The office market in Moscow throughout 2020–2021 has seen some dramatic roller-coaster changes resulting in declines and comebacks of the leasing activity. The market was first affected by the sudden oil crisis when the price per barrel dropped below the all time minimum followed by the weakening of the Russian Ruble and then by global pandemic.
As the first wave of the coronavirus hit the market, it had almost zero leasing activity when almost all occupiers tried to achieve temporary or more long-term rent concessions and abatement due to the lockdown and office moratorium.
The decrease of demand has spiraled the need to change the use of office space and overall setup by reducing the number square meters to what is actually required. Some companies have switched from traditional office spaces to coworking or serviced offices where the conditions are more flexible, and the rent is paid per work station vs per square meter. This was a widespread attempt used by the tenants across the board to adapt and control / lower the occupancy costs.
The market as expected reached the bottom by H2 2020 and fully recovered by the end of 2021. Despite the general trend of working partially at home and partially in the office and using hybrid work schedules, the vacancy rate began to go down (estimated at 10% or lower depending on class and location of the property) driving the rental rates up especially in Class A properties.
The demand, no longer lukewarm, is gradually picking up on par with some announcements of the staggering number of square meters leased in Q3-Q4 2021. The new supply has been an outlier since 2015 and it is still scarce; however, it is expected to fill in the gaps as more and more investors are backing commercial developments along with residential.
The market will probably continue to grow but there is also a chance that it might shrink depending on the upcoming supply and demand. On the one hand there is a growing demand for office space including nonconventional spaces such as lab, service, flexible, and other formats. On the other if there is a lot of space delivered to the market but not enough demand, the development and leasing activity will be stalled again.
We assume that some restrictions associated with coronavirus and the new types of office accommodation (wacky office weekdays, social distancing, serviced office spaces) will continue to trend the market. The demand will most likely outpace the supply, and market rents and sale prices will remain on the same level as averaged at the end of 2021.
Here are some stats (including average rental rates and sale prices):
- Vacancy Rate: 10% and less than 5% in the Moscow City
- Rent (Class A): 35-40,000 ₽ net of VAT and OPEX- Rent (Class B): 22-25,000 ₽ all inclusive
Average Sale Price (Class A): 350,000 ₽ per square meter
Average Sale Price (Class В): 180,000 ₽ per square meter