Sept. 7 (Bloomberg)—Moscow has the second-highest rents for prime office space in Europe after it overtook Paris and Zurich in the second quarter, according to a study by Jones Lang LaSalle.
The annual cost of renting commercial premises at locations such as the Red Square area jumped 60 percent in the 12 months to June 30 to about $1,200 a square meter ($112 a square foot), the study released late yesterday showed. London is the only European city with a higher rate, the property consultant said.
Demand for the best premises in the Russian capital, Europe’s largest city by population, is surging as companies hire more staff. Moscow has about a fifth of the office space of Paris, in part because there was no commercial property market prior to the Soviet collapse in 1991.
There is a huge undersupply of office space on the market,'' said Olga Baturina, a senior research analyst at Jones Lang LaSalle in Moscow.Developers became aware of the high demand too late.’’
Moscow has 12 million square meters of office space, compared with about 29.2 million in London and 48.8 million in Paris, according to Jones Lang LaSalle. The lack of space and high prices has forced some companies to move into converted factories and institutions. Moscow’s population is about 10.5 million.
Prime real estate prices will extend their increase this year and next before stabilizing in 2008 and 2009, when many office projects are due to be completed, Baturina said. ``Prices are unlikely to go down.’’
President’s Office
The most costly commercial real estate is around Red Square and the Kremlin, where President Vladimir Putin works. Some transactions have reached an annual $1,500 a square meter in the area, according to Jones Lang LaSalle.
Rents for London’s most prestigious office space amounted to about $1,710 a year, the survey showed. The rate refers to the most paid for premises of at least 1,000 square meters. Paris is third at $933, followed by Zurich at $819, Geneva at $771 and Dublin at $715. Amsterdam was 15th on the list with $415.
Moscow passed Tokyo to become the world’s most expensive city this year after accommodation costs surged, a survey by Mercer Human Resource Consulting showed in June.
Russia’s richest men, including Vladimir Yevtushenkov and Vladimir Potanin, the nation’s 8th and 9th wealthiest individuals, are seeking to exploit rising prices and demand for office space.
Potanin’s Fund
Open Investments, which is controlled by Potanin’s Interros Co., plans to raise about $850 million this month in a share sale partly for commercial real estate projects. Competitor Sistema- Hals, which is controlled by Yevtushenkov, may seek to raise around $1 billion for real estate projects in a November share sale.
``Office prices will rise further, but as a reflection of inflation and the strong ruble,’’ Open Investments Chief Executive Officer Sergei Bachin said today in a telephone interview. Open Investments may purchase a plot of land in the center of Moscow to develop a building, Bachin said.
The Russian ruble has climbed 7.7 percent against the dollar this year. Russian inflation may top 9 percent in 2006.
Moscow will gain about 1.5 million square meters of office space when Moscow City, the capital’s biggest commercial real estate project that will include Europe’s tallest building, is completed in 2011, Baturina said.
To contact the reporters on this story: Todd Prince in Moscow at tprince2@bloomberg.net ; Bradley Cook in Moscow at bcook7@bloomberg.net .