In the first and third quarters of this year, demand for Moscow City office space amounted to 23,000 square meters. This figure is 7.6 times lower than the 2021 level. There are many reasons for this decline in demand. These include, first and foremost, lower market activity and a shortage of vacant office space.
At the same time, there has been an increase in the revision of commercial terms and extensions of leased premises. In 2022, over a nine-month period, such transactions reached a volume of 37,000 square meters, exceeding the same figures for 2021. This situation is typical of a crisis. It is typically driven by market players' attempts to reduce costs and save on office space.
Despite the slight upturn in the office space market, today's demand in Moscow City may be the lowest in the submarket's history.
How the volume of new construction, transactions, and available space in Moscow City has changed
The share of vacant space in the business center remains low. However, in addition to rental offers, space available for sublease is also emerging, with an area of up to 34,000 square meters. These figures are 23% higher than the first quarter of 2022. Accordingly, the vacancy rate averages 6.4% (including hidden rent).
The vacancy rate is 3.6% (excluding subleased space), which is considered the lowest among all Moscow submarkets.
The maximum amount of free space is available in three complexes:
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City Point (50.2%);
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"OKO" (9.3%);
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"Northern Tower" (8.2%).
In other complexes, the vacancy rate is between 0% and 5%.
The main owners of the area allocated for sublease are the Federation Tower – 10,000 m², the Empire Tower – 9,000 m², and the Embankment Tower – 4,000 m².
Sublease space available, Q1-Q3 2022
The leading drivers of demand for office space have also shifted. According to the results obtained in the first three quarters of this year, companies in the "professional services" sector led the way in terms of demand, accounting for 31%. "IT and telecommunications" accounted for 21%. Private investors received the least (18%). From 2018 to 2022, organizations classified as "IT and telecommunications" consistently led the way, accounting for 40-50%.
As was the case last year, the share of demand coming from Western companies remains at its lowest level since 2018. Its indicators:
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I-III quarter of the current year – 8%;
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the same period in 2021 – 6%.
The average weighted rental rate for office space in Moscow City is 39,540 rubles per square meter per year. This is 8% higher than the previous year.
Leading Lease and Sales Transactions in the Moscow City Submarket (Q1–Q3 2022)
Olesya Malakhova, a member of Nikoliers' Office Real Estate Department, comments: "The Moscow-City International Business Center (MIBC) has been incredibly popular among tenants for several years now. Last year, the volume of transactions concluded here, at 200,000 square meters, was the highest figure in the submarket's history. This figure is currently declining. This situation is being driven by the overall situation in the country, the departure of some brands from the domestic market, and a long-standing shortage of available space. The current increase in sublease space is attracting interest from numerous companies looking to establish their own office in Moscow City."
