Russia : Saint Petersburg office marketAt a glance 2014
- Office space is being optimized
- Tenants are determining lease conditions
- First signs of investment decline
Office space is being optimized
Despite the economic crisis, overall demand for office space in 2014 remained stable, especially for grade B properties. Unsurprisingly Grade A offices in current conditions are less in demand because economic conditions have changed. Companies are now more cautious, renting less space than they had initially planned and opting for the most cost effective units. At the beginning of the year the most popular premises ranged from 200 to 500 m². At the end of 2014, demand shifted towards offices of 100 to 200 m². They also moved into offices with lower rents, or sublet part of their premises to offset costs. Companies are not choosing to move to locations that are perceived as showing excessive rents.
Tenants are determining lease conditions
During 2014 the office market became tenant friendly, a result of increased vacancy rates and weaker activity. This forced owners to be more pliant in determining rents and in 2015 this trend is expected to continue. There are few expectations of rental growth and because of financial difficulties, future rents will be established in Russian ruble only. New office centres, which are planned to open in 2015, will be faced with occupancy issues and it will be difficult to find the same volume of tenants as in 2014. Taking into consideration the current political and economic situation and complicated access to financing, new projects are not expected to appear in 2015.
First signs of investment decline
A predictable rise in yields and a reduction of investment volume appeared in 2014. The volume of real estate investment dropped to less than €280 million and office prime yields increased to 11.0% in 2014. This is believed to be only a beginning; this process is expected to continue in 2015.