Moscow becomes second most expensive office location in Europe
Moscow has overtaken London’s Square Mile as the second most expensive office location in Europe, as the credit crunch begins to curtail rents in London's financial centre.
Average annual rents in the Russian capital soared by 46.2% to €1,025.9 per sq m last year, with office development failing to keep up with the increase in tenant demand.
As a result, Moscow jumped above the City of London as Europe’s second most expensive office location after London’s West End, where rents rose 22.7% to hit €1,758.6 per sq m.
According to property consultant NB Real Estate, the UK branch of ONCOR, Moscow benefited from the commodities boom that began in 2002, which led to large domestic and foreign demand for office space in the city.
James Gillett, a City agency director, said: “This is the first time office rents in Moscow have surpassed the City, and is illustrative of how Russia has become a European economic powerhouse in recent years.
“Russian commodities companies are making record profits and this has intensified competition for scarce grade A office space. Occupiers are out-bidding each other, which is creating an upward rent spiral.”
He added that developers in Moscow were even converting former industrial and research facilities to office space in an attempt to meet demand.
In contrast, the office market in London's Square Mile has suffered with more modest rent rises as the financial tenants begin to cut back on expansion. Annual rents rose fractionally from €878.9 per sq m in 2006 to €890 per sq m, while experts predict falls this and next year.
According to the latest quarterly report by CB Richard Ellis, another property consultant, the top rents in the City have already begun to decline. It said that in the past three months, City rents fell from £5.57 (€7.00) per sq m to £5.54 (€6.80) per sq m as a result of take-up falling to 130,000 sq m, which was around a half of the previous quarterly take-up.
NBRE’s Gillett said: “A lot of financial institutions in the City scaled back their requirements for new office space as the credit crisis unfolded. This has taken the edge off strong rental growth earlier in the year. A fall in rental values in the City looks increasingly probable, which will allow Moscow to pull even further ahead.”
In contrast, CBRE predicted that West End rents – supported by more varied and robust leasing activity – remained stable in the past month at £11.1 per sq m.
--Write to dlazarus@efinancialnews.com
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