Class C Offices – The Shortest Market
Class C offices are the most closed, most voluminous and, oddly enough, the most scarce market. Moscow small businessmen still have to rely only on rooms in former research institutes and basements. And although there are unoccupied and highly profitable niches in the low-cost sector, far from all developers undertake such projects.
Most of the most inexpensive and nondescript class C offices are in the Moscow office market. In total, the office sector is approaching 11 million square meters. m, of which only 4 million square meters. m are occupied by A- and B-class offices, of which the smallest part falls on A. Also in Moscow there are 24 Class B business centers – reconstructed buildings with a total area of 510,000 sq. m. m (IRN.ru data). In the first, second and third segments there is a shortage of premises. This is natural for an emerging market. But if segment A and partly B is more or less controlled – it lends itself to statistics, classification, is maintained by well-known consulting companies, is designed for clients from big businesses, and objects are created by reputable developers, then in the segment of cheap offices everything is exactly the opposite.
Sectors of C and B- offices, together approximately 8 million square meters. m, are considered the most disordered and opaque. Most of the cash settlements in them are carried out according to gray schemes and are not controlled by anyone, because the volumes of these markets and their other parameters are difficult to calculate. According to Alexander Limarenko, CEO of ABN Realty (ABN), contracts are usually concluded for 11 months and are not subject to registration. However, these rooms are in the greatest demand. Class C offices still remain in demand on the market, as evidenced by their almost 100% occupancy rate, Limarenko said. The need for inexpensive offices is, according to realtors, approximately 200,000 square meters. m annually. According to experts, a lot of companies tend to go there because of low rental rates. The main tenant of premises C and cheap B is small and medium-sized businesses, which are the most in Moscow.
“Kids” have a more acute problem with finding “a home for work” than consumers of an elite segment. There are practically no areas either redeveloped or built specifically for small businesses that would suit both size, comfort, terms of lease agreements, etc., on the capital market.
There is nothing to choose from
According to the federal law No. 88 “On state support of small business in the Russian Federation”, small business in Russia is considered to be a company in which 100 people (for the manufacturing sector) and 30, 40, 60 people for other common activities are employed regardless of the annual financial turnover. The Tax Code defines it as a small enterprise with an annual turnover of up to 15 million rubles.
Small businesses need inexpensive and mostly small spaces. According to Alexander Limarenko, this is 50-100 square meters. m. Rental rates in class C premises on average in the city are $ 200-500 per 1 sq. m. m per year (including VAT and operating expenses), according to ABN.
Apart from small businesses, applicants for cheap premises are developing companies or organizations that are profitable to occupy Class C buildings in industrial zones, where they can be placed next to production offices or warehouses. This, for example, printing, publishing, trading, pharmaceutical companies, said in the department of commercial real estate company MIAN. The premises that the market offers them today are the buildings of former research institutes, administrative institutions, factories, schools or kindergartens, as well as basements, which are whipped up for office. According to Maxim Zhulikov, a leading commercial real estate specialist at Penny Lane Realty, the concentration of factory buildings and research institutes falls in the north-east, east and south of the Third Ring Road and the Moscow Ring Road.
Large organizations that prefer Class C more often either buy a building or rent it for several years. Whereas a small business rents premises for a short period of time, which is why it is forced to constantly be in search of a new haven. “Small business representatives who come to our organization are literally moaning because of problems with the premises,” says Dina Krylova, head of the OPORA Rossii Center for Examination of Entrepreneurship Problems. “They have a difficult situation right now.” Firstly, it is impossible to rent a room directly from the city, as lease rights are sold and bought, and cheap municipal areas are subleased at prices close to market prices. Secondly, it is impossible for a small enterprise to acquire a municipal property. Thirdly, short-term lease agreements are concluded in offices of C, and tenants are often evicted from buildings, as the owners of the buildings change. ”