CB RICHARD ELLIS

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MarketView Moscow Offices

                            In terms of quality the new supply consists of 21% Class A
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The current occupier’s market gives tenants an




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MarketView Moscow Offices


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E M E A F P R M O S C O W O F F I C E S M V H1 09

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E M E A F P R M O S C O W O F F I C E S M V H1 09

  1. 1. CB RICHARD ELLIS MarketView Moscow Offices 1H 2009 OVERVIEW The fall in take-up on the Moscow office market in 1H 2009 was not as dramatic as had been anticipated at the beginning of the year. Take-up fell by 32% compared with 1H Quick Stats 2008 and is at the level of take-up in 1H 2006. Some office occupiers are taking advantage of the current market situation: the high volume of vacant space on the Change from market and decreasing rents provide them with a wide range of options for improving 1H 09 1H 08 their lease terms. Take-Up   Though the overall vacancy rate rose substantially during Q1 due to the high volume of delivery (930,000 sq m), in Q2 it leveled out due to a considerably lower delivery Vacancy   volume (235,000 sq m) and stable demand for office space. Rents  Despite the Q2 stabilisation of the vacancy rate, rental rates continued to fall in all sectors and submarkets of Moscow. This trend is set to continue during the rest of 2009, as we anticipate that approximately 600,000 sq m of new space will enter the market at Hot Topics a time when demand is unlikely to rise. This will result in a further rise in the vacancy rate, which will put downward pressure on rents. • Take-up in 1H 2009 fell by 32% NEW SUPPLY compared with 1H 2008 During 1H 2009 almost 1.2 mln sq m of office space was delivered to the market (defined as the moment a building receives its operational permits from the state). The majority was delivered in 1Q 2009. Among the major projects which entered the market • For the first time in Moscow’s office during this period were: market history the Class A vacancy rate (27%) has exceeded the Class B vacancy • Nordstar BC 80,000 sq m rate (19%) • White Square BC 74,000 sq m • Dvintsev BC 50,000 sq m • Office rents fell by more than 50% on • Metropolis BC Phase III 36,000 sq m average during 1H 2009 • Legion III 32,000 sq m • Victory Plaza 21,000 sq m • Ocean Plaza 6,500 sq m Take-Up, Delivery and Vacancy Rate Delivery Take-up Vacancy rate 2,0 25% 1,8 1,6 20% 1,4 1,2 15% m i l l i on , s q m 1,0 0,8 10% 0,6 0,4 5% 0,2 0,0 0% 2009F 2010F 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: CB Richard Ellis ©2009, CB Richard Ellis, Inc.
  2. 2. MarketView Moscow Offices In terms of quality the new supply consists of 21% Class A Distribution of Supply by Geographic Submarket space, 62% newly constructed Class B space and 17% renovated Class B space. Compared with previous years the 1 000 share of Class A in new delivery rose in 1H 2009 and the 900 share of reconstructed Class B fell. 800 In terms of the geographic distribution of new delivery, the 700 000 sq m zone between the Third Ring Road (TTK) and the outer MKAD 600 ring-road had the highest volume of new space (more than 500 50%). The CBD’s share in new delivery was, as usual, modest 400 at just 12%. 300 Over the rest of 2009 we anticipate that a further 600,000 200 sq m will be delivered to the market. Major projects for 2H 100 2009 include: 0 2006 2007 2008 1H2009 • Donmikov BC 73,000 sq m • Vivaldi Plaza 70,000 sq m CBD CBD>TTK TTK>MKAD Beyond MKAD Source: CB Richard Ellis • WTC Phase III 33,000 sq m Distribution of Supply by Quality • Principal Plaza 21,000 sq m • Arbat Center Phase II 15,500 sq m • Pavlovsky BC Phase II 12,500 sq m 1 800 000 1 600 000 • Riverside Towers Phase V 5,500 sq m 1 400 000 1 200 000 TAKE-UP sq m 1 000 000 Take-up in 1H 2009 amounted to 600,000 sq m, a 32% 800 000 decline compared with the take-up volume of 1H 2008. The 600 000 breakdown between Q1 and Q2 was almost equal. Due to 400 000 the economic slowdown, occupier behavior changed during 200 000 1H 2009 compared with the boom years of 2007 and 2008, 0 revealing the following trends in demand for office space: 2007 2008 1H2009 Class B reconstr. Class B new Class A • In terms of the distribution of take-up by geographic location, the amount of space taken up in decentralized Source: CB Richard Ellis areas fell. The share of deals in decentralized areas (beyond the TTK, including the area beyond the MKAD) in 2008 was 57%, while in 1H 2009 this figure had shrunk to 46%. Geographic Take-Up Distribution • Transactions on secondary space increased compared with those on newly delivered space: in 2008 these accounted for CBD CBD>TTK TTK>MKAD Beyond MKAD just 20%, while in 1H 2009 that figure rose to 41%. Newly delivered space, which requires investment in fit-out, is not 2008 15% 28% 42% 15% popular in current market conditions, accounting for this decline in take-up. •As a result of efforts by occupiers to try and adjust the terms of their current lease agreements to reflect new market 1H 2009 17% 37% 38% 8% conditions, a number of renegotiation deals occurred during 1H 2009 totaling more than 100,000 sq m, which would add another 15% to total take-up (renegotiation deals are 0% 20% 40% 60% 80% 100% 1H 2009 not included in total take-up volume according to CBRE standards). Source: CB Richard Ellis Page 2 ©2009, CB Richard Ellis, Inc.
  3. 3. The current occupier’s market gives tenants an MarketView Moscow Offices Take-Up Distribution: New and Secondary Space opportunity to improve their office facilities and/or reduce rent, and many are seeking to take advantage of the 1800 current market situation. We expect that healthy take-up 1600 dynamics will continue throughout the rest of 2009 and 1400 that the volume of deals will be equal to that of 1H or 1200 000 sq m 1000 greater: in Q1 most occupiers froze all plans due to the 800 economic turmoil, whereas now they have adapted to the 600 new economic realities and are ready to make real estate 400 commitments. 200 VACANCY RATES 0 2003 2004 2005 2006 2007 2008 1H The average Moscow vacancy rate at the end of 1H 2009 2009 was 20%. For the first time in the history of the new secondary Moscow office market we recorded a situation in which Source: CB Richard Ellis the Class A vacancy rate (27%) outstripped the Class B vacancy rate (19%). Class B accounts for over four-fifths Vacancy Rates by Class of all quality office stock in Moscow. In Class A vacant space, almost 30% was accounted for by sublease space. 30,0% Large office occupiers who pre-leased space one or two years ago (aiming to secure extra space for anticipated 25,0% future growth) now offer space for sublease. A large share of Class A sublease space was in the Prime CBD 20,0% area. Historically this area had the lowest vacancy rate of any Moscow office submarket: in early 2008 the vacancy 15,0% rate there was less than 1% as only small blocks of space were available, mostly through subleases. In August 10,0% 2008 the vacancy rate rose to 6% due to the delivery of Voentorg BC. The building entered the market only 50% 5,0% pre-leased. By November, the vacancy rate had increased even further to 11%. By June 2009 vacancy 0% rates in Prime CBD had reached 25% due to a Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 considerable increase in sublease offers. For the rest of 2009 Prime CBD Class A vacancy rates Class A Class B will not rise significantly. The space being offered for Source: CB Richard Ellis sublease in the area will be absorbed more quickly than offers under direct lease, and the amount of new delivery will be modest. Structure of Class A Vacant Space The average vacancy rate (for both Class A and Class B 400 000 space) was also high in decentralized areas: at the end 350 000 of 1H 2009 in the area between TTK and MKAD it was 20% and beyond MKAD it was almost 25%. 300 000 250 000 RENTAL RATES sq m 200 000 Office rental rates fell by more than 50% on average 150 000 during 1H 2009. At the end of 1H 2009 the average 100 000 asking Class A rates in the Prime CBD area were 50 000 approximately $750/sq m/year (excluding operating 0 expenses and VAT), while in other CBD areas and Oct 2008 Feb 2009 Apr 2009 May 2009 June 2009 outside CBD landlords were offering even lower rates. Furthermore, landlords began to show flexibility and a New space, shell & core Secondary space, fit-out Sublease readiness to offer discounts or other incentives (fit-out, rent-free periods), meaning that the achievable rates 1H 2009 Source: CB Richard Ellis even for Class A space in the Prime CBD area were even lower than the benchmark of $750/sq m/year. Page 3 ©2009, CB Richard Ellis, Inc.
  4. 4. MarketView Moscow Offices For more information regarding the MarketView, Average Class B rates in decentralized areas saw the largest adjustment as more please contact: than 1 mln sq m of newly delivered Class B space became vacant in the area. By the end of 1H 2009 Class B space in shell & core condition was achieving rental rates of approximately $250-300/sq m/year (excluding operating expenses and VAT). CBRE Research Moscow OUTLOOK The Moscow office market is nearing the bottom end of its first cycle as a modern Christopher Peters international office market of significant size. It is possible that the end of 1H 2009 Director of Research could turn out to be the lowest point of the cycle, when supply was considerably e: christopher.peters@cbre.com higher than demand. If demand stabilizes during the rest of 2009, we will see a reduction in the gap between demand and supply due to a fall in new deliveries, which will be constrained over the next few years due to problems with development Irina Florova financing. This will inevitably lead to a contraction of vacant space and a rise in Head of Analytics rents. However, the situation on the office market, and demand for office space in particular, is very much dependant on the wider macroeconomic environment. Thus, e: irina.florova@cbre.com our forecast is based on the assumption that the Russian economy will not suffer any sharp shocks over the mid-term. Office Services Team Average Asking Rents Elena Efremova Head of Corporate Services 2 500 e: elena.efremova@cbre.com 2 000 Irina Kuzlichenkova $/sq m/year 1 500 Head of Office Agency e: irina.kuzlichenkova@cbre.com 1 000 500 0 2H2009F 1H2008 2H2008 1H2009 2005 2006 2007 2010F Class A prime Class A Class B Source: CB Richard Ellis Disclaimer 2009 CB Richard Ellis Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, Trubnaya Street, 12, Moscow 107045, assumptions or estimates used are for example only and do not represent the current or future Russia performance of the market. This information is designed exclusively for use by CB Richard Ellis clients, and Tel. (7 495) 258 3990 cannot be reproduced without prior written permission of CB Richard Ellis.© Copyright 2009 CB Richard Fax (7 495) 258 3980 Ellis www.cbre.ru CB Richard Ellis is the market leading commercial real estate adviser worldwide - an adviser strategically dedicated to providing cross-border advice to corporates and investment clients immediately and at the highest level. We have more than 300 offices in 50+ countries across the globe, and employ 30,000 people worldwide. Our network of local expertise, combined with our international perspective, ensures 1H 2009 that we are able to offer a consistently high standard of service across the world. For full list of CB Richard Ellis offices and details of services, visit www.cbre.com Page 4 ©2009, CB Richard Ellis, Inc.

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