Private investments in Moscow offices have increased 11 times in 5 years

The growing activity of private investors in the office segment is also noted by NF Group analysts. According to their estimates, this demand increased by one and a half to two times in 2023 compared to 2022. “If we consider the dynamics of the last three to five years, the share of private investors in transactions with office premises under construction in Moscow has increased significantly. Moreover, if investing in office space under construction was rather an exception until 2020, now it has become a significant trend,” said Victoria Petrova, Director of the Financial Markets and Investments Department at NF Group.

The developers themselves also talk about the high demand of private investors for offices under construction. “We note the increased interest from private investors, today their share is about 30%. In the first quarter of 2023, this figure was at the level of 15-20%. Three to five years ago, the share of private investors in total sales was no more than 5%. Today it is 30%,” said Pavel Inshakov, Director of sales and rental of commercial real estate at PIONEER.

The volume of investments in office real estate in Moscow by private investors (individuals and individual entrepreneurs) for the purpose of further resale has increased 11 times in five years (Photo: Shutterstock)

Why are private investors buying up offices

Analysts explain the popularity of offices under construction by several factors. First, developers began to bring office lots for sale to the market. “This change is primarily due to an increase in the share of projects offering office space for sale (including sale in small blocks), according to our estimates, to about 70% of the total number of projects under construction planned for commissioning by 2027,” explained the director of the Department of Financial Markets and Investments NF Group.

Three to five years ago, the segment of offices for sale was not so developed, there were very few projects available for purchase, confirmed the director of sale and lease of commercial real estate PIONEER. As a rule, the developer left the business center in the property and was engaged in renting it out on his own. “In addition, there were almost no projects available for purchase in the so—called “slicing”, usually offices were exhibited either by floors or by the whole building, which, obviously, was practically inaccessible to a private investor,” Pavel Inshakov explained.

Secondly, there has been a reorientation of private investors from residential to office real estate amid the withdrawal of cheap mortgages, experts say. “Today, offices are an understandable tool for investing in real estate and more profitable than previously usual investments in apartments,” Ekaterina Nogai notes. “The minimum entry threshold is comparable to housing — on average from 13-15 million rubles for high-quality office space in a facility under construction in Moscow. However, with comparable budgets, the income from renting an office in the same location is more than twice the income from renting an apartment,” the expert explained.

The growth in the activity of private investors is also facilitated by the fact that office developers have begun to offer flexible purchase conditions at the construction stage — installments, mortgages, loans without down payment, the possibility of deferred payment. The initial installment payment for most projects is 10% (1-2 million rubles). at the stage of making a deal. Next, the buyer can choose the most suitable repayment terms for himself, IBC Real Estate explained.

Strategies of private investors

Investing in an office in a business center under construction implies several strategies – placement of your own business, resale to generate income from the increase in real estate value or renting. There is also a strategy for the implementation of a ready—made rental business – the search for a tenant and the subsequent sale of an office with a rental flow.

What is the current demand

The increased demand for offices from private investors continues in 2024. According to IBC Real Estate estimates, since the beginning of this year, the volume of investments from private investors in Moscow offices amounts to 6 billion rubles, which is comparable to the previous year.

“A high key rate is starting to have an impact on business activity: at its current level, deposits and bonds often become a more attractive solution for private capital,” said Ekaterina Nogai, head of Research and Analytics at IBC Real Estate.

“Nevertheless, demand remains at elevated levels. In addition, developers stimulate buyers with various installment / deferred payment programs,” the expert noted. With the lowering of the key rate in the second half of the year, the trend towards the attractiveness of offices under construction as an asset for private investors for the purpose of subsequent resale or rental will strengthen again, she believes.

Increased demand for offices from private investors continues in 2024 (Photo: Shutterstock)

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