Offices outside the Garden Ring are gaining popularity

23 October 2013

Only 17% of offices leased and purchased in Q3 2013 are located in the city center within the Garden Ring, say analysts of international consulting company Knight Frank. The share of office space located in the heart of Moscow has shrunk almost by half in the total take-up volume over the past two years: in 2010-2012, such properties accounted for about 30%.

One-third of the office space leased and purchased during the first 9 months of 2013 is located between the Garden Ring and the Third Ring Road. Almost half of the office space has fallen with properties located outside the Third Ring Road (inside MKAD).

Knight Frank analysts point out the continuation of decentralization process on the office real estate market of Moscow due to two main reasons. Firstly, decentralized options attract tenants with lower lease rates. Lease rates for prime properties comparable in quality may have an almost triple difference in price when the property is located within the Boulevard Ring and the MKAD. The decline of new construction volumes in the central part of the city resulting from the directive of Moscow administration is the second reason. Thus, the tenants of office real estate are offered a greater choice of large office blocks outside the city center.

In terms of demand, IT and telecommunications companies as well as organizations that provide B2B services were the most active ones during the first three quarters of this year. In terms of the structure of demand, analysts note high activity of TMT* sector companies: their share has not dropped below 20% for three years already. Between January and September, the companies operating in the field of high tech, media and telecommunications have leased and purchased about 23% of office space in the total volume of demand. The share of companies in financial sector has dropped compared to the same period of the previous year not exceeding 10%, while the share of B2B companies remained unchanged. At the same time, the share of manufacturing companies has been shrinking throughout the year, while companies operating in the field of production and supply of oil and gas have become more active in comparison with 2012.

Konstantin Losyukov, Director of Knight Frank Department for Office Property, remarks: “The demand for office space in the center of Moscow is traditionally high. However, decentralized business centers are actively involved in the competition for tenants, offering high-quality properties and affordable lease rates. This situation is facilitated by the dynamic development of new business districts located outside the Garden Ring.”

*TMT sector includes technology, media and telecommunications companies.