"Real Estate and Investments. Legal Regulation", the journal

Issue 1, 1999

Prognosis of the Development of Uninhabited Buildings Rent Market of Saint Petersburg by the Year 2000

Lurie A.V., first vice chairman of the Saint Petersburg Committee on state property management

1. Subjects and Infrastructure of the Market

In St. Petersburg in 1999 more than 20 000 uninhabited structures were totalled by the general area of 36 000 000 sq.m. Private companies and independant private persons possess for about 500 separately placed buildings and plenty of the built in premises. Public sector of the uninhabited real estate within the year 1999 kept being reduced,though an urban and federal share of the property remains prevailing in the uninhabited fund.

The lease is the most widespread form of the relations in commercial range. For about 60% of office premises and about 80% of the trade premises are engaged by commercial structures by agreements of lease. From the economic point of view the lease means the cession of goods in temporary use for the payment. There is a historical division of the lease by lessors on primary lease, when the lessor is the state or the city as the subject of Federation and on the secondary one, where the lessors are the enterprises, organizations and private persons,having objects of lease in property, in operative management, economic management or long-term lease.

One of the basic results of the past year is a continuation of process of rapproachement of primary and secondary markets of the lease of the uninhabited Fund. This process was the consequence of realization of the law of St.-Petersburg dated 18 September, 1997 149-51 " About the order of definition of the rent charge for uninhabited premises possessed by St. Petersburg ". According to the law dated January 1 1998 the rent charge for objects of uninhabited fund was established on the basis of its market value with application of methods of the mass and individual rating. The order of the Ministry of the state Asset of Russian Federation 612- dated 29 June, 1998 such procedure of payments of rent rates is also obligatory for the objects of the federal property disposed in St.-Petersburg. According to the treaties in force, concluded up to January 1, 1998, the rate in 1998 were gradually increased, and only since January, 1999 all leasers of (CMSP) started to pay for the leased premises in a complete volume.

In the middle of 1999 (CMSP) demised 20 000 objects of uninhabited fund by the total area of 50 000 000 square meters. Stage introduction of the market rent rates has not resulted in considerable release of premises, leased from city, because:

  • First, in a case of excess rent rates of a market level it was stipulated the procedure of its revision by a method of individual rating;
  • Secondly, for the enterprises which dont have rent charge privileges, the procedure of lease of the leased premises in the sublease was essentially facilitated.

Nevertheless, in despite of the lacking considerable "outflow" of the leasers, the increase of the rent rates up to a market level has demanded some changes in the order of granting of objects on hire basis, that was resulted in amplification of marketing policy and opennesses of the city. According to the order of (CMSP) 1181- all free premises in the city property and offered for demising owe to be obligatory publicated in mass media editions.

Today the city is one of the major subject of the market of the real estate, not only defining the development of the primary market of lease, but influencing actively on the development of secondary market of lease of uninhabited premises. The prove is the fact, that at the period of crisis many owners have accepted the practice of work of for the purpose of definition of the rent rates and terms of payment.

brokers and realtors Of the public sector of the lease are extremely focused on possibility of effective demand (even more than the owners of the premises). Here are categories of clients, which get seldom in municipal sector of the lease: large foreign firms, Moscow financial and trade structures, actively developing Petersburg companies.

The basic sources of formation of the offers in public sector of the market of uninhabited fund are small privatization of state enterprises. While the period of small privatization more than 6 000 enterprises became private, in the majority of cases they concluded the rent contract with the right of future ransom of premises. Nowadays the rates of privatization of a state ownership have declined, because in 1997 most of liquid objects were already privatizated. In general today are privatizated the premises, which till 1984 were ccupied by the small state enterprises, sold by tenders of Fund of asset to the private owners. There are many difficulties in privatization of these premises, therefore the process of conveyance of property from the state to "assignee" takes as usual a lot of time.

Other source of formation of objects of lease is the transfer of premises from residential fund to the uninhabited one,which now continues developing. This process is also difficult from the legal and organizational point of view. It is often difficult to prove even a possibility of such transfer, however the premises, which uninhabited use value is much higher the residential one are more often placed in uninhabited fund.

At last, the third source of new premises of uninhabited fund of city is the new construction. Uninhabited premises in ready for use construction houses, have usually made out property rights (or in process of registration) and are frequently leaseed by the owner.

The considerable part of uninhabited fund compose the objects occupied by state enterprises and establishments of various levels. Having a large part of the premises in operative management, in economic management or long-term lease, those legal persons also participate in formation of the market of the lease with the consent of the owner.The essential stimulus is the reduction of volumes of manufacturing of the majority of large industrial enterprises,the problems of financing of some state establishments (state scientifically research institutes, establishments of of the Defence, national education establishments etc).

At last, the leasers of the uninhabited fund belonging to the city lease their areas in sublease with the conclusion of the tripartite agreement. There are no essential limitations for this now,that is why the large part of municipal leasers actively use sublease for raising of productivity of the city areas and for formations of sources of payment of the lease to the city. So is formed the market offer of the secondary lease of uninhabited premises.

The subjects forming the offer of the lease of uninhabited premises are diferent by the searches, and possibilities of granting of the qualitative premises and accompanying services.The prevailing one is the offer of organizations having financial difficulties and attempting them at the expense of the leases of free areas. Those lessors offer premises of low quality, frequently on territory of industrial enterprises or in their administrative buildings. They do not usually attempt to meet individual requirements of the leasers or to create a complex supplementary services, on the contrary, the low level of the rent rates is compensated by conducting of repair at the account of the leaser or by including in municipal payments of the leaser their own expenses. The market is fed up with illiquid offers because of those. At the same time, there is a market deficiency of the rather good quality objects at the low prices.

The other pole of the offer of the lease is represented by the enterprises, professionally making the management of the real estate. Those are business - centres, office centres of high level, big trading houses, specialized warehouse complexes. This sector is characterized by the high quality of the granted premises : good finishing and accompanying services. The rate of lease for such premises can reach 800 US dollars for sq. annually(for business premises)and 600 US dollars for sq. annually for offices (including municipal services, security, cleaning etc).

There are less acting subjects in the sector of the commercial real estate in contrast to the room market. The market of the lease of uninhabited premises consists more than of 5 000 legal persons wishing to lease this or that premises. The considerable differentiation has also appeared recently:

Newly founded enterprises accept the premises of a low level of finishing and are undemanding to accompanying services, first of all they are interested in a small premises with the low rate of the lease, well situated for deployment of business, they are less interested in prestige of the place they pay more attention to transport availability, closeness to metrostation or to one of the basic highways. The main features of those groups of the leasers are low financial possibilities and the big risk of insolvency. Such enterprises form the demand for small business, office premises in business - centres of the lowest level and administrative - industrial premises,on the territory of enterprises.

Big foreign and Moscow firms rarely found on the St.-Petersburg market demands, first of all, the premises in prestigious places and having a high level of finishing. Such leasers often need the areas or complex of premises in different parts of the city. Those potential leasers have high financial possibilities and very high demands, which the lessors are not always ready to meet. For first half of 1999, in comparison with the beginning of 1998, this group of the leasers is characteristic by displacement of demand from the foreign companies on big russian firms,which formulate much better their demands and are better guided in realities of the russian market.

The average group is formed by the developing local companies and by firms -representatives of other countries and regions, which by virtue of their scale or business strategy in contrast to the firms of the previous group do not pretend to be something special. Those firms know usually well the market, their real needs and financial possibilities. They do not want premises of low quality, but they want to pay for premises in business centres of a high level but they arent ready to participate in "Competition of purses" for the best trade areas. Those potential leasers study the market in details before deciding,they collect and carefully analyze the offers.

The special group is composed of the companies forming the demand on large and average industrial and warehouse objects. Passableness, prestige of a place and availability and qualitative finishing mean nothing for them. But the higher demands are presented for entrances,security, good infrastructure, communications. August and October 1999 are characteristic by high activity of demand on the part of such leasers,but there is no adequate offer on the market. The maim reason of its absence is a mess in the rights for the offered on hire basis real estate.

It is clear that, the market of the real estate depends on authority. The concept of the real estate management in St.-Petersburg was developed and is accepted at the end of 1994. It included the creation of a stable normative base, formation of the advantageous conditions for the investors, the approach of the "state" rate for the lease of ground and its improvement to the market one,transition to a market system of a rating at the sale and taxation of the urban real estate, creation of information system. Large The major part of all those projects is realized.

Today the Petersburg system of registration of the objects of the real estate is the most perfect in Russia, all land lots, buildings, on the territory of the city, owe to be registrated. By the order of the governor 283- it is established the order of grant to the investors of the objects only according to a market value by means of investment tenders. In June, 1998 two laws are accepted :" About state support of investment activity in St. Petersburg" and "About the investments in the real estate of St.-Petersburg", which have defined the rights and the responsibilities of the participants of investment process. Simultaneously is extended the list of the fiscal incentives, granted to the investors. Such a system of the transfer of state property promotes the development of market relations on the market of the lease, because it creates the sector of lessors economically competent and interested in the most efficient use of the real estate.

The positive in the Petersburg system is that all the conflicts between administration and subjects of the market are solved by civilized way in Court. The consideration of the most typical conflicts, such as the the suit of recovery of rent payment or claim about ejectment, do not represent problems for (CMSP).

In a municipal administration of inventory and rating of the real estate () is organized the monitoring of secondary market of uninhabited premises. Now the database contains information assembled during three last years systematized and authentic about more than 3000 bargains and offers of commercial objects of the real estate, more than 1800 are referring to the lease. It is for the first time in Russia that the base of final pays is formed by the methods of a mass rating of market value of the lease of the real estate. At the same time the leasers were granted by the rights of revision of the rent charge in cases, when its value differs from the market rate. It guarantees the rights of the leasers of municipal uninhabited fund and the conditions for the further development of market relations. It is worht attention that despite of the general raise of the rent rates by the contracts in force (especially since January 1999) and practically declaring character of their revision, the amount of such references to regional agencies in 1999 was minor (about 300 applications or about 1,5% of the total amount of the agreements of ).

So, it is possible fo say, that the advanced stable market structure of the lease of uninhabited real estate has been formed today in the city.

2. Analysis of Development of the Market of the Lease in 1999

The dynamics of development of the market in 1999 appeared at the financial crisis of August 17, when economic and political instability in combination with the fluctuations of the increasing dollars rate have resulted in sharp lowering of the effective real estate demand (in dollars). However the inertness of the market of uninhabited premises has resulted in gradual (instead of sharp, as on financial or consumer market) lowering of the prices of the lease. The dollar prices in November, 1998 were on the level (on the average, in % from the level before the crisis) 66-68%, in January, 1999 on the level of 55-65%. In the table 1 the results of processing of interrogation of the operators of the market are indicated led by the employees of in January, 1999. It evidently reflects a status of the market at the beginning of the year.

The table 1. A status of the market of uninhabited premises of St.-Petersburg at the beginning of 1999 (100% is the level of the beginning of 1998)
Parameters business premises office premises wharehouse premises
Activity of demand 47%54%50%
Price level of demand51%50%48%
Activity of the offer91%105%98%
Pr. level of the offer68%65%66%
The real bargains54%49%48%
Price level of the bargains63%55%65%

Thus, at the beginning of 1999 the market of the lease of uninhabited premises of St.-Petersburg is in a deep crisis.At the same time, the market has demonstrated the survivability, because the financial crisis didnt caused the fall of the dollars rent rates. The beginning of year has shown, that the lease of the most liquid objects (places of business on brisk highways) has not practically suffered from the crisis. The market began adapting to the new economic conditions. Life has forced the holders of the office industrial-storage rooms to be more flexible in leaser relation: monthly review the rate of the rent, use for the final pays the relative units dollars equivalents, the rent agreements in roubles have appeared. At the beginning of 1999 The places of business were still valued only in dollars, but a revision of rent rant or change of the leaser with the simultaneous lowering of the rate became ordinary things. Some owners were waiting for, other gave up or managed to find clients on the rates before the crisis. Sometimes the rate of the premises of the equivalent consumer value differed in the same building.

In spring the obvious revival began on the market of uninhabited fund. The complex political conditions could not prevent the raising of activity. The qualitative leap was in April - May, when the volume of demand in comparison with a March level has grown approximately on 30%. The rent rates, lowering every month in despite of the dollars stabilization, were at last frozen. The leasers tried to make out the long-term agreements as it had been before. The market has stabilized and seemed to leave the crisis state. However this market is poorly similar to the system which had existed before August 17 (having overheated conjuncture, speculative prices and incredible standard of profitability at the investment in dot objects).

For the nine after crisis months the new market was formed with the other rules of game,new client preferences and other pricesrate.

The rent rates have reached a recordly low mark. At the period from April 14 till April 24, 1999 the municipal government of inventory and rating of the real estate carried on an interrogation of realtors organizations about a status of the market of uninhabited premises in January - April 1999. 10 organizations have taken part in interrogation. The analysis of the received data (the Table 2) let us thinking, that on the average the prices of the real bargains of the lease of uninhabited premises in April, 1999 in comparison with the beginning of year have declined on 4-15%, in dependance on the sectors they are on a level of 50-56% from this one before the crisis. Such lowering of the prices was accompanied by lowering of the total amount of bargains up to a level of 45-52% from this one before the crisis. Consumer demand (price level of demand) is on the level of 43-48% from the level before the crisis at a price level of the offer 55-68%. Such break of demand and offer prices causes the low activity of the conclusion of bargains. The analysis of a supply and demand shows, that at the offer level of 109-123% from this one before the crisis the level of the activity of demand makes 54-72%, that is at 34% for the trade and at 44% for industrial - warehouse objects higher than at the beginning of the year. Such activity of supply and demand proves the real revival and we can see tendencies for the cease of the rent lowering.

The table 2. A status of the market of uninhabited premises of St.-Petersburg in April, 1999
Parametersbusiness premisesoffice premisesindustrial and warehouse premises
Activity of demand63%54%72%
Price level of demand48%45%43%
Activity of the offer109%123%109%
Price level of the offer68%61%55%
The real bargains47%52%45%
Price level of the bargains56%51%50%

In September - October the market has ceased to be dot. Today the various objects are demanded,the leaders of demand are the industrial premises. The rialtors unanimously think, that a point of crisis is overcame. The analysis of inventory and rating of the real estate was conducted by the urban administration at the period from October 1 till November 12,1999. 28 realtors organizations were interrogated, the results let us tell that in October the average prices of real bargains of the lease of trade and office premises have increased at 3-5%, in comparison with the april prices. (see the Table 4) and the average prices of real bargains of the lease of industrial and warehouse premises have declined only at 2%. In general the rates of the lease of the uninhabited objects make 49-59% from the level before the crisis(see the table 3). The autumn of 1999 (in comparison with the spring) is characterized by the increasing of activity of demand and offer of uninhabited premises. The lease demand has increased at 17-35%, and the leased offer at 6-13%. The leader of demand is the trade and the leaders of the offer are offices. The trade is the first by the quantity of the real bargains, in this range the activity of the real bargains has increased in comparison with April at 12% and has reached 52% from the level before the crisis.

Practically all participants of interrogation predict further increasing of a price level in all sectors of the uninhabited real estate. They suppose that at end of the year the average level of the prices of trade premises will increase at 12%, of the office premises - at 8% and for industrial and warehouse at 7%. Thus, realtors expect, that at the end of the year the average prices will be on a level of 53-68% in all the sectors. They also think that the greatest rise of prices is expected in trade, and the least in industrial and warehouse sector of the real estate.

The table 3. A status of the market of uninhabited premises of St.-Petersburg in October 1999
Parametersbusiness premisesoffice premisesindustrial and warehouse premises
Activity of demand86%63%91%
Price level of demand52%48%42%
Activity of the offer115%139%116%
Price level of the offer77%64%55%
Real bargains52%56%47%
Price level of the bargains59%53%49%
Forecast by the beginning of 200068%61%53%

The table 4. A status of the market of uninhabited premises of St.-Petersburg in October, 1999
Parametersbusiness premisesoffice premisesindustrial and warehouse premises
Activity of demand135%117%125%
Price level of demand109%105%96%
Activity of the offer106%113%106%
Price level of the offer113%106%101%
The real bargains112%107%105%
Price level of the bargains105%103%98%
The forecast by the beginning of 2000117%111%105%

Trade Premises

This sector of the market has less suffered for this last year. Shops, even if they are cheap,were ssked even in the months after the crisis. Since the summer the demand for the lease of the trade premises is kept on on the stable high level and is in the lead,stably exceeding the offer, in comparison with the demand for other kinds commercial objects.

At the beginning of the year the market of trade premises is on average at the level of 63% from the level before the crisis. In the first quarter of 1999 the price kept to be reduced up to the level of 56%. At the end of the first quarter the stable tendencies of stabilization of the prices were observed, moreover, in April the favorable conditions for some price rise (were formed for little trade premises about 100 sq.m.) placed in checkpoints.

In general in May and July the prices kept unsignificantly reducing. In August the market waking up" after summer holidays was more active, the demand has increased,that has not slowed down to reflect on the price level and quantity of the bargains. The price of the bargains in September have increased at 4%,in comparison with April. In October the realtors have noted the further 1% raise. The interrogations of the realtors show, that at the end of year the prices rise will be keeping (at 12%), as a result the prices can be stabilized on the level of 63%-73% from the level before the crisis.

Today not only 100-meter classical objects are demanded, but also the large shops. The premises up to 300 sq.m. have the high fluidity.The Supermarkets (from 1 000 up to 1 500 square meters.)are also often demanded. The truth is that today the clients present very high demands: a through passage place, availability of the equipment, price no more than 1 000 dollars USA per one month. It can be rather difficult to execute such demands, especially with allowance for the tendencies of a prices rise for small trade premises.

The merchants of different industrial goods became more active.

The premises for public food are very popular. And their level is very different level - from modest snackbars up to conceptual restaurants. The different areas are demanded - from 50-100 up to 500 sq.m. The demand for objects of gaming has increased- from several meters in supermarkets up to separate buildings (not less than 1 000 sq. ).

According to the real bargains in August and October of 1999 the rate of the lease of trade premises made:

  • At the centre: on the Neva prospectus - 300-800 US dollars for one sq. m annually, on Liteiniy and Vladimir pr -200-400 USD/sq m annually;
  • On the Bolshoi prospectus of Petrogradskaya side - 220-350 US dollars, On Kamenoostrovskiy prospectus at metrostations "Gorkovskaya" and "Petrogradskaya" -160-250 US dollars;
  • Not the central highways:premises on Grajdanski and Lynacharskovo pr.from 100 up to 180 USD/sq.m. annually; Leninski, Industrialniy, Bolsheviks and Novocherkassk prospectuses-from 60 up to 120 USD/sq.m. annually.

Office Premises

The autumn revival has kindled office market. The rates have ceased to be reduced, and in September - October the rates for the best-selling premises were stably increasing. The largest part of the demands is still for the small premises (20-50 sq. ) at moderate prices, about 5 US dollars for sq. per one month, with this the clients expect having as minimum 2 telephone lines, but in October it became rather difficult to lease such promises in a good condition.

At the beginning of the year the market of office premises, was on a level of 55% from a level before the crisis. In the first quarter of 1999 the prices kept to be reduced up to 51%level. In the second quarter the prices kept to reduce, though it was slowlier, than in first half-year after the crisis. In the third quarter the stabilization of prices began. In September the prices "have risen" up to 50% level. In October the growth began (on the average at 3% monthly), and the realtors predict the further rise in office premises prices at 11% in comparison with April. Thus, at the beginning of 2000 a price level of the lease is expected on a level of 56%-66% from a level before the crisis.More considerable,in comparison with trade,lowering of dollars prices and greater period of adaptation to crisis for office premises is explained, first of all by the fact that the demand for offices depends more on a level of development of business organizations, leasing them, than on a level of consumer demand of the population, and as about business ( The various kinds of a consulting, wholesale,connected with import, tourism etc) it adapts much slowlier for economic shocks, than the population (historical events prove, that during the crises a large part of the able-bodied population is in a range of circulation, favouring to maintaining of effective demand).Moreover the lowering of demand for offices was caused by the increase of offers of office areas (in general of a bad quality), which began before the crisis and was considerably amplified by it at the expense of the active "appearance" of the big enterprises on the market of administrative premises (the crisis has learned to count money and promoted involving in economic turn-over of unused or not very efficiently used premises). The abundance of the offers of the lease of cheap offices is favoured by the consent of leasers on the absence of state registration of the bargains,it allows the lessors not to think about rights on the real estate offered on lease.

The primary clients of office premises are:

  • Companies specializing in a range of the wholesale;
  • Companies specializing in a range of telecommunications, software etc;
  • Consulting companies;
  • Financial structures;
  • Noncommercial organizations.

The large russian companies - non-residents of St.-Petersburg and big foreign companies were in 1999 rather rare clients, though in September - October the stable demand was observed by their side.

The small firms - leasers usually prefer the variants with moderate cost,paying less attention to the prestige, on the contrary the big firms, require the prestige,convenience of disposition,prestigeous neighbourhood. The majority of the lease contracts are concluded for inexpensive premises near the underground stations. Practically the cheap offices in distant and industrial zones are illiquid.

The basic demand is on the small and average premise by the area of 50-300 sq.m. The large premises (about 300 sq. ) are as usual leased by the developping companies. The demands on office premises of the area more than 1000 sq. are very rare. The process of transition of the flats into uninhabited fund doesnt stop. A large part of the bargains of the lease of the office premises is not fixed by marketing consultants: such bargains are made directly, without intermediators.

The market of office premises of St. Petersburg has rather short history. Itbegan to be formed at the end of the years 80 at the beginning of the years 90. It was caused by the demand of the first foreign companies on the Russian markets. The typical form of market turn-over of office premises in St. Petersburg is lease. Is characteristic The practically complete absence of new constructions as the factor of creation of the new office areas; the basic source of expansion of the office space in St. Petersburg is the reconstruction of buildings for office purposes and the reequipment of the offices of organizations and enterprises stopping their activity.

Considering the structure of the market of the lease of the office premises, it is possible to ear-mark four basic segments:

1. The flats appropriated for offices and other built - in premises in apartment houses. Obvious advantage of this segment is the disposition in prestigious centre, with the optimum transport availability and high developped social infrastructure. Lacks are the deficiency of premises with qualitative level of finishing, sometimes with unattractive neighbourhood and absence of a complex services granted by business - centres. The prices are very different: from 40 up to 300 USD for sq. annually, depending on the prestige of a site, level, finishing. The share of this segment in the whole structure of the market office premises makes 10%.

2. Premises in administrative and industrial buildings of the enterprises, and . Clerical premises are leased by them (in a case if a building is redeemed) or in the sublease (at availability of the admittances) to various Russian and foreign firms which are not demanding high quality of finishing and accompanying services. Some of them act as informal office centres.The measurement of the offers in this segment of the market is difficult because information on the leaseed areas and the leasers is sometimes closed and the premises are not exhibited on the open market. The rates of the lease rent from 20 up to 200 USD for sq. annually. The rather big variety in a prices range is explained, except for the discrepancies and technical status of premises, by the large differentiation of conditions of lease grant. The leaser, except for rent payments, can bear additional charges (repair of the premises, infrastructure and the buildings on the lease territory etc.) In this case the lessor is constrained to reduce the rate of the lease for saving the leasers. A share of this segment in structure of office market of the city is about 20%.

3. The municipal premises. The city remains the largest owner of leased uninhabited premises. Situation on this market is adjusted by administration of the cities. The leasers pay to the lessor only rental payment.A big part of the leasers, which activity is referred to the socially important by the House of Assembly, has the discounts on a market rent payment,stipulated by the application at the final pay statutory appropriate factor of the social importance. During the year 1999 the municipal leasers were still the least mobile sector of the market. The high rent charge at low efficiency of the business constrains this category of the leasers to search the subtenants. A share of municipal leasers on the office market is about 60%.

The specialized business - centres and office centres. A part of demand (about 10%) is supplied by the segment of business - centres and office centres. Now about 40 Objects " by the general area about 70 thousand sq.m. function in the city. The most attractive here are the business - centres offering, except for the high-quality of premises,the appropriate spectrum of services. The rent rates vary in a wide range - from 100 up to 600 USD for sq. m annually. There are business centres of Class "", appropriate to the international e standards of the highest level. The first city business - centre completely responding the demands of this class is Nevskiy, 25, it is possible to name also " The Sweden House "and" Northern Capital House ". In those business - centres the lease rates are the highest (at a level from 300 up to 600 USD for sq. m annually). The business - centres of a class "" are the offices on Italianskaya 5, and also such complexes, as , Len-Yuton (first range), "Nevskiy 80", "Europa House", Shpalernaya, 36, Moyka, 58 and some others. The rent rates vary from 160 up to 500 USD for sq. m annually in dependences on a site, view from a window etc. But the most numerous are the business - centres of class "" and office centres. The business - centres of class "" are "Inform-Future", "Prin", "Neptun", "The Tavrichesky", , VMB and others. The rent rates of those business are from 100 up to 300 USD for sq. m annually. At last, the business - centres of class "D" are the objects on Stachek, 47, Gagarina, 1, Smolatchkova,19, Narodnovo Opoltcheniya, 2, Lermontovskiy, 44,Novolitovskaya, 15, Shaumyana, 18 etc. The absolute majority of those projects was realized by means of reconstruction and re-equipment of existing office buildings and hostels, that has hardly limited possibilities for design decisions. The rent rates of centres of c class "D" are from 60 up to 120 USD for sq. m annually.

All business - centres offer, except for the high-quality premises,defined complex of services: 24 hours security, various systems of telecommunications, rooms for negotiations, restaurants and bars, cleaning of premises,protected parking, hotel and health complexes. The quality of the offered services appreciablly differs in various centres, that is reflected in the rent rates and filled in.

A level of the rent charge for office premises depends, first of all, on the quality internal finishing and prestige of the office centre. The prestige is defined by affinity to downtown, by transport availability and availability of the first class leasers. The rent rates in the office centres in prestigious downtown, make 200-600 USD for sq. m annually, in office centres far from the city centre - 50-250 USD sq.m. annually. the VAT is usually charged over the named rent rates. Fix costs on management, on setting of telephone lines, municipal services can also be paid separately. The payment for a parking is usually levied separately (350-1000 USD a place annually).

Industrial and Warehouse Rooms

At the beginning of one year the market of warehouse and industrial rooms was at a level of 65% from the level of 1998. In the first quarter of 1999 the prices reached the level of 50%, and the demand for such premises has increased at 20-22%. In the IId and IIId quarters, in despite of further increase of demand (at 19%) the price level reached 49%. At the end of the year some price rise up to a level 50%-55%. is expected. The further situation is difficult to predict, because the situation for September is characterized by the rather high level of demand on industrial and warehouse premises which does not find adequate offers. Despite of an abundance of the lease offers, the big enterprises of city have no real desire to use efficiently their real estate. The big part of the bargains is broken owing to non prices reasons: absence of registration of the rights on the offered real estate or inadequate conduct of the management of the enterprise during the conclusion of the contract. Unfortunately, the practice of restructuring of enterprises and lowering of the incidence of taxation from non used areas doesnt create the economic incentives for upsurge of productivity of existing industrial real estate.

Conclusions and tendencies of the second half of the 1999 year.

  • Financial crisis which has knocked the russian economy down in August, 1998, has rendered the influence on development of the market of the lease of uninhabited premises of St.-Petersburg. The analysis of dynamics of developpement of the market in different sectors allows to make conclusion, that the market of the lease of uninhabited premises in the second was stabilized on a new price and structural level, and in the second half of 1999 the prices rise in practically all the sectors has been observed.
  • Trade real estate, as the most dynamical sector, will be probable stabilized at the end of 1999 at a level of 63%-73% from the level before the crisis for the market of lease and at the level of 66%-76% for the market of sales.
  • In the first half of the year the prices for the office real estate, by virtue of considerable inertness, kept reducing, however in September this fall has stopped and the stable growth of the rent rates began.
  • At the of the year the prices for industrial and warehouse real estate will keep unsignificantly increasing and will probably reach the level of 50%-55% from the level before the crisis. The dynamic of the further growth and level of subsequent stabilization of the prices depends not on the level of demand on the industrial areas,which steadily grows, but on the real desires of the economic subjects to use efficiently the premises and on the solutions of problems of registration of the rights on the property involved in economic turn-over of the real estate.

3. Forecast of the Market of the Lease for 2000

The analysis of dynamics of development of the market in the year 1999 proves that in the first half of the year the market completely adapted to the crisis phenomena of 1998 and since autumn the stable raising is predicted in all sectors of the market, which will probably keep raising within all the year 2000.

The market of uninhabited premises of St.-Petersburg includes three sectors differentiated by types of functional use of the objects: the market trade, office and industrial warehouse premises. Each sector has its features of pricing, therefore the forecast of dynamics of development of each sector will be made separately.

In first half of 1999 the offices price kept reducing, however in August the market "waking up" after summer holidays was more active, the demand has increased, that had an effect on a price level and quantity of the bargains. In September the price of the bargains have grown on 4%, in comparison with April.

In October the realtors have noticed the further 1increase. The interrogations of the realtors show, that, at the end of the year the prices rise will be keeping on the level of 12%, therefore at the end of the year the price increase can be stabilized on the level of 63%-73% from the level before the crisis. After " a lifeless season " in the second half of January 1999 - February 2000,the prices of the lease and sale of the trade premises, for want of strong revolting political effects, will keep slowly increasing, refleting all seasonal changes. The presidential elections will probably influenc on the growth of the rates of the lease of trade premises in 2000. The experience of 1996 shows, that at this period the market "becomes transfixed",the bargains are rare, though after the elections the spurt of prices owing to realization of the postponed demand is possible.

In the first half of 1999 the market of office premises kept falling, in the third quarter the stabilization of the prices began. In September the prices "have risen" at a level of 50%. In October the growth began, and the realtors predict the further rise at the end of the year. Thus, at the beginning of 2000 a price level of the lease is expected on the level of 56%-66% from the level before the crisis. In the first half of 2000 it will be probably the prices rise with the subsequent stabilization at a level of 65-75%. The more considerable in comparison with the trade, dollar lowering of prices and greater period of adaptation to crisis for office premises is explained, first of all, by the fact that the demand of offices depends more on a general level of development of business of the organizations occuping the premises, than on a level of consumer demand of the population, and a business (various kinds of consulting, wholesale linked to the import deliveries, tourism etc.) adapts slowlier for economic shocks.

Conclusions:

1. The analysis of dynamic of development and tendencies of the market of the real estate shows, that in a case of absence of the negative political factors and fluctuations of the rate of the national currency the market of the real estate has the tendencies to stabilize on a new price level within the year 2000.

2. The trade real estate, as the most dynamical sector, will probably stabilized at the end of 1999 at a price level of 63%-73% from the level before the crisis. During the year 2000 the prices on the trade real estate will be slowly increasing, refletting the inflationary changes of consumer demand and the seasonal prevalenceinherent to the given type of the real estate.

3. In the first half of the year the prices on the office real estate, by virtue of its considerable inertness, will be probably increasing and will be stabilized only in September, 2000 at the level of 65%-75% from the price level before the crisis.

4. At the end of the year the prices on industrial and warehouse real estate will keep slowly growing and will probably reach the price level before the crisis. The dynamics of the further growth and the level of the subsequent stabilization of the prices depends not on the level of demand on the industrial areas, which steadily increases, but on the real desires of the economic subjects to use efficiently the premises and on the solutions of questions of registration of the rights on property on involved in economic turn-over of the real estate.