,­directorof­the­commercial­real­estate­department­at­
Colliers­ International,­ the­ deposit­ requirements­
for­ retailers­ are­ being­ significantlyreduced.­In­some­regional­projects­developersare­offering­discounts­for­the­first­six­months­–in­the­20-30%­range.­­
There­is­talk­even­of­landlords­providing­full­
"turn-key"­premises,­so­that­potential­tenantsneed­not­spend­money­and­time­on­finishingoperations.­Earlier­in­the­retail­sector­it­wascommon­practice­to­lease­just­"shell­&­core"areas­and­the­tenant­had­to­decorate­and­finishthe­premises­himself.­"If­an­owner­completesthe­standard­finishing­operations­then­it­is­possible­for­him­to­quickly­fill­the­building­and­hischoice­of­tenants­will­be­broader,"­commented­Alexander­Tishkov."But­this­increases­the­costsof­the­project,­and­hence­the­profit­levels.­Andshould­the­location­or­tenant­demand­a­more