H1 results: demand for office space decreased by 20%

Offer

According to Maris analysts, as at the end of Q3 2021 total rentable area of Class A and B office centers in St Petersburg made up 3.89 mln sqm. Among them: class A business centers made up 1.26 million sqm (33%), class В – 2.6 mln sqm (67%).

By the end of 2022, developers have announced the commissioning of about 171 thousand sqm of speculative office real estate (leasable area).37% of speculative projects planned to be  commissioned this year have been suspended indefinitely as of the end of H1 2022. If the economic situation remains stable the gross volume of commissioning in 2022, according to preliminary estimates, will be 1.6 times higher than in 2021.

Big projects, planned, to be commissioned 2022

* commissioned in July 2022
Source: Maris

Demand

The volume of lease transactions in Class A and B office centers in H1 2022 was more 122 ths sqm (+4% to H1 2021, и –20% Q2- Q1 2022) according to Maris analysts.

Relative to the indicator of  Q1 2022, the level of demand for office space has decreased by 20%. At the same time, it should be noted that the main decrease in demand occurred in the segment of class B office centers (-20.2%). In the segment of class A office centers, this indicator was -18.9%.

The leading positions in the volume of demand were taken by companies in the oil and gas sector and the service sector. Companies in the field of construction and design expanded their presence in the market. Demand from the financial sector, on the contrary, decreased by 2 times compared to the indicator of the same 2021 period. IT sector has reduced the volume of absorption of office space in H1 2022 (in absolute terms – 53%).

In the 2Q of 2022, the trend of the beginning of the year continued: there was an increase in the number of transactions with office premises with an area of more than 1,500 sqm. In the 1H of the year, at least 13 transactions took place a total area of 43,000 sqm.

Vacancy

According to H1 2022 results vacancy has increased a little and is almost proportional to the reduction in demand (in absolute terms +28% to Q4 2021).

According to H1 2022 average vacancy rate in class A and B business centers was 7.3% (+1.6% to Q4 2021). At the end of June, about 285 ths m2 of office space in class A and B business centers were on display on the market.

In class A office centers the vacancy rate is 5.9% (+1.2 p.p. comparing to 2021). In class B 8.0% of the areas remained vacant (+1,8 p.p. to the vacancy level at the end 2021).

Rental Rates

The average rental rates at the end of July in class A office centers amounted to 2,060 RUB per sqm per month, inclusive of VAT and operating expenses. For the first half of the year, the rental rate in Class A business centers has slightly decreased (-3.7%).

The average rental rates in class B office centers amounted to 1,420 RUB per sqm per month, inclusive of VAT and operating expenses. A slight positive correction in the requested rental rates in class B office centers was observed in Q2 was (+2.2% vs Q4 2021).

Development forecast

Only due to the influence of the geopolitical situation in the region, according to optimistic estimates, about 70-150 ths sqm of office space will be released on the market in H2. So, the vacancy rate in the market will increase to 10% – 11% of the gross market volume, which in principle is not a critical value for the St. Petersburg office market.