Moscow office market to see further rental growth: CBRE

Moscow's office market saw a low volume of new supply, strong occupier activity, falling vacancy rates and a stabilization of rental rates during the first quarter of 2012, according to the latest research by CB Richard Ellis.

Just 111,300 m² of office space were delivered to the market in Q1 2012, versus almost 190,000 m² in Q1 2011. The total new supply for 2012 is expected to be as little as 700,000 m².

With new supply slowing, overall vacancy across all Moscow submarkets fell 1-2% from Q4 2011 to 12%. The lowest level of vacant space was in the CBD (9%), where 41% of lettings in the quarter took place. The zone beyond the MKAD, the ring road circling the City of Moscow, had the highest vacancy (17%), due to the large number of lease options available inside the district.

According to CBRE, the trends seen in Q1 will continue throughout 2012, with occupier activity set to increase, driven by greater confidence in the Russian economy. This is backed by recruitment data, which shows that companies are reporting an increase in staff numbers, and recent employment figures have reached pre-crisis levels. Should this trend continue, the office vacancy rate is likely to fall further to circa 7% by the end of 2012.

Taking into account the above, CBRE also forecasts further growth in rents for both Class A and Class B space, particularly in the best Moscow submarkets. CBRE expects prime Class-A rents will reach $1,300 per m2/year, from $1,200 at present.