Russian real estate: efficient business space key to modernization

The changing dynamics of Russia’s business landscape – populated by a new generation of modern professionals and companies – offers brilliant opportunities for Russian real estate investors.  As evidenced by the construction cranes across Russia, the country’s modernization drive and economic recovery have created high demand for precious commercial Russian real estate, both within Moscow and beyond.  The development of modern office and residential space in Russia’s cities has bolstered the development of the economy thus far and will be essential for the country’s continued modernization.

Moscow in transformation

Even Russia’s capital city of Moscow has had to create a modern business environment from scratch within a short period of time. It took decades for the major capitals of the world to build up an offering of business space that meets the demand of modern local and multinational corporations. However, due to the unique historical context of real estate development in the Soviet era, Moscow never had this luxury. 

Fifteen years ago, when major Western corporations began realizing the potential of the Russian market, they also discovered that there was no modern office space in Russia that met their needs both in terms of efficiency and comfort. For several years, even big corporations operating in Moscow worked out of hotels, apartments, or subleased space in old Soviet administrative buildings. Real estate consultants helped corporations find their way in this tough environment. In fact, Stiles & Riabokobylko (later acquired by Cushman & Wakefield) was started in that time.

In recent years, joint efforts by developers, consultants and financial institutions have transformed Moscow into a whole new international business capital. Today there are more than 11.4 million square meters of quality office space in Moscow and more than 2 million square meters in the pipeline. In fact, the volume of office space created by Moscow developers within just 10 years is on par with what was built during the entire 70-year history of the USSR. 

More importantly, within this short period, the real estate industry gained great experience and learned how to create a quality product. Developers and architects began to not only consider the financial performance of the projects, but also paid attention to energy savings techniques, amenities, and the overall level of comfort and efficiency in the business environment.

Meeting the demands of modernization

Currently 2.2 million square meters in Moscow are considered to be “A-class properties,”meaning that they meet the most sophisticated requirements of today’s global business. Today the best Moscow office buildings like Ducat III or White Square can be compared to the best offices in London or New York. Unlike before, tenants now have options for their office locations. This is appreciated by international companies that are rapidly expanding their offices in Moscow in light of Russia’s economic recovery.

Indeed, from an investment point of view, it can be argued that real estate is becoming one of the most rapidly developing sectors of Russian economy. More than 1 million Muscovites work in modern offices. These people form the most advanced group of people who expect a certain level of quality and efficiency. They are also the people who are driving Russia’s efforts to modernize in all sectors, from hi-tech to financial services.

Developers in turn have acted quickly to fill the market with offices that can meet the growing demands of this new generation of professionals in Moscow.  And now that such essential platforms for modernization have been created in the Russian capital, developers can now focus on the more targeted solutions or expand to other regions outside Moscow and St. Petersburg.

Tim Millard has served as General Director of Cushman & Wakefield in Russia since 2009.  Millard joined Cushman & Wakefield in 2003 establishing the company’s advisory and valuation teams in Moscow.