Supply at the office real estate market

Предложение на рынке офисной недвижимости

Fig.16. Pattern of demand at the office real estate market in Kharkov depending on location Forecast Total space of structures for office use

The total scope of supply at the office real estate market  in Kharkov in the beginning of 2008 is noted at the level of 639 th. sq.m. The annual increment of office space was only 2%.
During 2007 the increase of the vollume of supply was mostly due to reconstruction and re-arrangement of administrative buildings.
Thus the commissioning dates of “Mega polis” business-center at Krupskaya naberezhnaya were shifted to the beginning of 2008.
From the whole list of buildings commissioned in 2007 it is necessary to single out a number of structures for office use.

Name	Address	Year of commissioning	Class	Total space of the  building	Office  space
Office center "Velton"	7/9, Ivanova st.	I quarter 2007	В+	7065	5400
Office center (Rymarskaya st)	23а, Rymarskaya st.	I quarter  2007	В-	1100	800
Office center (Poltava shlyakh)	152, Poltava shlyakh	II quarter  2007	B	2500	2000
Exhibition center "Radmir-expo-hall"	271, Academician Pavlov st.	II quarter  2007	В+	55000	1860
Trade-and-office center "Atrium"	102, Sumskaya st.	IIІ quarter 2007	B	4000	800

Fig.17. Structure of supply at the office real estate market in Kharkov Class B, C, D, E

Specific weight of office space of class “B” grew by 20% in 2007, at the beginning of the year this index was equal to – 16%.
12 more business centers are at the stage of active construction.
Around 8 more developer’s projects that incorporate office component are at the stage of conceptual workings.

 

Demand at the office real estate market

Fig. 18 Pattern of demand on office real estate depending on class Class B, C, D, E

A tendency is presently obvious, when leasers make their choice of office space in a business-center they pay attention both to the level of rental rates and to the complex of services.
The share of leasers who are oriented at a high-quality office with high level of services has notedly grown up.
The share of users giving preference to offices of class “В” grew by 8% in 2007 .
 The requirements to the location of the office, its technical characteristics and size are mainly determined by the type and scale of activity of the user.

Fig. 19 Pattern of demand on office real estate depending on location Highways of city importance Residential areas Transport intershots Center/business center

Consolidated scope of demand at the office real estate market  in Kharkov in a short-term prospect - in the next 2-3 years - is predicted at the level of 1mln. sq.m. Low level of vacant space at the office real estate market testifies the fact that the market is far from saturation.
In the pattern of demand on the office real estate, as to the users profile, companies representing service business are the leaders.
On the whole the demand is formed by the companies specialized at the market of financial, information and telecommunication services, legal and consulting companies as well as industrial and advertising holdings.

Price indexes at the office real estate market

For the office real estate market in Kharkov a constant and stable growth of price indexes is typical for the last five years. On the average rental rates in 2007 grew by 19% and the cost of 1 sq.m. grew by 42%.

Fig. 20. Dynamics of average market value of rental rates at the office real estate market

 

Fig. 21. Dynamics of average market price value at the  office real estate market

Maximal growth of rental rates is noted in the segment of office real estate of classes “D” and “E”- about 30%. Minwile rental rates of higher class real estate have increased by no more than 10%.

Class of offices space	Range of average rental rates US $/sq.m.	Range of average prices US $/sq.m.
Class «А»*	18-35	1600-2500
Class «В»	15-30	1500-2200
Class «С»	12-28	1300-1800
Class «D and E»	10-18	1100-1700

*Business centers under construction from 2007 which are to be commissioned in 2008-2009 were considered
 as facilities of class «А».

Offices of class “В” are considered as the most perspective segment of investing at the office real estate market in Kharkov, the level of profitableness of which makes ~ 12-14.
On the whole lowering of index of profitability level is noted at the market, which is explained by more dynamic rise of prices on structures of office real estate as compared to rental rates.

High demand and insufficient supply provoke growth of rental rates and prices. No sharp jump of rental rates and prices can be expected in the near future, however, as well as their lowering. A steady supply of new office space in the market will not be able to satisfy the existing demand and will favor further upholding of price indexes of office space at high level.

Trends of development of the office real estate market

Basic trends of development of the market of office facilities:

1. growth of demand due to high rates of increase of population employed in the spheres of services;
2. shifting of potential leasers consumer requirements in favor of high-quality modern offices premises;
3. increase of number of representative offices and branches from other cities and foreign companies;
4. intensive development of offices projects outside the central business areas of Kharkov;
5. increase of projects number of multifunction complexes which include office component;
6. decentralization of the office real estate market , forming of new business centers;

expansion of lease period and number of transactions on preliminary lease.