According to office market players, the increased interest in purchasing metropolitan offices will continue in 2024. This means that the demand for trust management will become greater, and companies involved in the operation of business centers will become more and more sophisticated in communicating with multiple owners.
Continuing the topic, last picked up, Business FM decided to talk with representatives of the consulting, development and management sectors of the office market. Do their statistics support the claim that in 2023, purchasing Moscow office space, if not altogether more attractive than renting, has at least begun to attract the attention of investors and end users ? What types of offices are buyers ready to purchase and what features of the property may put them off this venture? And is it more difficult to manage a business center that is not owned by any one person, but is literally filled with small owners?
Ekaterina Belova: “The consumer profile in the office market has changed”
Member of the Board of Directors, Head of the Office Department of IBC Real Estate Ekaterina Belova Confirms: Consultants are indeed seeing increasing interest in acquiring ownership of Moscow office buildings. “Based on the results of the nine months of 2023, the share of transactions for the purchase of offices was 21% of the total amount of purchased and leased space, which is 5 percentage points higher than the overall result of 2022. The share of acquisitions in class A in the total volume of transactions this year increased the most – 32% versus 24% based on the results of 2022. The total volume of transactions for the sale of category A offices, including business centers under construction, at the end of three quarters was 231 thousand square meters, which is more than twice the result for 2022, ”the expert emphasizes.
– There are several reasons for this. First, the consumer profile in the office market has changed. Russian companies, which previously had a positive outlook on purchasing buildings for their headquarters, began to prevail. Foreign companies that traditionally preferred to hire have left Russia or gone into oblivion. Today, there are more domestic companies in the demand structure, which means more purchasing. Secondly, real estate, including office space, is now being more actively treated as a defensive asset and, given the limited range of investment instruments, they prefer to buy offices.
– The people who? What do they really want to buy today?
— If we are talking about purchases by the end user, the first thing they look at is location. Western, north-western and south-western directions are preferred. Proximity to metro is very important. Buyers are still quite cautious about decentralization and location outside the Moscow Ring Road. If rental demand for shell and core is low this year and companies prefer ready-made offices, then in terms of purchase, concrete is viewed more favourably. After all, when a headquarters is purchased for several years, it is advisable to repair it and make its interior “suited to your needs.”
– And what next, what do you think?
– On the developers’ side, we are also seeing a decline in interest in the rental model. The introduction of new premises to the market as a whole is now very limited: according to the results of the three quarters of 2023, only 327 thousand square meters versus, for example, 1,699,000 square meters in 2014. Buildings for sale are dominated by a limited new supply mix. In the medium term, we anticipate that interest in purchasing office space and buildings will remain high, and this will be due, among other things, to the quality of the offer available in the market.
Elizaveta Ilyukhina: “Having few low-risk investment options, companies will invest in real estate”
During 2023, several requests have been lodged for the acquisition of offices, story continues Elizaveta Ilyukhina, head of the commercial department of West Wind Group, “Buyer activity remains high despite the significant increase in the key rate. Due to the latter factor, some transactions began to close more slowly than in the summer, but they did not stop completely, ”a BFM.ru interlocutor shared his observations.
— It is worth noting that many companies are now buying offices not only for their own needs, but also to preserve capital and, if possible, make money. Thus, among buyers of class B+ offices there are many Western companies that do business in Russia, but cannot withdraw funds to their country. Premium class offices are in demand among Russian players, some of them who were forced to “move” their assets here from abroad. The second part is domestic companies, whose rapid growth was triggered by the events of 2022-2023: they also leave the money earned in the country and invest in real estate. Also, let’s not discount those who buy offices to expand their businesses. As a rule, these are players for whom the current situation has accelerated development – banking, industrial, logistics, IT, state or near-state companies.
— Which office lots can be called the most popular today?
— At the moment their average characteristics are as follows: these are offices with an area of about 50-300 square meters in the central, Leningrad business districts and the west of the capital, always with finished finishes. It is important for the owners that the premises start “working” immediately without lengthy repair and arrangement costs. An advantage in the eyes of buyers is the presence of a company in the business center that not only carries out its own technical operations, but also carries out trust management of the rental business. Most “new wave” investors are non-major investors, so they prefer not to take risks. They either immediately purchase a ready-made rental business (GRB), or voluntarily transfer their premises to professional managers. In 2023, 60% of GAB buyers in our trade centers resort to trust management.
— In your opinion, what will determine which direction the office scales will start to move – renting or buying?
— We believe the office buying trend will continue in 2024. We see this, among other things, in new business center projects in the capital: they are built primarily for sale. The reasons are the same that affected the market in 2022-2023. With few low-risk investment options, companies will invest in real estate, including premium offices, as one of the safest assets. Renting will be of interest to small companies that do not have enough funds to purchase an office, as well as companies that are not sure of the stability of their work due to external circumstances.
— From the management company’s point of view, isn’t it more difficult to manage such objects?
— It is easiest for maintenance companies to manage buildings filled with tenants. In this case, they interact with a boss, making work, coordination of budgets, development of management concept, etc. easier. Another important nuance is the timeliness of payment. Problems arise more often if the business center has several individual owners or “couch” investors (investors with low levels of activity). People may take payment for management services lightly and not pay for months, as is often the case in the housing and communal services sector. Given that office management is a low-margin business, it is extremely important for management companies to receive funding on time. Professional owners who have been investing in real estate for a long time understand well how important the work of the management company and timely payments are. Nevertheless, management companies will have to adapt to new realities and work with a large number of diverse owners, since there are practically no business centers under construction in the capital where an owner would rent out premises. They cannot refuse “inconvenient” projects, because there is no alternative. The work of large management companies will be complicated by the fact that they do not have much experience in interacting with small owners. The solution could be the development of trust management on the part of developers. And then the company performing the technical operations will negotiate with the manager as a “sole proprietor”.
Denis Trotsenko: “Today it is necessary to draw up the management concept of a business center at the design stage”
“In short, it is certainly easier, more effective and calmer to negotiate with the property owner in the context of creating a single conceptual management framework. After all, the owner, in essence, makes decisions that are beneficial to both the artist and himself,” makes his position clear. Denis Trotsenko, General Director of Commonwealth Partnership Management Company, According to him, being the residual holder of an asset, the owner is interested in quick and effective decisions, especially aimed at increasing its value, and any so-called improvements are considered as stages of business development. But there are nuances in this matter also.
— Let’s assume that the owners of an office building are the same as those of an apartment building. Then the game of respecting interests begins. Of course, you can take the path of holding a general meeting of owners with all these agendas and other “dances with tambourines” with unpredictable results (fortunately, the Housing Inspectorate will not check the protocols). But seriously, in this case, taking important decisions may be delayed, blocked or challenged in court. It may also happen that a majority owner of an asset from abroad vetoes the decision, and that’s it.
— If we consider options for interaction between management companies and tenants?
“Then both the interaction model and goal setting may differ seriously. For tenants who do not own the property, any expenditure outside the framework of the calculated financial model, or any decision to accept additional costs, is difficult. But you can also talk to them. True, as practice shows, often the tenant does not agree to bear operational responsibility for the equipment, which is common within the framework of the operation of the entire building, and on important and systemic issues the tenant is not ready. , or does not want to or will not take this or that necessary decision related to capital problems, improvements in engineering systems, etc. The principle is simple: I will not invest in anything that is not mine.
Returning to the relationship between management companies and owners, of which there may now be a large number in office centers, Denis Trotsenko says: Many problems can be avoided if an extremely important decision is taken. “Of course, when there are multiple owners, the management process is much more complex and multi-layered. Therefore, initially, at the stage of designing office (and commercial) space in general in harmony with accommodation, draw up a management concept with all (as far as possible) nuances in operation, commercialization and methodology for making the final decision. Is necessary. , This will help in solving problems quickly. But this will not deny the multiplicity of decisions, estimates and the desire to monetize as much as possible everything that comes into contact with the asset, ”the expert concluded.