q1 2012 real estate - the moscow timesold.themoscowtimes.com/realestate/pdf/quarterly/2012_1.pdf ·...

Latest crop of offices grows greener

Redeveloping industrial areas to solve urban planning problems

Entrepreneur seeks to make energy-efficient housing affordable

Real Estate Quarterly

Q1 2012

themoscowtimes.com/realestatePublished since 2004

Innovations

CONTENTSQ1 2012

3realestate.themoscowtimes.com

EDITORS’ VIEW ................4

WHAT’S UPNews and Views from the Moscow Area ........................ 5

A Pictorial Roundup ................ 10

MARKET UPDATE

A Green Crop of New Offices ................................. 12Three new office centers are up for

green certification, but heavy subsi-

dies on utilities provide little incen-

tive for eco-friendly building.

Aging Industrial Sites Attract Redevelopment ......... 16Repurposing industrial areas is key

to relieving the clogged center.

An Eco-House for the Masses ................................... 18One entrepreneur aims to make

energy-efficient housing affordable.

INSIDER’S VIEWCity Planning in Europe’s Largest City .................................. 20Deputy Mayor Andrei Sharonov

speaks about traffic, housing, land

use and the city’s expansion.

16

ST. PETE SCENE

Retail Leads Boom in

Commercial Real Estate... .....23

IN THE REGIONS

Novosibirsk Bottleneck.......... 24

Hotel developers see opportunities

in the city’s low room count, but

they face irregular demand, among

other obstacles.

MONEY MATTERSBuilding a Green

Warehouse .................................. 28The right design and management

can cut operating costs, anticipate

stricter regulations and lure tenants.

LEGAL NOTE

No Good Way to Buy Your

Own Parking Space............... 30

The law lacks provisions to allow

individual ownership of spaces.

APPOINTMENTS .............32

INDEX ...........................................34

10

12

EDITOR’S VIEW

4

Q1 2012

Publisher Ekaterina Son

Editor Alec Luhn [email protected] Deputy Editor Peter Spinella [email protected] Copy E ditor

Alex WinningArt Director Maria Georgiyevskaya

Project Manager Marina Khloptseva

Cover photo Vladimir Filonov/MT

The Moscow Times Business Review

Real Estate Quarterly Q1 2012 (№ 33)

Published: March 2012

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Board Derk Sauer

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2011 was a year of new records and first-time achievements for Russia. The most surprising of these occurred in December when tens of thousands protested the State

Duma elections in the largest anti-government rally since the fall of the Soviet Union. It was a record-setting year for Russia’s commercial real estate market, as

well, with total investment reaching about $10 billion. Of this, $7.34 billion was invested in Moscow and the surrounding region, almost twice as much as the previous year. Meanwhile, investment volume in St. Petersburg increased almost tenfold to $2.1 billion and catapulted the northern capital into the ranks of lead-ing real estate investment cities for the first time, as noted in our article on the St. Petersburg retail sector.

2011 was also Mayor Sergei Sobyanin’s first full year in office after he replaced Yury Luzhkov, who had run the city for more than 18 years. President Dmitry Medvedev immediately charged Sobyanin with the herculean tasks of addressing corruption, traffic and social stability in the capital. Added to these was the related but by no means easier feat — also called for by Medvedev — of transforming Moscow into a global financial center.

The capital’s real estate market is a major component of these challenges. Tackling them will require creative new approaches from policymakers and mar-ket players, which is why we’ve dedicated this issue to innovation.

From a city-planning perspective, officials and real estate experts discussed a number of innovative strategies at the first Moscow Urban Forum in December, especially the repurposing of the city’s many old industrial sites for residential, commercial and mixed-use projects. Our article on industrial redevelopment describes how this approach could better distribute workplaces outside of the overburdened downtown and relieve Moscow’s land crunch. At the forum, Sobyanin’s deputy mayor for economic policy, Andrei Sharonov, also spoke with REQ about the city’s efforts to deal with issues of transportation, housing, waste processing and land use.

Of course, we would be remiss to discuss innovation on the real estate market without mentioning green building. Our article about the office sector profiles three new office centers that are planning to receive green certification and examines the possibilities that this trend will continue. On the residential side, we look at an innovator who is developing a project that might sound crazy to the cynical real estate observer: an economy-class house that is not only more energy-efficient than an average home, but also cheaper to build.

Although covering these innovations illustrates the magnitude of the challenges Moscow faces, it also gives reason to believe that they will be surmounted, per-haps starting already in 2012.

Letter From the Editors

5themoscowtimes.com/realestate

Q1 2012 WHAT’S UP?

No Construction DowntownBy Bela Lyauv, Vedomosti

M oscow authorities will allow investors to complete construction proj-ects that have already been approved for the Central Administrative

District, but new construction in the city’s downtown will not be permitted, City Hall announced in February.

The ban follows a de facto freeze on downtown construction since last March.

“We will definitely not begin any new construction projects, but we will finish the old ones,” Marat Khusnullin, deputy mayor for city planning and construction, told Vedomosti. Currently, construction permits have been issued for 5.86 million square meters of various real estate. Khusnullin calls this amount “colossal.” Now, he said, further building will take place only under certain conditions: for renovating apartment blocks, large-scale remodeling and adaptive reuse of existing properties.

Last year, Mayor Sergei Sobyanin announced a downsizing in the amount of new construction. He indicated that the majority of projects that had already been started, such as converting offices and shopping malls into hotels and apartment buildings, would be finished. And the Mayor’s Office made the decision that new buildings should not outnumber old ones in their surrounding areas.

The press service for the construction sector could not say whether permits for new buildings in the Central Administrative District had been issued under Sobyanin. Developers surveyed by Vedomosti said there have been practi-cally none.

According to Khusnullin, 1.1 million square meters of projects in down-town Moscow have been discontinued, and another 700,000 square meters have undergone changes to their functional designation. In the next three or four years the authorities aim to “stabilize” the downtown. Khusnullin cited Romanov Pereulok, where several buildings are being reconstructed, as an example.

“It’s necessary to finish the ongoing construction projects and landscape the area. Subsequently, if someone asks for permission for construction, such

ROMANOV PEREULOK / MAXIM STULOV / VEDOMOSTI

Q1 2012WHAT’S UP?

6

questions will not be considered because development of the area will be considered complete,” he said.

The decision to limit building in the center is long overdue, said Konstantin Kovalev, managing partner of commercial real estate firm Blackwood.

In the center of European capitals, typically only redevelopment of old neighborhoods is allowed, in which developers construct modern build-ings while preserving the architectural fabric of the location. Developers in Moscow are willing to engage in redevelopment where it’s possible; officials have uncovered a lot of abandoned buildings within the Garden Ring. Half a year ago, in the Central Administrative District, 179 properties that were not undergoing any form of construction were counted, and 21 of them were architectural landmarks.

But that type of business is not as profitable as what really attracts Moscow developers: to acquire a land plot, build and sell, Kovalev said. Now the majority of owners of land downtown are trying to sell those prop-erties due to a high level of uncertainty and difficulties in getting permits, he said. The prices for shopping mall and apartment building projects in the center have almost returned to their pre-crisis levels, he added.

Moskva Hotel Reopens as Mall By Rachel Nielsen, The Moscow Times

T he Moskva Hotel is reopening after reconstruction that lasted a decade. A slew of Moscow real estate players unveiled the building

on Feb. 14, relaunching the premier Soviet hotel as a commercial center with 70 shops, a department store, underground parking and a hotel.

Galereya Moskva, the mall comprising the shops and department store,

was scheduled to open to the general public on Feb. 15, though only about half of its shops were up and running. The site had been under construction for nearly 10 years, with the original hotel razed in 2003-04.

At a news conference in the mall’s gleaming black, white and gray interi-or, State Duma Deputy Vladimir Resin, the capital’s urban development head under former Mayor Yury Luzhkov and current Mayor Sergei Sobyanin, said the city had preserved “a symbol of an epoch” by replacing the first building with a lookalike.

Built in the 1930s, the Moskva is flanked by the Bolshoi Theater, the Teatralnaya metro station and Manezh Square. The brown-and-beige stone building, at just over 10 stories, was a Mecca for celebrities such as first cosmonaut Yury Gagarin and Italian film star Marcello Mastroianni.

Strabag rebuilt both the Galereya Moskva section of the complex and the new hotel. The Austrian-based contractor won the tender for construction in December 2004, Alexander Ortenberg, general director of Strabag’s Russian division, said in an interview on the sidelines of the news briefing. Following the financial crisis, Strabag took on new financ-ing of 4 billion rubles ($130 million) for the project in summer 2010, Ortenberg said.

Ortenberg said his firm has wrapped up its part of the Moskva renovation. “We’re done,” he said. “We’ve finished building.”

The mall, which takes up less than a fifth of the Moskva’s 186,000 square meters, includes a number of high-end jewelry, clothing and handbag shops, many of them Italian and French.

The rest of the complex will be filled with a Four Seasons hotel, expected to open in 2013, and a spa, business center, “culture and leisure center” and hotel apartments.

GALEREYA MOSKVA / VLADIMIR FILONOV / MT



Development firm DekMos said by e-mail that it is the sole developer of the Moskva project. Strabag was the general contractor, while Lusine, builder of the Ararat Park Hyatt on Neglinnaya Ulitsa, directed engineering work, DekMos said.

DekMos declined to name the current owners of the Moskva complex. Though the grand opening of Galereya Moskva was advertised as Feb.

15 on giant red cubes on Ploshchad Revolyutsii, only about 30 of the 70 stores were stocked or in the process of stocking when the news conference ended in the afternoon of the day before. At a handbag shop on the first floor, men in jeans were testing the security panels at the store entrance, while in other shops, workers were rolling on paint and finishing trim.

Meters away from the speakers, headless naked male mannequins filled a men’s clothing shop. By the end of the afternoon, one of them had acquired a crimson scarf.

About 20 stores had windows plastered with brand names and “opening soon,” while an equal number were papered with just the Galereya Moskva logo.

DevMos said a “large part” of stores will open at the end of March, and restaurants will open there in May and June.

Oktyabr Getting Facelift, Residents Concerned By Irina Filatova, The Moscow Times

C ontroversy has arisen around the redevelopment of the former con-fectionary factory Krasny Oktyabr. Muscovites started collecting

signatures online in January to protect the site and preserve the creative atmosphere in the heart of Moscow.

A development project with cafes and restaurants, apartment complexes, museums and underground parking that analysts said could be worth more than $120 million is planned for the site.

The project will be implemented on the 50,000 square meters of land on Bersenevskaya Naberezhnaya acquired by Guta Development along with the factory’s buildings in 2002. The company is currently leasing part of the space out, and major tenants include private media outlets like Slon.ru, Openspace.ru, TV channel Dozhd and IT center Digital October.

Due to the number of exhibition halls, the factory’s territory has become an art space popular among Muscovites and tourists, but the developer’s plans to upgrade the territory raised concerns among city residents that construction work could damage part of the complex and result in tenants being ousted, leading to the signature drive.

Meanwhile, Guta Development’s chief executive Artyom Kuznetsov said all the tenants will remain in their offices and that the company hopes to accommodate more “creative studios” at Krasny Oktyabr.

The developer’s project to upgrade the factory’s territory will also involve locating cafes and restaurants on the first floor and creating a big museum of modern art, he told experts and City Hall officials gathered at a round table in February to discuss Krasny Oktyabr’s future.

Three of the factory’s buildings are landmarks protected by law. Others don’t possess that status, but they are valuable for adding to the historic atmosphere of the place, said Natalya Samover, a preservationist with Arkhnadzor.

The reason behind residents’ concern is the common practice of some developers to save time and money by demolishing buildings with no land-mark status and constructing copies, she told The Moscow Times.

Moscow’s chief architect Alexander Kuzmin, who participated in the round table, vowed that no construction would be carried out that could damage the historical buildings on the Krasny Oktyabr territory.

Kuzmin also said City Hall is working on a project to develop the territory that will undergo public discussions.

If approved by residents, the document, which will specify the maximum volume of space to be built and the location of new buildings, will sub-sequently be provided to the developer as a base for future construction work.

Guta Development plans to build housing on the site as part of the project, Kuznetsov told The Moscow Times, declining to elaborate on the possible construction volumes before City Hall provides all the regulation documents.

Kuzmin supported building the apartment complexes, saying the construc-tion of housing would help keep the place “alive” round the clock, not only in the afternoon.

Kuznetsov declined to specify the overall investment in the project, saying the information is confidential.

Alexander Ziminsky, head of high-end property sales at Penny Lane Realty, said it could exceed $120 million based on the potential construction volumes of 40,000 square meters.

The developer invested $400 million in relocating the factory’s production facilities, but leasing out the freed space didn’t allow it to return the invest-ment, Kuznetsov said.

The company might see returns after building housing on the factory’s territory, since the location of the site and the developed infrastructure could bring the approximate apartment price between $15,000 to $30,000 per square meter, Ziminsky said in e-mailed comments.

Q1 2012WHAT’S UP?

8

and that are not susceptible to slamming into passengers when blown by strong winds.

In other subway news, a transfer hub will be built at the Moskva-City busi-ness center, according to the press service of the city’s construction depart-ment, citing Sergei Kidyayev, vice president of Ingeokom, the main contractor for the construction of the Khodynskaya and the Kalininsko-Solntsevskaya lines.

In addition to the existing Vystavochnaya station on the Filyovskaya line, the hub will consist of two new stations, Delovoi Tsentr on the Kalininsko-Solntsevskaya line and Delovoi Tsentr on the planned Khodynskaya circle line, Vedomosti reported in January.

“If we don’t [build the hub], then in 2015, when construction of the busi-ness center is complete and 3 million square meters of office space is com-missioned, the Filyovskaya line won’t be able to cope with the exponentially increased passenger traffic,” Kidyayev explained.

The Moscow construction department announced in December the beginning of the new Kalininsko-Solntsevskaya line to link the central areas of the city and Moskva-City with the Dorogomilovsky and Ramenki districts.

In the first stage, a line will be built from the Delovoi Tsentr station to the Park Pobedy station, and the Delovoi Tsentr station at Moskva-City will be opened. Work on the first phase of construction is scheduled for completion in 2013.

(Vedomosti, The Moscow Times)

Group Seeks Greater VVTs Protection By Howard Amos, The Moscow Times

A rchitectural preservation group Arkhnadzor has called for the All-Russia Exhibition Center, or VVTs — which they refer to as Moscow’s

“Soviet Versailles” — to receive increased legal protection ahead of a $1.5 billion redevelopment expected to be approved by city authorities this spring.

The planned transformation of VVTs has prompted concerns from cam-paigners that the site’s aesthetic unity will be violated and valuable landmarks destroyed.

The company that controls the 236-hectare VVTs is 70 percent owned by the federal government and 30 percent by City Hall. Its director, Alexei Mikushko, publicly outlined the “rebirth” of the site in November and told The Moscow Times last week that building plans were expected to be finalized in 2012 and construction work would begin within 18 months.

During a news conference last week, Arkhnadzor activists compared VVTs to other great national exhibitions of the 19th and early 20th century that took place in London, New York and Paris. Unlike the VVTs, none of them have survived.

The proposed redevelopment plans envisage the creation of five zones and the construction of an innovation campus, a large leisure complex, an underground parking lot and four-star hotels.

A key point of contention between preservationists and developers is the decision to change the heritage status of the VVTs to permit construction work. About $500 million of the budget for the project has been allocated for the renovation of existing buildings.

Arkhnadzor said that instead of a downgrade, the legal protection that VVTs now enjoys should be expanded. Of its more than 100 histori-cally significant structures only 40 enjoy a protected status, activist Irina Trubetskaya said.

Hoteliers in Talks The Moscow Times

M ikhail Shishkhanov is in talks with Georgian businessman Boris Ivanishvili to repurchase the InterContinental and Central hotels,

Vedomosti reported Feb. 3. Structures close to Bin Group co-owner Mikail Shishkhanov are interested

in buying Boris Ivanishvili’s Unikor real estate portfolio, two sources close to both negotiators said. The talks, according to them, are at an early stage; there are no documents to be signed.

Unikor’s main assets are the 64,000-square-meter Summit business center, which includes the Hotel InterContinental Moscow Tverskaya (203 rooms) on the site of the Hotel Minsk, the 450,000-square-meter Garden Quarters residential complex under construction in Khamovniki and the Luxe Hotel (formerly the Central) with 18,300 square meters, for which a manage-ment agreement has been signed with the Mandarin Oriental chain.

Moscow Metro to Get Translated Signs, New Stations Combined Reports

S igns with English translations of station names will be installed in the Moscow metro as part of the city’s effort to make the capital more

comfortable for foreign visitors, a city transport official said Feb. 7, RIA-Novosti reported.

At present, signs indicating the names of adjoining stations at transfer points in the Moscow metro are only in Cyrillic.

Wi-Fi hotspots will also be created on Circle Line stations of the metro, said Maxim Liksutov, head of the city transit department. The changes are part of the city’s plans to create an international financial center in Moscow, RIA-Novosti reported.

Liksutov said 400 old metro cars will replaced with new ones this year and that three new stations will be opened: Novokosino in the east, Alma-Atinskaya in the south, and Pyatnitskoye Shosse in the northwest.

The transport official also said 30 percent of station doors will be replaced with lighter ones that are easier for the elderly and children to open

METRO DELOVOI TSENTR / VLADIMIR FILONOV / MT



There are also specific concerns over a number of buildings on the edge of the site that represent a range of architectural styles and contrast with the Stalinist grandeur of the pavilions and fountains on the main walkway.

They include the No. 7 Seed Pavilion that sells bulbs, seeds and other gar-dening equipment. Natalya Duskina, professor at the Moscow Architecture Institute, said this was one of several examples of modernist architecture at the VVTs. Only about 11 percent of Moscow’s protected historical monuments are from the 20th century, she said, and called for all the modernist pavilions at VVTs to receive legal protection.

Under the current plans, which should be realized within six years, the Seed Pavilion falls in an area slated to become an enclosed leisure park.

Though Mikushko said Jan. 26 that none of the redevelopment has been officially approved yet, a shop assistant in the Moskhlebtorg Pavilion — adja-cent to the Seed Pavilion and also on land intended for the leisure park — who requested anonymity to talk to the press, said he had been warned that he was likely to be required to vacate his premises by the summer.

Other workers in nearby pavilions told The Moscow Times that they were aware of discussions about the redevelopment plans, but had not been given a specific time frame.

Contractors Being Chosen to Fix Moscow Roads Vedomosti

T he city construction department in January aimed to select general contractors for the reconstruction of major throughways at a cost of

almost 50 billion rubles ($1.57 billion) and is to select general contractors for the reconstruction of all city throughways by the end of the year.

The contractors picked in January will rebuild the Ryazansky and Volgogradsky prospekts, Shosse Entuziastov, the Mozhaiskoye, Leningradskoye and Yaroslavskoye shosses, as well as the roadway called Balaklavsky Prospekt on one end and Rublyovskoye Shosse on the other.

“The bids were unsealed on Dec. 30 and now they are being analyzed,” said Andrei Bochkaryov, head of the construction department. Bidding for the remaining 10 routes will be held in the near future, according to Bochkaryov.

The most expensive project is the reconstruction of Mozhaiskoye Shosse from the Moscow Ring Road to the Garden Ring, the starting price of which is 10.9 billion rubles ($360 million). The least expensive job is repairing Leningradskoye Shosse between the Sokol metro station and the Moscow Ring Road for 2.14 billion rubles ($70 million).

The results of the bidding were published on the web site of the ten-der committee. The bidders were largely the same for all contracts. The reconstruction of Mozhaiskoye Shosse drew bids from Ziyad Manasir’s Stroigazkonsalting, which offered to do the work for 10 billion rubles, and Ingeokom, which offered 9.6 billion rubles.

Ingeokom also bid on Ryazansky Prospekt, which had a starting price of 9.58 billion rubles, competing with SU-888 and MISK.

“There are no more than 15 companies with experience in complex construction in the city. The existing capacity is enough for the work on the highways so far,” Bochkaryov said.

The reconstruction of Varshavskoye Shosse by Ingeokom for 10.78 billion rubles and Kashirskoye Shosse by ARKS Investment and Financial Construction Company for 8.53 billion rubles has been ongoing since November.

In addition, Moscow is looking for contractors to bid to build three inter-changes on Dmitrovskoye Shosse at a cost of 21 billion rubles.

Hotel National Sold The Moscow Times

S mart Finance Group obtained ownership of the National hotel at an auction held late last week by the Moscow Mayor’s Office, Interfax

reported.The company was representing the interests of Sait-Salam Gutseriyev,

banker Mikhail Shishkhanov said in a statement.The 100 percent share package in the National was sold for 4.67 bil-

lion rubles ($150 million). The starting price of the package was 4.58 billion rubles. The National is one of the oldest hotels in Moscow. It was completely reconstructed and renovated in 2009 and currently has 201 rooms, includ-ing 56 suites.

The property of the National also includes a unique collection of furni-ture and works of art from the Tsarskoye Selo and Anichkov palaces that belonged to the Russian royal family.

Deals Undergird Record Investment Year in 2011The Moscow Times

R ussia’s commercial real estate market saw a record investment vol-ume of about $10 billion in 2011, according to a report by Colliers

International. The Moscow region attracted about $7.34 billion of that investment, almost twice as high as the year before, when it was $3.94 billion.

The most active buyers included VTB Capital, Holding Center trading house, the Gutseriev family, Boris Mints’ O1 Properties and UFG Asset Management, the report said. The most active sellers in Moscow were Vladislav Doronin’s Capital Group, VTB Bank and the Luxembourg-based Orco Property Group, which sold its main assets in Russia.

Property Transaction Seller Buyer amount ($mln)

Ritz-Carlton Hotel 700 Capital Verny Partners Capital

White Square and White VTB BankGarden business centers 600 Coalco JV Texas Pacific Group

Mosmart portfolio 566 n/a M.Square Holdings

Filion and Gorbushkin 450 n/a KompleksnyeDvor SECs Investitsii

Don-Stroi retail center 370 VTB Holdingportfolio CenterConcord business center 241 Capital Group UFG Asset Management

Alfa-Arbat Center 237 TNK-BP PromSvyazbusiness center Nedvizhimost

Moskva-City site Moscow Zarakh Ilievnumber 15 231 government and God Nisanov

Lesnaya Plaza 210 VTB Capital O1 Properties

Source: Colliers International

Major investment transactions in Moscow, 2011

Q1 2012WHAT’S UP?

10

COURTESY OF ABD ARCHITECTS

Imperia Tower, a 60-floor skyscraper with 70,110 square meters of office space and 45,000 square meters of residential areas, has opened in Moskva-City. It has a 292-room hotel as well as shopping areas, and is planned to feature a fitness center, swimming pool, concert halls, bars and restaurants. The building was designed by international architectural firm NBBJ. It opened, despite being incom-plete, in November last year.Developer MosCityGroup’s owner, Pavel Fuks, announced at the opening ceremony that the tower was worth $500 million and could be sold in its entirety if a buyer were found. In March-April, MosCityGroup will begin work on the second phase of the tower’s construction. The project is expected to be completed in 2013.

Electronics multinational Siemens has a new office at 13 Bolshaya Tatarskaya Ulitsa, near the Novokuznetskaya metro station. The six-story building has two lev-els of underground parking and a total area of 25,770 square meters. It features an expansive atrium with a transparent roof to allow in the daylight, as well as energy-efficient lights in the offices. The interior, designed by local firm ABD Architects, won the Organization of Space award at the Best Office Awards 2011. The building is also set to undergo certification for the LEED globally recognized green-building stan-dard. Last year Siemens’ Russian business saw turnover of more than $1.8 billion, surpassing the previous year’s level by about $130 million.

COURTESY OF ABD ARCHITECTS

SERGEY PORTER / VEDOMOSTI



The bank branch has a 24-hour self-service center with five ATMs and payment terminals on the ground floor, and a large customer service area on the second level. It also features a play area for children, safety deposit boxes and meeting rooms.The InterContinental hotel has more than 200 rooms, a restaurant, bar and ballroom, conference rooms, as well as a fitness center and spa. It was designed by British firm AlexKravetzDesign. The premises contain 6,000 square meters of premium-class retail areas and a Class A business center, designed by British firm Chapman Taylor.MAXIM STULOV / VEDOMOSTI

V Lesu (In the Forest) is a planned community by developer R.G.I. International Limited. The 77-acre subdevelopment is under construc-tion at a 15-minute walk from the future site of the Pyatnitskaya metro station, to open this December, and has easy driving access to the Pyatnitskoye Shosse. The subdevelopment incorporates mid-priced condos, as well as shops and restaurants, surrounded by forestland. It is expected to be completed in 2017 and have 30,000 residents.

The 12-story Summit complex on Moscow’s main thoroughfare, Tverskaya, is the new home of the flagship office of the nation’s larg-est lender, Sberbank, as well as a five-star InterContinental hotel.The centrally located building, near the Mayakovskaya metro station and just up the street from the Kremlin, also features restaurants and shops, and has a total area of 64,000 square meters.The Sberbank office, which opened on Dec. 1, has two floors and a total area of 1,600 square meters, making it the lender’s largest office in the capital.

COURTESY OF FLEISHMAN-HILLARD VANGUARD

COURTESY OF SBERBANK

Q1 2012MARKET UPDATE

12

Re s o u r c e - e f f i c i e n t “green” buildings have low operating costs. They emit low levels of pollution,

which is good for the health of occu-pants, and have a negligible impact on the surrounding environment.

In a nation where utilities are heavily subsidized by the govern-ment, however, local investors don’t see justification for the extra spend-ing on such construction. A lack of locally available green materials is also a downside.

At the same time, end users and international investors increasingly favor office buildings with green fea-tures, and experts predict that the green-building trend will gradually grow stronger on the office market. Several new offices in Moscow plan to receive green certification.

“Green building is not popular in Russia because it is not man-dated and not historically something that tenants look at,” said Darrell Stanaford, a former managing director at real estate agency CBRE who’s been working in Russia for 16-

plus years. Gradually, however, this situation is changing due to several reasons, he said.

“In the future there will be a better supply-and-demand balance, and suppliers need to differentiate themselves,” Stanaford said. “Office space tenants also want to provide better conditions for workers.”

Resource-efficient features are attractive to buyers.

“Green can make a substantial difference for international investors looking to sell a property within five years,” Stanaford said.

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Three new office centers are up for green certification. Developers dislike the cost of eco-friendly building, but experts say Moscow will see more of such construction.

A Green Crop A Green Crop of New Officesof New Offices

By Peter Spinella


Q1 2012 MARKET UPDATE

The Olympia Park office complex, opposite page, is slated for BREEAM certification. The Siemens building, right, is up for LEED.

Several office centers are already going green. International tech con-glomerate Siemens has a new green office near the Novokuznetskaya metro station. This summer, realty multinational Jones Lang LaSalle will move into a green office at the newly constructed Vivaldi Plaza, near Paveletsky Station. Finally, BMW and homegrown computer-security firm Kaspersky Lab are the initial ten-ants at Olympia Park, a green office complex. All three office centers are planned to undergo green cer-tification.

“Western companies want green certification when available. It’s a checklist item for them,” said Franc Neal, a green-building specialist at CBRE. “Most Fortune 500 compa-nies require green buildings.”

“Occupiers want green not only because it saves money but because workers are happier and more pro-ductive,” Neal added. “Owners want a green building because it’s valuable.”

Trending Green

I n December 2010, Ducat Place III, which is located close to the

intersection of Tverskaya and the Garden Ring, became Russia’s first commercial building certified with British green-building standard BREEAM. The 14-story Class A office building, completed in 2006, got approved after the developer, Hines, upgraded the lighting and sanitation systems.

In November 2010, a factory operated by Swedish rolling-bear-ings manufacturer SKF Group in Tver, some 150 kilometers north of Moscow, became the first com-mercial building in Russia to be approved for the U.S. green-build-ing certification LEED.

The St. Petersburg Ecological Union offers a local green certifica-tion for environmentally safe building materials. The organization’s Vitality Leaf seal is awarded to materi-als that meet a set of international green standards developed by

provided a long gestation period” for green ideas, since new devel-opment slowed to a trickle, Neal added.

“This next construction cycle is going to be greener,” he said.

Christoph Woop, a German archi-tect who works locally at BRT Rus, said he incorporates green design elements into all of his projects.

“There is a global focus on sus-tainability, to build a building that does not influence its surroundings,” Woop said. “You use stone from the region. You reuse an existing building; for example, the remod-

the International Organization for Standardization.

A strategic partner of the St. Petersburg Ecological Union is the Russian chapter of the World Green Building Council. Neal, the green-building specialist at CBRE, is a founding board member of that chapter.

“Another major driving force for going green in Russia is a new generation of local architects with degrees from Western universities,” Neal said.

“The financial crisis also helped local green building because it

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Western companieswant green certifica-tion when available. It’s a checklist itemfor them.

Franc Neal, CBRE

A Green Crop of New Offices


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The newly constructed Vivaldi Plaza business park is set to undergo certification for both the LEED and BREEAM standards.

eling of the former Red October chocolate factory.”

Building green has a vari-ety of advantages, according to Woop. For instance, converting the interiors of existing buildings into green-standard ones, while leaving exteriors untouched, preserves the architectural fabric of the city, he explained.

“Green is an emphasis on solu-tions that are sustainable: solar ener-gy collection, ground water heat-ing,” Woop said. “It’s good to have a green roof or light roof with natural ventilation.”

A truly green approach also excludes many chemicals and build-ing materials, he added.

Finally, a green-building certifi-cation can also be a status symbol.

“The Skolkovo Technopolis is one of the most prestigious architectural projects in the Russian Federation, and those buildings need to meet green standards,” Woop said.

Office Pioneers

I n Moscow, the offices of BMW, Jones Lang LaSalle and Siemens

are ready to undergo green certi-fication.

Olympia Park, where Kaspersky Lab and BMW Group Russia are the first tenants, is a 70,500-square-meter Class A business complex, with three office buildings, a fitness center and an outdoor park along-side the Khimky reservoir. It opened in July 2011.

All buildings at the complex are ready to be BREEAM-certified. Kaspersky Lab’s deal to rent the larg-est space, almost 30,000 square meters, was one of the biggest real estate deals of last year. The area is located just outside down-town Moscow on Leningradskoye Shosse, near the Vodny Stadion metro station.

Jones Lang LaSalle, which has completed more than 150 LEED and BREEAM projects worldwide, is moving into the almost finished Vivaldi Plaza business center. The firm signed a lease for 3,000 square meters of the center’s Class A office space in early February.

Vivaldi Plaza, which is managed by Russian firm O1 Properties, is set to undergo certification for both the LEED and BREEAM standards. The site has four office buildings and a four-star Marriott Courtyard hotel, with a total area of 109,000 square meters.

Multinational tech firm Siemens has a new office at 13 Bolshaya Tatarskaya Ulitsa. The interior, which won the Organization of Space award at the Best Office Awards 2011, was completed by local firm ABD Architects.

The six-story building, which also has two levels of underground park-ing, is set to undergo certification for the LEED standard. It features a spa-cious atrium that allows in plenty of sunlight, as well as energy-efficient lighting in the offices.

If these business centers receive green certification, they will join a select group of buildings in Eastern Europe with green certification, the number of which can currently be counted on one hand.

“The real estate industry is still at an early stage of development when one thinks about green tech-nology to achieve energy-efficient and sociably responsible projects,” Adrian Salter, general director of advisory firm MEP Engineering and a member of the Urban Land Institute, said in an e-mail.

Salter’s firm is currently designing new office fit-outs for clients that have requested green solutions such as intelligent lighting systems, metered and energy-efficient air conditioning and heating systems to make an office space run more efficiently and achieve an internationally regarded green cer-tificate such as BREEAM, LEED or the German DGNB standard.

An Unbalanced Equation

T oday, investors and developers are loath to add green technol-

ogy to their capital expenditures, since this will lengthen the return-on-investment period, Salter said. The other factors in this calculation — the cost of utilities such as water, electric-ity and gas — are still heavily subsi-dized by the Russian government.

“However, the end users of real estate projects are now looking to minimize their operational expenses,

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Adrian Salter, MEP Engineering

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and the [operating expense] of an office space is probably not a large part of their overhead factor but still an area where a saving can be made,” Salter said.

“As long as the government con-tinues to heavily subsidize utilities, the payback period on energy-efficient solutions will continue to be longer than many investors’ targets, and thus excluded in the development of new buildings,” he added.

Another problem that only the government can solve is the lack of infrastructure that is needed to facili-tate another green-building strategy — the recycling of construction mate-rials and garbage, Salter said.

“In a mature construction mar-ket there is no premium to be paid when insisting on recycled products because the local industry can read-ily provide them,” he said. “But in this part of the world, where such infra-structure for collecting and processing of ‘waste’ material is almost nonexis-tent, the cost of using products made from recycled materials is often higher and thus overlooked by investors.”

The government can help by pro-viding subsidies for socially respon-sible infrastructure, Salter said.

The materials needed for green construction are not readily avail-able in Russia, and importing prod-ucts such as carpeting and lighting requires a lot of energy, which goes against a fundamental principle of green building, said Neal of CBRE.

“Resources need to be acquired nearby; for instance, granite from the Baltic, one time zone away, instead of from Siberia,” Neal said.

Green building is about conserving energy not just while the building is in use but throughout the structure’s entire life cycle, said Woop, the architect.

“The primary energy that is used to produce the building also needs to be low,” Woop said. “Different building materials require different amounts of energy to produce. For example, building an aluminum win-dow frame requires several times less energy than a wooden one.”

New Trends in Office Space Design

International tech conglomerates Philips and Siemens both have new offices in Moscow with a common theme: flexible space.

The traditional model of fixed workplaces has been abandoned in favor of open spaces, where workers can set down their laptops and work wherever they want. In theory, this allows employees from different departments to work side by side, to easily exchange ideas and build a sense of community.

Philips’ office at Marr Plaza, a Class A business center just within the Third Transport Ring near Moskva-City, is dedicated to “flexibility, mobility and active interaction between people,” the firm said on its website.

Each employee can choose a workplace depending on his or her plans for the day, Philips said. The office is divided into areas for individual and collaborative work, leisure, meetings and conferences, each with its own design. The office is divided into 10 themed areas: Russia, the 1950s, Paris, Nature, Mountains, Ocean, Holland, New York, Rome and Avant-Garde.

“This environment increases efficiency and makes people more open,” Cezary Piskorz, HR director at Philips Russia, CIS and Central Asia, said in a press release. “All employees, including top managers, work side by side. This provides an opportunity to talk more, avoid formalities, share experience and raise the level of trust in the team.”

The new six-story Siemens building, downtown near metro Novokuznetskaya, also centers on a flexible work area. The second, third, fourth and fifth floors are completely open space.

The interior, designed by local firm ABD Architects, also incorporates enclosed 2.7-by-2.7 meter spaces. The glass-paneled sides of these “think tanks” feature trunks of birch trees, a typical symbol of Russia, depicted in frosted glass.

Philips, as the world’s largest manufacturer of lights, showcases “comfortable and inspiring” lighting solutions in its new office. The lighting varies depending on the purpose of each location and is energy-efficient. The open work areas make use of daylight cast evenly around the room, while the sites for individual work and negotiations feature adjustable lighting. The leisure areas are accented with multicolored lights.

The Siemens building also pays close attention to lighting. The architects almost entirely opted against broad overhead lighting in favor of individual light fixtures equipped with motion detectors and light-volume sensors. LED downlights are featured in a few main corridors. Such energy-efficient solutions are geared toward certification under the LEED green-building standards.

In addition, new Moscow office buildings often include amenities such as restaurants, gyms and places to relax. The Dvintsev business center, just outside the Third Transport Ring near Savyolovsky Station, has a Prime Star restaurant. Sberbank’s new flagship office in the Summit complex on Tverskaya is near many restaurants and cafes. The Siemens building has a cafe on the ground floor and a bar and VIP lounge on the top floor.

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A communal area welcoming employees at Siemens’ new office, which features flexible, open spaces.


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When a city planner looks at Moscow, he sees a lot of ugliness,

including new thoroughfares clogged with traffic, a subway system operat-ing at its capacity and an unbalanced landscape of decrepit apartment buildings and sparkling office towers.

But he sees beauty, as well — in the city’s cornucopia of aging manu-facturing premises.

“Right now, what jumps out at me is the enormous resource of the indus-trial sites that are all around Moscow ... along the waterfront, along the small railroad ring,” Christopher Choa, principal and vice president at AECOM Design + Planning, told The Moscow Times. “These are very useful for all sorts of functions,” such as mixed-use development, including high-density development organized around transport cores, he said.

Aging Industrial Sites Attract Redevelopment

Repurposing Moscow’s many industrial areas will be key to relieving the clogged center and creating a world-class city.

Mayor Sergei Sobyanin’s first full year in office, Moscow is striving to improve the quality of life and the investment climate, and President Dmitry Medvedev has even called for the city to become a global financial center. It won’t be easy: Moscow took 61st place out of 75 financial centers rated last fall by the London-based think tank Z/Yen.

The institute’s experts noted that Moscow is “one of the most bur-dened metropolises in the world,” with 6 percent of the metropolitan area occupied by 40 percent of the workplaces, according to a Moscow Urban Forum press release. The city should redistribute this concentration of offices through mixed-use develop-ment, they said.

The experts called the project to expand Moscow’s borders to the southwest an “important step” but recommended intensifying land use within the existing city boundaries. Key to that will be repurposing indus-trial sites, as well as creating transport hubs and passenger transport along the little ring railway that connects the city’s industrial zones, they said.

Although it may be easier to build on a greenfield site, Choa said Moscow needs industrial redevelop-ment more than new construction on its new territory. He said the first step it should take to become a “world-class city” is to review its policy on industrial zones.

“I don’t believe we can necessar-ily solve [Moscow’s problems] auto-matically by expanding into open greenfield sites,” Choa said. “I think there are a wide range of solutions to look at, including smart growth, which is effectively redevelopment of the urban core itself.”

No Greenfield Left

R edevelopment of industrial ter-ritory typically takes two forms:

the construction of new buildings on previously used land, or adaptive reuse, in which old buildings are renovated for a new purpose. Even without a comprehensive city policy

By Alec Luhn

The redevelopment of industrial areas, which take up 15,000 hect-ares, or 14 percent, of the city’s territory, should be a key component of attempts by the city authorities to manage Moscow’s growth, con-cluded a recent panel of experts that included Choa. According to consultants, redevelopment will also be appealing to developers given the dwindling amount of open land in the city.

A number of redevelopment proj-ects, ranging from office centers like LeForte to art centers like Winzavod, have already been built, and more are on the way. Most notably, Guta Development, the owner of the Krasny Oktyabr complex on Bersenevskaya Naberezhnaya, plans to build a mixed-use project analysts said could be worth more than $120 million. The former chocolate factory has already been partially repurposed into offices, nightclubs and exhibition halls and is

a center of cultural life in the capital.However, the complexity and cost

of redeveloping industrial sites into commercial or residential properties, especially if the existing structures are historically significant and cannot simply be torn down, remains a limit-ing factor. The old maxim voiced by Choa still stands: “It’s always easier to build on a greenfield site,” he said.

Becoming a World-Class City

C hoa heads the Urban Development studio in the

London office at AECOM, one of the largest design firms in the world, working to create livable, health-ily growing cities. He was in Russia recently for the Moscow Urban Forum, where the nonprofit Urban Land Institute (of which Choa is a member) presented a set of recom-mendations for Moscow’s devel-opment as a global city. Following

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Walls at Danilovskaya Manufactory evoking the 19th century. At left, the former Krasny Oktyabr factory standing on the Moscow River.

on repurposing industrial zones, the redevelopment of such areas will continue to grow naturally, according to a report by Welhome Real Estate Consulting.

Partly as a result of the ban on new construction in the city center, the percentage of redevelopment proj-ects, including adaptive reuse projects, will increase throughout Moscow, the Welhome report said. City authori-ties froze all new construction in the Central Administrative District last March and will continue to do so, the only exceptions being major renova-tions, the renovation of housing blocks, or the adaptive reuse of buildings, Vedomosti reported in February.

Although a 2009 government decree listed some industrial zones where housing developments are planned to be built, there is no com-prehensive plan for industrial rede-velopment as a whole, including for the development of commercial real estate on these sites, said Tatyana Sharova, director of project consult-ing and analysis at Welhome.

Nonetheless, growth of rede-velopment should happen naturally due simply to the lack of open land, she said.

“There are fewer and fewer land plots left,” Sharova said. At the same time, the viability of various redevel-opment projects greatly depends on each individual case, she added.

Since almost no empty land plots remain within city limits, redevelop-ment opens up possibilities for growth, agreed Natalya Chistyakova, a development director with consulting firm GVA Sawyer.

“Redevelopment of industrial buildings in Moscow stopped being a sporadic occurrence a long time ago,” Chistyakova said. “We expect the continuation and even escalation of this trend.”

Several landmark redevelop-ment projects are already under-way. For instance, the construction of the Krasnaya Roza business quarter, where the red-brick facades of the pre-Soviet factory buildings

ing buildings and build from scratch, consultants said. However, some old buildings are protected as sites of his-torical value, or because they include historical elements such as bomb shel-ters. In addition, adaptive reuse can sometimes be cheaper than starting afresh, depending on a building’s characteristics.

Several sites have been converted mostly into nightclub and gallery space, including Winzavod, Gazgolder and Artplay, because such venues are suited for the kind of large spaces found in former factories, allowing a developer to keep renovations — and therefore expenses — to a minimum, Sharova said. Meanwhile, placing offices or hotels in such spaces typi-cally presents more problems.

“In the center of Moscow, there’s a huge need for hotels, but if we take an [industrial] building, it isn’t accommodating for a hotel” in many cases, Chistyakova said. Often, the thickness of the floors results in a loss of usable space and frustrates the installation of the extensive plumbing needed to put a bathroom in each room, she said.

For offices, former factories usually have an “unfortunate layout, with big spaces and thick walls,” Chistyakova said. Even if these large areas are divided into separate offices, an unus-able, windowless space will often be left in the center, she said.

On the other hand, administra-tive buildings and institutes located on industrial sites are often ideal for offices, and can be turned into Class C premises with a few minor renova-tions, the consultants noted.

Despite the occasional difficulties of redevelopment, developers will be forced to consider it as an option more and more often, consultants said.

“We shouldn’t forget that there are almost no greenfield sites within city limits,” Chistyakova said. “And while you can of course build a lot cheaper on greenfield outside the city, the question is what will the rents and occupancy rates be like there?” SE

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Right now, what jumpsout at me is the enor-mous resource of theindustrial sites that areall around Moscow.

Christopher Choa, AECOM Design + Planning

have been preserved, is set to finish this year.

Previously, the LeFort business center, a 5-hectare complex with fac-tory buildings from pre-Soviet and Soviet times renovated into Class B office space, opened in 2006. The first building of the Danilovskaya Manufactory, a multi-use complex of reconstructed 19th-century red-brick structures and new buildings, opened in 2008. Investment in the project has been previously estimated to be over $100 million.

The Welhome report also high-lighted several industrial sites ripe for future redevelopment. These include approximately 15 hectares on the ter-ritory of the Frunze Central Aerodrome near the Aeroport metro station, where the construction of Moscow’s largest trade and exhibition center Aviapark is planned, the Kazakov First Moscow Instrument Factory near the Kutuzovskaya metro station, where much of the former factory is already being rented out as offices, the Brattsevo Industrial Zone near the Voikovskaya metro station and the Moscow Freight Rizhskaya freight yard near the Rizhskaya metro station.

Challenges of Adaptive Reuse

N ot every industrial site is suited to adaptive reuse, and in many

cases, it’s cheaper to tear down exist-


18

When Alexei Morokhovets set out to build a home for himself outside

Moscow, he pictured a traditional brick house. He ended up with one made out of hay bales.

Morokhovets’ house has become the prototype for an energy-effi-cient, economy-class “eco-house” being developed by a company he founded called FREEDOM. He plans for an eco-house with many of the same features to go on sale in June as a set of prefabricated, modular components ready for do-it-yourself assembly.

FREEDOM is just one of a num-ber of local projects attempting to apply green-building approaches to residential construction and features a number of energy-saving inno-vations. Besides the pressed bales

An Eco-House for the MassesAn Eco-House for the Masses

Green building often gets a bad rap for being too pricey. A new project aims to create a prefabricated house that’s both better for the environment and cheaper to build.

A worker going back inside the straw-insulated FREEDOM house.

The 300-square-meter house cost 4.73 million rubles ($160,000), or $525 per square meter, to build. Many traditional economy-class houses in Russia cost about 20,000 rubles ($660) per square meter to build, Eames noted.

For Morokhovets, cutting expens-es was what first led to cutting energy consumption. In 2009, he set out to build a house on his 15-hectare plot in the town of Pavlovksoye on Novorizhskoye Shosse, 35 kilometers beyond the MKAD. The highway is adorned by billboard after billboard advertising “dacha communities,” “cottage communities” and housing developments, many of them featuring photographs of brick or stone houses.

When Morokhovets started plan-ning his own brick house, however, he was nonplussed by the high prices of materials. He began searching for thriftier alternatives and learned more

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By Alec Luhn

of wheat straw (almost any straw will do) that line the wooden frame, insulating and reducing temperature fluctuations, the house has a boiler that can burn wood pellets or other fuels, heat-insulated, wood-frame windows and a solar water-heating system on the roof. The house con-sumes 38 kilowatt-hours of electricity per square meter annually, five times less than the Russian norm, according to Morokhovets.

The entrepreneur, however, is ada-mant that an even greater asset than the house’s efficiency is its affordabil-ity: He estimated that it will cost $300 per square meter to assemble the prefab set yourself, $500 per square meter if professional labor is used. Not only is it less expensive than other high-tech, residential green-building projects, it’s cheaper than analogous houses built with traditional methods and materials, he said.

“With the eco-house, there’s two ‘ecos’ — ecology and economy,” Morokhovets said.

Thanks to the second “eco,” the FREEDOM house could be a game-changer in Russia, contradicting the stigma associated with green build-ing — often projects promise future savings but are more expensive to build — and increasing its popularity for residential construction, experts said.

Cutting Expenses

T he FREEDOM house embodies the three pillars — environmental,

social and economic — of sustainabil-ity, according to Guy Eames, CEO and co-founder of Green Building Council Russia, which organized a recent tour of the house.

“In this case, it gets a lot of smarty points from the economical point of view,” Eames said.



Alexei Morokhovets displaying the buidling technologies employed in the FREEDOM house prototype.

An Eco-House for the Massesabout straw-bale construction and other techniques. That many of them are environmentally friendly came as an “extra bonus,” Morokhovets said.

Morokhovets took a critical approach to both traditional and green materials, as per his credo to test everything himself. At one point he even made a short “MythBusters”-style video to test the claim that walls of straw bales encased in wood could stop a round from a Kalashnikov automatic rifle (at a 10-meter dis-tance it couldn’t, but neither could wood, brick, concrete, cement board with basalt insulation, or structural insulated panel).

“I don’t believe the hay-bale construction sectarians who dance a khorovod around the house, singing psalms to the sun,” he said.

“On the other hand, there’s a lot of criticism [of green-building meth-ods] out here that’s entirely unrealis-tic,” he added.

Freedom of Design

M orokhovets started building his eco-house, which serves both

as a demonstration house and as his residence, in September 2011, finishing at the end of December. (The commercial version will require two months for assembly, he said).

The materials were donated by a number of partners, including Danish lumber producer DLH, German-Austrian heating technologies maker

conventional radiator-based heating system froze, but Morokhovets was able to improve the insulation around the area and solve the problem. The house’s modular construction and inexpensive materials accommodate additions and changes at any point — and straw isn’t hard to punch a hole through, he said.

Changing the Game

E ames believes the FREEDOM house will make an impact when

it goes commercial. The possibility of seeing Morokhovets’s home in per-son will overcome skepticism toward green building and allay worries the price is too good to be true, he said.

Potential buyers will “start realizing it’s cheaper to build, cheaper to run and healthier to live in,” since you’re not breathing in volatile organic com-pounds emitted by many construction materials, Eames said.

If such houses gain popularity, he added, it could significantly affect the residential housing market outside Moscow, bringing down prices as construction shifts toward the inexpen-sive, often local materials employed in the FREEDOM house.

One couple on the tour organized by the green-building council, Alexei and Alina Bezprozvannykh, said they were impressed by the house’s com-bination of ecological and economi-cal advantages and thought it would play well with buyers. They they will consider purchasing a FREEDOM house for themselves, they said.

“People like to live on the land, but building a brick house in the country-side is expensive,” Alina said. “This house will be accessible to every-one.”

According to Eames, the FREEDOM and Active houses, as well as other green-leaning housing projects such as the low-rise, economy-class subde-velopments built by Ecodolie, indicate that the worldwide sustainable con-struction trend is coming to Russia.

“These are just the first examples of this trend that we’re seeing now,” he said.

Potential buyers willstart realizing it’scheaper to build,cheaper to run andhealthier to live in.

Guy Eames, Green Building Council Russia

Wirbel, French construction materials producer Onduline, several Russian companies, and the German compa-ny BASF, the largest chemicals maker in the world. Morokhovets provided the financing himself.

The FREEDOM house’s simple techniques and materials, many of them locally produced, contrast sharp-ly with other energy-efficient residential projects, most notably the house built outside Moscow last year according to the international Active House con-cept. Although the 230-square-meter house features technology such as solar panels and a geothermal pump and can drastically reduce hot water and heating costs, it cost 28.5 million rubles (almost $1 million, or $4,350 per square meter) to build.

“The smart house idea has dis-credited itself,” Morokhovets said, arguing that the complex technology doesn’t merit the extra cost and lacks important functions.

“In general, it needs to be smarter and a lot cheaper,” he added.

Eames said the two projects are geared toward different market seg-ments.

“FREEDOM is an affordable house for your average Russian per-son,” he said. “Active House is for the gadget-loving person who likes smart buildings.”

FREEDOM house hasn’t always worked perfectly, either. At one point, indoor pipes carrying water for the

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Q1 2012INSIDER’S VIEW

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Сity Planning in Europe’s Largest City

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2011 was a year of sweeping plans, as Mayor Sergei Sobyanin oversaw the start of a freeze on building in the city center and a project to more than double the size of Moscow’s territory. City authori-ties are determined to tackle the capital’s notorious traffic, aging housing stock and chaotic construction to raise the quality of life and, they hope, turn the city a world finan-cial center. Andrei

Sharonov, Moscow deputy mayor for economic policy, dis-cussed these challeng-es with Alec Luhn dur-ing an interview with two journalists at the Moscow Urban Forum.


Q1 2012 INSIDER’S VIEW

developing city transport that's not street transport, so the subway first and foremost, extending it beyond the traditional boundary of Moscow, the MKAD, and organizing large transport hubs that will allow people who commute by car to Moscow from far away to leave their car and travel further on public transport. Otherwise, we'll be making separate lanes for passenger transport. This has already been started, maybe badly and not altogether discernibly, but it will develop, and bus traffic in these lanes will get smoother. The challenge is to make public transport more comfortable, more prestigious and attractive, and to stimulate resi-dents to make the transfer from their cars to public transport.

Will we see paid parking in the city center?AS: Of course. We are going to stimulate the creation of parking lots in every possible way, including paid ones. In fact, although we don't have a finalized economic model, it's obvi-ous that we're going to use parking partly as a stimulant to leave cars far outside the center. In other words, I think a model that is used in some other cities is possible, one that esca-lates the price of driving in the center. Like in New York, parking in the center costs $29 an hour for the first hour, the second hour costs $1, and the third hour also costs $1. Stimulants are created to discourage you to drive into the center in your own car. I think we need to look attentively at [New York's] experience because without measures to develop parking and roads, we won't be able to solve the problems of traffic jams in the center.

There's another problem related to the construction of housing. Residential buildings are often built without parking spaces for the residents of these buildings, and there's also the problem that land in Moscow is very expen-sive. What is being done to make Moscow more livable?

AS: Worldwide practice shows that most often large, developed cities are expensive cities. It's understood that in Moscow, the rarest resource is land. There's not enough land, so to make it cheaper or not use it for the best use isn't right and causes incorrect stimuli in any sense of that word, in terms of attracting businesses that aren't able to pay for the high price of the land and the creation of correspondingly low-paying jobs that aren't economi-cally viable on that territory. It's a con-sequence of the high attractiveness of and large interest toward Moscow as a place for investment and as a prestigious, interesting place to live.

Do you assume that prices will continue to rise?AS: I assume that it's not likely we'll see a situation where land in Moscow will dramatically decrease in price. Although in some sense you could say that the lack of turnover and the obscurity of rules ... created a specula-tive tendency that led to the unjustified spike in the price of land. I think that it's important to remember here the stimulating role of taxes on assets and land, that possessing these expensive resources should be a burden, which will stimulate the best use of land by anyone who buys it in order to create some sort of business.

When will new construction be allowed in the center again?AS: This is in fact a matter related to the general plan. It will only be allowed if the general plan anticipates such construction in the center, which I really doubt. We're talking about leaving developed, self-sustainable territory alone, as long as it's not a case of integrated development. There's a type of work related to old blocks of five-story and nine-story apartment buildings that have already outlived their usefulness, and eventu-ally or even now should be knocked down. This is a serious problem.

If the five-story apartment build-ings go, what will appear in their

The challenge is tomake public transportmore comfortable,more prestigiousand attractive, andto stimulate residentsto make the transferfrom their cars to public transport.

Moscow is still growing, and there's a major project to expand the city boundaries to the south-west. How fast is the population increasing, and in what areas will the city develop over the next five years?Andrei Sharonov: I can say that currently the the general plan of 2010 is still in effect, and right now we're in a stage of preparing for its revision. Now the city has already ordered and is working on a strategy of development through 2025 and has ordered a plan on the development of the Moscow metropolitan area. After these two documents appear, we'll be able to talk about modifications to the general plan, which can define in what direction, at what tempo and with what density the city will grow. Right now it's hard to predict the exact population, because the last census counted a little more than 11.5 mil-lion residents, while estimates say the current population is about 15 million people owing to those who come to Moscow to work. For this reason, it's hard to say how quickly we'll grow, but it's understood that the political decision about the [city's] territory gives us chances for development, for the creation of new gravity cen-ters for business and employers, as well as for the federal and Moscow governments.

Many problems are associated with the megapolis. The first is transport. What solutions does this problem require?AS: The main solution is the develop-ment of public transport. Today, the road network has such a low density compared with the number of resi-dents, and compared with examples set by other cities that are more successful in this regard, that the economically viable possibilities for its development, a so-called “afford-able solution,” are very few. For this reason, in many parts of Moscow, public transport is a rare solution, but in Moscow as a whole, it's the pre-ferred solution. We're talking about

Q1 2012INSIDER’S VIEW

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place? Will construction be even denser?AS: No, it's not a question of con-tinuing the model that was used pre-viously, where in the place of housing we built 10 times more housing. It's a question of rules of land use and con-struction, it's a question of the general plan, which will determine the target-ed zoning of separate land plots and the maximum amount of construction, if construction is allowed on those land plots.

Moscow also has a problem with trash, since a huge amount of trash is generated each year. In Europe, there are waste-processing sys-tems. Moscow has the first pilot projects in place, but as a system, this still doesn't exist here. Will anything be done in this regard?AS: Unfortunately, we don't have any breakthrough solutions on this for now. Currently, Moscow is function-ing in the same old way. We have a completely outdated situation in this

area. Moscow works through a state unitary enterprise that receives huge subsidies from the city. The level of secondary processing is very low, the level of unsanctioned storage of gar-bage is fairly high, and for this reason the situation is bad in this sector. This is probably a job for the authorities, to do something in this regard.

The city has announced it would sell bonds to raise money for its development. Are these on sale yet, and will this be a primary source of funding for your proj-ects?AS: Currently, the city's debt com-prises about ... 240 billion rubles ($8 billion). On the revenue side of the budget, there was 1.5 trillion rubles ($50 billion) for [2012]. In other words, [the debt] is a relatively small portion and is lower than all limits set by the federal authorities. The execu-tion of the 2011 budget was done in such a way that we have funding sources to settle these debts, and

we don't plan to enter the financial markets in 2012. To talk about the future, we're looking at such a possi-bility, but probably not before 2013. It depends in part on how successful and cumulative the realization of the investment program will be, because this year we didn't meet the level of investment that we foresaw when we planned the 2011 budget.

What was the reason for that?AS: Well, the lack of project docu-mentation. We can't start a lot of con-struction work because there aren't any projects. It's a question of time, it's a question of preparing land plots that aren't ready to use. [Another reason is] the demolition of buildings not being carried out; buildings aren't demolished to free up space for construction.

Is there any city that can serve as a model for Moscow?AS: No. There can't be, because as we heard at the conference, the experience of all cities is so different that there are a lot of prototypes, and different prototypes work or don't work for different situations, for differ-ent needs. Therefore, this is probably a matter of studying individual experi-ences and constructing our own com-bination of these instruments. Every city is unique, and we can't blindly copy the experience of one city. But we can say that in some cities, certain problems were solved successfully. Today we saw examples of these cit-ies, Australian, European, American ones, but they started with different situations. The starting point for each of them was different. The traditions and beliefs were their own. Some believe more in the development of infrastructure, in bicycles, in the envi-ronment, some don't fear raising the congestion fee sharply and just strictly limiting transport coming in, some try to develop infrastructure so that trans-port comes into certain limited places. Some cities try to increase the amount of parking, others deliberately reduce it to discourage the use of automo-biles as a matter of principle.

It’s not a question ofcontinuing the previ-ous model, where in the place of hous-ing we built 10 timesmore housing. It’sa question of thetargeted zoning ofseparate land plots.


Q1 2012 ST. PETE SCENE

Retail Leads Booming Commercial Real Estate Market in St. PetersburgBy Olga Kalashnikova, The St. Petersburg Times

S t. Petersburg was the “breakthrough of the year” on the world’s commer-cial real estate market in 2011, as the investment volume here increased

almost 10 times to $2.1 billion, according to Global Capital Flows research published by Jones Lang LaSalle. As a result, St. Petersburg, which had never been ranked among the top 100 cities in terms of real estate investment volume, entered the list in 34th place.

Whereas the research showed that the office sector continues to be favored by investors worldwide, this segment accounted for just 6 percent of transactions on the St. Petersburg commercial real estate market, according to Colliers International data.

Instead, the most dynamic St. Petersburg real estate sector is retail, which accounts for 70 percent of the total investment volume, according to Colliers International. This sector may soon see Russia’s largest real estate deal ever: A Morgan Stanley real estate fund agreed to buy the Galereya shopping center in central St. Petersburg from Meridian Capital CIS Fund for about $1.1 billion, Bloomberg reported in January.

The deal “proves that in spite of the worries of international investors concerning Russian projects and real estate assets, a quality and attractive investment project can be interesting to large foreign investors,” said Nikolai Pashkov, general director of Knight Frank St. Petersburg.

One trend in retail is a distinct pattern of shopping areas that has gradually formed in the city, including the boutique street Bolshaya Konyushennaya Ulitsa, the fashion hub Bolshoi Prospekt on the Petrograd Side, the restaurant street Ulitsa Rubinshteina, shoe-store streets Vladimirsky Prospekt and Zagorodny Prospekt and the jewelry street Mikhailovskya Ulitsa. Sadovaya Ulitsa has historically been popular as a medium and lower price shopping zone.

With the opening this year of a luxury shopping complex on Bolshaya Konuyshennaya Ulitsa, Nevsky Prospekt will lose its image as the main upscale shopping street, analysts said. The number of stores in the top price segment on Nevsky has decreased since the onset of the economic crisis.

Nevertheless, the rental rates for the retail segment on Nevsky remain at the level of European cities, said Natalya Kireyeva, senior analyst in the consulting and valuation department at Maris, part of the CBRE affiliate network.

Although in most European cities the rental rates have returned to pre-crisis levels, St. Petersburg, where rates fell by almost 50 percent, will reach former figures only by the end of this year, experts believe. By the end of 2011, the rental rates on Nevsky Prospekt varied from 3,000 to 8,000 rubles ($100 to $268) per square meter per month, according to Maris experts.

“The forecast for street retail is stable high demand for retail premises that will lead to steady further growth of rental prices,” Kireyeva said.

“On average growth will not exceed 7 [percent] to 10 percent per year,” she added.

Currently, about 25 projects — both new and previously frozen ones — representing 650,000 square meters for rent are planned to be opened between 2012 and 2014, according to Colliers International experts.

As for the office real estate market, last year saw growth in rental rates and a decrease in the volume of empty premises. This year, six new Class A business centers and 12 new Class B ones are due to open, according to Maris. Almost half of these premises are located in the Moskovsky district.

Meanwhile, only one warehouse terminal was opened last year. In the absence of new offers yet faced with high demand, the market saw a lack of available premises in quality warehouse complexes. Just over 500,000 square meters of quality warehouse projects are currently under construction or planned, compared to 2 million square meters before the crisis, according to Maris experts.

GALEREYA SHOPPING CENTER IN ST. PETERSBURG/ YEKATERINA KUZMINA/ SPT/

Q1 2012IN THE REGIONS

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Anastasia Tsyganova, project man-ager at GVA Sawyer, said via e-mail. “This is a low ratio for a city of 1.5 million. In Yekaterinburg, for instance, there are 3.7 rooms per 1,000 residents.”

Surprisingly, although mini-hotels are abundant in the city, only three major hotel projects — SkyPort Hotel, DoubleTree by Hilton and Avanta — have been realized in the de facto capital of Siberia over the past decade.

In October 2008, SkyPort Hotel opened at Tolmachyova International Airport. The hotel has 149 rooms, and its main guests are passengers in transit and airline crews. The cost of realizing the project has been estimated at 285 million rubles ($9.5 million). SkyPort Hotel was put into

Over the past decade, more than 40 hotel projects were announced in Novosibirsk,

most of them never to be built. At various times, major global

hotel chains including Marriott, Swiss Hotel, Kempinski and Holiday Inn announced the start of con-struction. Today, however, only the DoubleTree by Hilton has been built, while the Domina Hotel Novosibirsk is still under construction. Most of the other projects were either frozen or rejected at the development stage.

A variety of challenges face hotel developers, including an irregular influx of customers and a range of competitors. Nonetheless, inves-tors’ passion for Novosibirsk has not

By Yelena Morozova

Hotel developers see an opportunity in the low number of rooms. Irregular demand, however, means existing hotels are occasionally overbooked but otherwise empty.

dissipated, and international and Russian companies alike have plans to build hotels here.

Meager Results

T oday, Novosibirsk has more than 50 hotels, but none of them

are five-star establishments. Four-star status is held by only three. Two of these, SkyPort Hotel and DoubleTree by Hilton, were built between 2008 and 2010. This January, the Novosibirsk, a 24-story congress hotel built in 1985 and fully reconstructed over the past two years, also gained four-star status. Three hotels hold three-star status, and the rest have not been rated.

“The current supply of hotels in Novosibirsk amounts to about 1.29 rooms per 1,000 residents,”

Novosibirsk Bottleneck

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The current supplyof hotels amounts toabout 1.29 rooms per1,000 residents. Thisis a low ratio for a city of 1.5 million.

Anastasia Tsyganova, GVA Sawyer


Q1 2012 IN THE REGIONS

operation as a three-star hotel, but half a year later it was certified as four-star. The hotel is co-owned by the airport and its former executives and managed by a specially cre-ated managing company.

DoubleTree by Hilton, construc-tion for which began back in 2006, was significantly delayed. First it was expected to be completed in fall 2008, then in mid-2009. Rumors spread on the market that Hilton representatives were not satisfied with the doorknobs and wallpaper in the rooms.

The setback was caused by delays in construction, as well as in agreeing and deciding on techni-cal issues, a Hilton spokesperson said at the time. In Russia, there aren’t any organizations that have experience in building and fitting out international-class hotels, the spokesperson added.

The hotel complex finally opened in September 2010. With a total area of about 10,000 square meters, the hotel has 188 rooms, 10 apartments and one presidential suite. Investment in the project, which was provided by London & Regional Properties, has been estimated at $65 million. The managing director of London & Regional Properties in Russia, David Geovanis, has tagged the payback period of Novosibirsk’s Hilton at seven to 10 years.

Construction of the three-star, 46-room Avanta hotel, which started in 2007, finished and the hotel opened last year. Its cheapest room goes for 2,700 rubles ($90) a night, the most expensive for 6,000 rubles ($200).

The results are more than mea-ger for a city of 1.5 million that claims the status of “capital of Siberia.” But why? After all, over the past decade more than 40 hotel projects have been announced in Novosibirsk, although the major-ity of them sank into oblivion at the development stage.

The problem lies in the fact that the city periodically experiences a deficit of hotel rooms, but at other

market, in early 2008, Novosibirsk businessman Alexander Boiko announced the construction of a five-star hotel in the Siberian capital. He rented a 0.18-hectare plot in the very center of Novosibirsk and developed a project for an eight-story hotel with 100 to 120 rooms and a total area of about 12,000 square meters.

Boiko, who owns the contracting company Siberian Hotels, believed that construction would cost him 500 million rubles ($17 million), which he hoped to earn back within five years. He promised to open the hotel com-plex as early as 2010, but then the financial crisis prompted significant adjustments to the investor’s plans.

Now the construction of the hotel is moving in baby steps. At the begin-ning of this year, only the carcass of the building was in place.

“It’s difficult to work with our domestic designers and builders,” Boiko said, explaining the reasons for the delays in construction in an interview with the website NGS. “They currently aren’t able to work in a way that observes deadlines, to keep their word and be responsible for doing so. This is why you have to do a lot of stuff on your own.”

However, the company’s finan-cial problems may also play a role. Boiko was relying mainly on bor-rowed money for the project, and with the onset of the financial crisis, bank loans got significantly more expensive. In order to finish construc-tion, the businessman tried to sell his Greenwich business center. After he couldn’t sell that, he sold his gas station chain.

Over the course of construction, the overall project has been changed. Now there’s talk not of a five-star hotel, but of a four-star one with 10 more floors and 175 rooms. It’s likely the hotel won’t open its doors to visi-tors any earlier than 2013.

The hotel will be managed by a world-renowned operator, “one of the top three,” Boiko promised. Earlier, he said negotiations were

centrated, which is why the demand for hotels from representatives of the business segment in Novosibirsk is fairly high.

“Considering this, the town has few quality hotels that offer accom-modations and services in line with international standards,” Yekaterina Yanut, a manager of assurance and advisory services at Ernst & Young, said via e-mail. “It’s this fact in particular that generates interest among investors to invest in the hotel segment.”

The realization of the majority of hotel projects began between 2006 and 2008. Before that time, “market niches in other segments were near-saturated, and long-term-minded investors sought new opportunities to become the first ones on new mar-kets where demand clearly exceed-ed supply,” Yanut said.

Hotels continue to appear, partly because some regard them status symbols. Practically every leading local businessman considers it his duty to build a hotel in the city, or at least to announce that he intends to, said Oleg Toropkin, general director of the River Park hotel.

“Just like any self-respecting sheikh in the United Arab Emirates cannot imagine himself without his own hotel, Novosibisk’s businessmen have difficulty being content without realizing their own hotel project,” Toropkin said in an interview with the newspaper Kontinent Sibir.

For instance, at the very peak of the Russian commercial real estate

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The Gorsky neighborhood stand-ing on the western bank of the Ob.

times the hotels remain empty, experts said.

“Novosibirsk’s hotel market does have a bottleneck — five or six weeks max, during Siberian Fair events. The rest of the time, the hotels are empty,” said Sergei Dyachkov, man-aging partner of DSO Consulting.

In fact, Novosibirsk is hardly a tourist Mecca. More than 90 per-cent of Novosibirsk hotels clients are travelers on business trips.

“There’s nothing special to see in Novosibirsk,” Dyachkov said. “The city isn’t a tourist gem. It’s a place for business trips. The average stay at a Novosibirsk hotel is 2 1/2 days.”

“There’s not enough hotels for those who come to see relatives, visit hospitals, apply to universities or just come on vacation — for regular folks who don’t have 4,000 to 6,000 rubles [$130 to $200] to spend on a room for the night. Right now, they have to stay at apartments or with rel-atives,” Tatyana Kazakova, director of the Sibakademstroi-Nedvizhimost analytical center, said via e-mail. “There are also not enough hotels of the highest class for the potential clients that occasionally visit. The construction of such a hotel requires big investments and high operating costs, and occupancy would be intermittent.”

Status Symbols

N ovosibirsk is the center of indus-try, science, culture and trade in

Siberia. It is where the business activ-ity of the entire Siberian region is con-

Q1 2012IN THE REGIONS

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The SkyPort Hotel, which opened in 2008, often serves travelers coming from the nearby airport.

under way with Interstate Hotels & Resorts, operator of the Holiday Inn and Marriott hotels in Moscow.

The Trans-Blok corporation, which belongs to Novosibirsk busi-nessman Voldemar Basalayev, is building a hotel with an expect-ed 20 apartments in downtown Novosibirsk. The ordering company planned to finish the project in May 2011, but they, too, erred in deter-mining the time period. The new deadline for completing the hotel is May 2012.

Hotel Tragedies

F ederal and international opera-tors are also seriously interested

in the Novosibirsk market. But, with the exception of Hilton, other global hotel brands do not have a pres-ence here. This is likely part of the attraction for many would-be developers. They strive to build in Novosibirsk, but the rough Siberian city does not meet everyone with open arms.

Last April, the Rezidor Hotel Group announced its intention to build a hotel in Novosibirsk. It plans to erect the Park Inn Novosibirsk by 2014 in close partnership with a

“regional hotel chain.” The hotel is expected to have 150 rooms.

“Development of the city’s infra-structure will drive demand for hotel rooms,” said Rezidor Hotel Group president Kurt Ritter. “However, despite this, Novosibirsk is expe-riencing a deficit of international brand-name hotels. We see huge perspectives for business develop-ment here and are looking forward to the opening of Park Inn Novosibirsk, which will become one of the key business hotels in the city.”

In 2010, the Albergo holding (part of Estonia’s Pro Kapital Grupp) began building the four-star Domina Hotel Novosibirsk, which is pro-jected to have an area of 17,100 square meters and 218 rooms, next door to the Azimut Hotel Sibir. The contractor had planned to finish its construction at the end of 2011, but the build period has been dragged out.

A new hotel is also under con-struction on the western bank of the Ob River, which has always been a bedroom community in compari-son to the city’s business center on eastern bank. No large hotels exist on the left bank, although there

should have been one: In 1968, the construction of the 20-story Tourist hotel, which was to have a maximum capacity of 800 people, started on Karl Marx Square. The main construction was finished in the early 1980s, and then the project ceased. The “candle” on Karl Marx Square was left as a monument to Soviet standardized construction.

Today, a three-star hotel with 150 rooms is being built on the west-ern bank. The hotel will be put into operation in late 2012 and become a part of the Gorsky multipurpose complex, although the owners of the complex have not been disclosed.

The amount of investment in the construction of the hotel is also under wraps, although it’s known that in early 2011 the Omsk branch of the west Siberian arm of Sberbank Russia approved a 240 million ruble ($8 million) loan for the completion of the construction on the hotel com-plex. The Azimut Hotels Company, which owns and operates the Azimut Hotel Sibir (formerly the hotel Sibir), will manage the hotel.

The location of the future hotel isn’t bad: Although it’s situated in a residential part of town, it’s with-

Development of infra-structure will drivedemand for rooms.Novosibirsk is expe-riencing a deficit ofinternational hotels.

Kurt Ritter, Rezidor Hotel Group

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in walking distance of the metro. Nonetheless, it won’t be able to count on maximum occupancy, said DSO Consulting’s Dyachkov.

“The maximum that the hotel can expect is 40 to 45 percent occu-pancy,” he said.

Clients of three-star hotels are usually employees of small and mid-sized businesses who are on tight budgets and take note of even small differences in price, he added. For such clientele, the city’s hotel market is already full, and the demand for hotel services will not significantly increase before the end of 2012, he said.

From investors’ point of view, possibly the most tragic hotel project in Novosibirsk was the Holiday Inn. Moscow-based developer Clover Group conceptualized the project and planned to invest $40 million to $45 million in the 214-room hotel. In 2004, the mayor’s office allotted the company its desired land plot on Narymsky Square in the city cen-ter. Buildings were demolished and trees and shrubbery removed in the area slated for construction.

Then environmentalists, state prosecutors and the public at large began to meddle in the develop-er’s plans. Novosibirsk residents condemned the decision by local authorities to allot the hotel a por-tion of already scarce parkland, and they took to the streets in protest.

The opposition attracted the attention of the Prosecutor’s Office, and the developer was forced to halt construction of the Holiday Inn by court order. On the website of Clover Group, however, a statement appeared saying construction of the first segment of the Clover Citycenter business park (which includes the Holiday Inn) began in the second quarter of last year. Completion is expected in 2014.

“It’s highly doubtful that the investors who announced the hotel construction project on Narymsky Square will begin to build the hotel

in the near future,” said Toropkin of River Park Hotel. “The project has clearly lost its immediacy. I think they should by thankful to the residents of Novosibirsk, to the defenders of the square, whose opposition toward the construction did not enable the organizers to enter into building the hotel on the eve of the financial crisis.”

Irregular Flow of Customers

I n the opinion of analysts, Novosibirsk’s hotel market is not

only approaching saturation but has passed this threshold.

“The absolute maximum for Novosibirsk is two four-star hotels,” Dyachkov said. “Today, there are already three in town, and several more are being built. With the com-missioning of even one more, over-production would be unavoidable.”

The construction of new hotels will lead to a price war, and the prices of hospitality services will inevitably fall, just as they did during the first wave of the financial crisis. According to Toropkin, they fell then by at least 25 percent.

“This was a result of the unbal-anced actions by the main market players,” he said.

Beside turnover and profits, reputations can suffer, as well. In the case of a reduction in price for hospitality services, the target audience’s image of hoteliers could change for the worse, experts said.

In addition, predatory pricing will inevitably affect projects’ buyback periods. Today, buyback periods are about 15 years, and business profitability is 7 percent to 8 percent annually. The appearance of new hotels in Novosibirsk could lead to a collapse, however.

“It would be about the same as it is now in Yekaterinburg, where six serious hotels entered the market over the course of a year and a half, and now their occupancy rates are 16 to 20 percent,” Boiko said. “The same thing could happen to us.”

According to Boiko, the city needs the 1,000-person capacity of the planned three- and four-star hotels. Not all at once, but rather with an interval of two years.

Estimations of the occupancy rates of Novosibirsk hotels differ. Hotel managers said their hotels are 60 percent to 65 percent full on average, but experts tended to disagree.

“The average indicators of hotel occupancy don’t exceed 50 to 55 percent, whereas on a civilized mar-ket, the construction of new hotels is reasonably if hotels are 65 to 75 percent full on average,” said Tsyganova of GVA Sawyer.

Analyst Kazakova said the main problem that Novosibirsk hotels face is the absence of a regular flow of customers.

“The current hotel occupancy is irregular,” she said. “During periods when there are large events, the number grows. Also, the occupancy of luxe rooms rises during wedding season. The rest of the time, hotels’ occupancies are pretty low.”

Dyachkov said the occupancy rate at Novosibirsk hotels has his-torically been about 40 percent, reaching 42 percent in good years and 38 percent in bad years.

“Last September, the director of the Doubletree by Hilton was fired because the hotel’s occupancy rate was only 39 percent, whereas they had counted on an occupancy of 60 to 70 percent,” he said.

Nevertheless, the hotel business will continue to develop actively in Novosibirsk, Tsyganova said.

“The influx of travelers to Novosibirsk is increasing, partly thanks to … entrepreneurs from nearby regions,” she said. “For this reason, the number of hotels on the market will increase not only in the upper-price category but also in the middle-price category. The hotel real estate market in Novosibirsk has kept its potential, and the crisis only moved its active development back a few years.”

During periods whenthere are largeevents, the occupancygrows. The rest of thetime, hotels’ occupan-cies are pretty low.

Tatyana Kazakova, Sibakademstroi-

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age usually require more energy than those where significant temperature variations can be tolerated.

Similarly, warehouses that also house manufacturing or retail units such as hardware shops will require more energy than storage buildings. Manufacturing uses energy but also emits heat that can reduce the energy required for space heating. Retail units need more lighting and often have tighter temperature controls than storage and distribution facilities.

Typically, hot and cold water consumption per square meter of a warehouse facility is relatively low compared with office or retail spaces due to its large operational areas that do not require water use. However, administrative facilities in warehouses usually have showers and changing rooms that require a lot of water. Irrigation requirements are typically minimal due to simple landscaping. Investment in expensive drip-irrigation systems would likely be ineffective given the simple landscaping, but rainwater harvesting and gray-water utilization could be considered.

As waste can become a sig-nificant cost for distribution centers, separate waste collection has a lot of potential in the warehouse sector. Waste generated at a warehouse facility typically includes packaging and pallets, or cardboard and wood. A significant amount of this waste can be removed by the recycling compa-nies that are starting to emerge in the Moscow and St. Petersburg regions. A facility usually has to produce at least 1 ton of recyclable waste to arrange collection for free. Adding a

ings, but increasingly developers and owner-occupiers of industrial buildings are also coming to understand the commercial benefits that sustainability can bring. These include lower opera-tional costs, insurance against more onerous regulations and increased energy prices in the future, and the ability to attract good tenants.

The last of these is key for today’s green warehouse pioneers. Sustainable warehouse construction is an established trend in all devel-oped countries, and major ware-house developers have committed to green building certification. For instance, ProLogis announced as far back as 2008 that it would register each building with the USGBC to be considered for LEED certification, the U.S. national standard for environ-mentally responsible construction.

The reason to adopt such a pol-icy is that certified buildings provide multinational tenants with distribution-facility options that further their own sustainability agendas. International retailers and logistic companies oper-ating under corporate sustainable purchasing policies expect to work out of the same type of facilities in emerging markets.

In Russia, certification holds further importance as an indicator of building quality on the local market, where there is no clear definition of Class A warehouse facilities.

Costs and concerns

T he operational energy consump-tion of warehouse buildings varies

greatly depending on their function. Warehouses that provide cold stor-

The growth of the retail and distribution sectors over recent years has led to the construction of many large, single-

story distribution warehouses in the Moscow region, St. Petersburg and a few other major cities in Russia. Virtually all of these buildings are steel-framed and clad with structural insulated panel envelope systems.

The so-called “shed” sector, which includes such buildings, is now one of the most efficient and successful in Russian construction and is predicted to grow further over the next five years. This sector attracts the best project teams, who realize that it is not enough to just talk green.

The first BREEAM- and LEED-certi-fied industrial buildings are starting to emerge in Russia. Building green warehouses not only allows compa-nies to meet increasingly strict energy-efficiency regulations, but also to attract good tenants. A variety of approaches to the design and management of warehouses can improve energy effi-ciency and reduce running costs.

Why go green?

C urrently, incentives are mainly focused on improving operation-

al energy efficiency and achieving high BREEAM or LEED ratings.

In 2009, the Russian government set an ambitious and legally binding target to improve national energy efficiency by 40 percent by 2020 as compared to a 1990 baseline. The operation of buildings currently accounts for about half of Russia’s energy consumption, and significant

Building a Green Warehouse

Implementing the right design and management strategies can cut operational costs, anticipate stricter energy-efficiency regulations and attract good tenants.

By Ksenia Agapova, Sustainability Manager, Jones Lang LaSalle, Russia & CIS

improvement in the performance of new and existing buildings is required if the target is to be met.

Beginning in January 2012, all buildings with an energy bill of more than 10 million rubles ($330,000) are required to have energy passports. At the moment, however, the officially approved form of these passports remains unknown.

Moreover, an order issued by the Regional Development Ministry in 2010 sets ambitious targets for all nonresidential buildings to increase energy efficiency by 15 percent every five years starting in 2011. But these targets only apply to the energy consumed by heating and ventilation systems; other energy uses are not regulated. The system lacks explicit mechanisms for energy control and monitoring. Yet despite its undevel-oped state, it could be seen as a future concern for property owners.

Clearly, regulation has an impor-tant role to play in improving the energy efficiency of warehouse build-


Q1 2012 MONEY MATTERS

special place for waste accumulation cannot only improve environmental performance, but also reduce waste removal costs by 70 to 80 percent.

Strategies to improve performance

Energy-efficient lightingLighting is the most significant energy consumer in warehouses, account-ing for around three-quarters of total consumption. Efficient lighting sys-tems coupled with optimum roof-light design are key to delivering opera-tional energy savings. The complexity of the interaction between the roof-light design, lighting systems, day-light dimming and storage racking in warehouse buildings requires careful consideration during the design stag-es and, if possible, detailed dynamic thermal simulations.

Adding to the complexity of the system is the fact that international standards typically require significant levels of lighting automation — up to 90 percent of the total gross floor area. If designed properly, daylight and occupancy sensors have the fast-est payback periods compared with other energy-efficiency measures, up to 0.5 percent per year.

Envelope efficiency and heat distributionBuilding using structural insulated pan-els has proven its efficiency not only in terms of construction periods, but also energy reduction. Increasing the insulation layer by 20 to 30 percent can reduce heating energy needs and help to implement free-cooling strategies in the summer through ther-mal mass effect, whereby the building resists temperature changes. Evidence exists that this strategy works effective-ly in the Moscow region even through the hottest summer months.

It is also worth mentioning that the indoor environmental requirements for warehouses are relatively relaxed compared with those for office facili-ties, which makes free-cooling strate-gies even more attractive.

Heat distribution methods contrib-ute greatly to a building’s energy efficiency. The most common of these methods include air-distribution sys-tems and water heating for the office space in a warehouse. Air distribution for a high volume of operational area (typically 8- to 12-meter ceil-ing heights) seems an unreasonable waste of resources when covering only the 2 meters above the floor should maintain a certain level of tem-perature control. Underfloor heating systems (using water pipes) can also reduce energy use. Typical savings from heating only the first 2 meters of space above the floor can be up to 40 percent of heating demand.

Climate control in office partsOffices require higher levels of com-fort and therefore more control over operating temperatures, which is why localized climatic systems are rec-ommended. Window design for an abundance of daylight and com-fortable natural ventilation could be beneficial for increasing productivity, as well as reducing energy consump-tion. For instance, providing separate levels of window-opening control can change how often occupants use them for ventilation.

When designing climate control systems, engineers should keep in mind that a smoking ban and utili-zation of low-emission paints and varnishes could reduce the ventilation rates needed and contribute to the systems’ efficiency.

Energy managementIt is useful to remember that if you cannot measure, you cannot improve. Installing an energy submetering sys-tem can help the operating team define the largest energy consumers and identify system failures. It is usu-ally good practice in facility man-agement in Russia to measure and record monthly energy consumption; specialized systems enabling auto-mated monitoring and record-keep-ing reduce managerial efforts and can help to draw a better picture of

energy consumption. Energy man-agement typically accounts for 20 to 30 percent of energy savings.

New technologiesThe amount of renewable energy technology available in Russia is not significant — in 2011, renewable energy accounted for less than 1 percent of all energy generated in Russia, excluding hydropower – but is increasing rapidly. The most common technologies include heat pumps, solar panels and biogas energy sys-tems. While biogas technology might be ineffective for a typical storage warehouse (due to the small amounts of biological waste generated there), and heat pumps are not sufficient for effective heating strategies, solar panel technology can be utilized due to the large roof space available.

However, this technology requires additional expenditures, not only on the equipment itself, but also on strengthening the structure for increased loads. This measure is pre-dicted to incur an increased capital cost of 19 percent with a payback period of 25 years.

Feasibility studiesBefore any of the solutions described above can be implemented, the eco-nomic viability of each should be checked and payback periods calcu-lated. For instance, when conducting a feasibility study on renewable ener-gy technologies, the life-cycle cost should be assessed using a simple net present value (NPV) calculation. The NPV should be calculated based on the expected maintenance, opera-tional and component replacement requirements over a 25-year period. This represents the maximum likely life cycle, after which full asset replace-ment would have to be considered for the LZC technologies analyzed.

Payback periods for energy effi-ciency measures range from half a year for automated controls to three to four years for energy efficient light-ing to 20 to 25 years for renewable energy technologies.

Payback periods forenergy efficiencymeasures range fromhalf-a-year for automated controls to 25 years forrenewable energytechnologies.

Q1 2012LEGAL NOTE

30

sure that parking spaces are assigned to specific owners, the co-owners may enter into an agreement to set rules of ownership and use of the entire parking facility, or the proce-dure for using the parking facility may be established by a court.

Secondly, there are significant limitations on the sale, rent or other disposal of a parking facility or indi-vidual parking space as a tangible asset. The disposal of assets in shared ownership is subject to the approval of all co-owners. Thus, from a purely legal standpoint, a co-owner is sup-posed to obtain prior consent of all other co-owners to rent a parking space, which is quite difficult in prac-tice and, in fact, is rarely done.

Thirdly, under the Russian Civil Code, the sale of a share in the shared ownership of premises is sub-ject to the pre-emption rights of other co-owners, which greatly complicates the transaction.

This legal requirement applies not only to the rights of individuals and entities acquiring parking spaces for personal use, but also to the rights of development companies that build parking lots and garages with a view to sale. Therefore, after such an entity sells a share in the shared ownership of a parking lot or garage to the first buyer of a parking space, it will need to obtain his or her consent for the sale of the next share in the shared owner-ship, and each new sale it makes will be subject to the prior consent of all the existing co-owners.

Thus, the current situation unduly limits the rights and legal interests not only of those acquiring parking spac-es, but also of the entities that build parking facilities aiming to sell them.

This problem can be solved only by amending current Russian civil legislation to enable parking-space owners to register parking spaces as legal objects and obtain individual ownership, because currently even the explanations of Russia’s highest courts are not sufficient to secure the rights and legal interests of parking-space owners.

parking spaces were separated from each other with floor markings only.

Thus, the case law defines “being separated” as structural (physical) separation of a unit from other units. As a rule, such separation is achieved by using wall constructions. Therefore, the separation of a parking space with floor paint, which is common practice, does not create a separate unit.

As a result, parking-space owners are legally unable to acquire individ-ual ownership of their parking space (unless it is physically separated) that can be registered and confirmed with an ownership certificate.

So how are titles to parking spac-es currently registered in Russia? In the absence of physical separation between them, parking spaces are treated by courts and registration authorities as parts of nonresidential premises inside parking lots or garag-es. When this approach is taken, the buyer of a parking space does not receive individual ownership of the space, but rather a share of owner-ship in the entire parking facility.

However, the legal regime of shared ownership of property in Russia involves significant limitations on the use and disposal of the property that is in the shared ownership. Firstly, each of the co-owners is entitled to use a portion of the parking facility in proportion to his or her share in the shared ownership, so often a parking space that one co-owner believes to be his or her property may be quite legitimately used by another.

To avoid such situations and make

The problem of registering the ownership of park-ing spaces in covered, multi-level parking facili-ties and underground

garages with the state is becom-ing increasingly urgent in Moscow, St. Petersburg and elsewhere in Russia. Indeed, virtually no high-rise residential or mixed-use projects are built now without parking facilities catering to residents or visitors.

Naturally, parking-space owners need legal certainty of their right of ownership to that object. They would ideally like to have their rights to one or more parking spaces confirmed with certificates of ownership of those spaces. However, owners are often unable to achieve this because of existing legislative barriers.

Under Russian law, immovable properties subject to state registration include the following objects: plots of land, subsurface plots and all land-related assets that cannot be relocat-ed without causing disproportionate harm to their functionality, including buildings, structures and residential and nonresidential units.

A “unit” is the smallest part of a building or structure for which owner-ship can be registered. To register a title to a car space under the existing legislation, one has to prove that the space meets the definition of a unit, specifically, a nonresidential unit.

Russian civil law does not define the term “nonresidential unit.” But by interpreting several legislative acts, a nonresidential unit may be classi-

No Good Way to Buy Your Own Parking Space

Existing legislation lacks provisions to allow the individual own-ership of spaces, hampering car owners and developers alike.

By Anton Chermykh, Manager, and Dmitry Tetiouchev, Partner, Ernst & Young

fied as a separate unit that qualifies as a real estate property and is not intended for permanent residence.

In one case, the court refused to recognize a parking space as a nonresidential unit, arguing that the documents relating to the case did not contain information on the physi-cal boundaries that would separate the parking space from other parking spaces in the lot. In that case, the

Q1 2012APPOINTMENTS

32

Cushman & WakefieldDavid Jenkins, head of hos-pitality for Russia and the CIS, has been promoted to partner. Jenkins has 20 years' experience in the hotel business, 17 of which have been in Russia. He joined Cushman & Wakefield in May 2010 to found and head the regional hospitality department. Prior to Cushman & Wakefield, Jenkins worked as regional head of hospitality at DTZ, head of the Russian office of Horwath HTL and performed various roles in hotel management and opera-tions for Marriott, Starwood and Rezidor. Since 2006, Jenkins has served as a consultant for more than 100 projects related to hotel real estate.

Stanislav Bibik, senior director of capital markets and valuations, has been appointed partner. Bibik has worked at

Cushman & Wakefield since 2004 and has considerable experience advising clients on the commercial real estate mar-ket from acquisition and sales to valuations, investment analysis and fundraising. Bibik gained significant knowl-edge and international experi-ence while working at the firm's London office in the department of investment and corporate finance. He is a certified mem-ber of the CCIM Institute, the British Royal Institute of Certified Specialists, the Russian Society of Appraisers and the Certification Commission of RICS Russia.

CBREAlexander Polenok has been named executive managing director of CBRE’s Russian busi-

ness. Polenok brings to CBRE sig-nificant financial and professional services experience, joining from the Russia-based international banking and finance company VTB Group, where he was CEO of their factoring business. Prior to that, he spent more than three years at McKinsey & Company. Polenok has a range of previous experience in international invest-ment projects and companies.

Dmitry Klapsha has joined CBRE as associate director of the office agency department. Klapsha will be responsible for the further development

and growth of the projects portfolio, as well as increas-ing transaction volumes for the office agency business. Klapsha has eight years’ experience in sales and advisory services. He was a senior consultant in the office agency at Cushman & Wakefield for four years. Klapsha has a master’s degree in political science from the Central European University in Budapest, Hungary, and a bachelor’s in economics with a specialization in international economic relations.

FIABCIAlexander Sharapov has been promoted to president of FIABCI-Russia. In December 2011 in Lisbon, Sharapov was named vice president of the International Real Estate Federation FIABCI worldwide for development and investments.

He is also vice president of the Guild of Property Managers and Developers and president of NAI Becar.

Jones Lang LaSalleSvetlana Yarova has been appointed head of Jones Lang LaSalle’s High Street retail department. Yarova is responsi-ble for strengthening the depart-ment and managing relationships with landlords, tenants and investors.Prior to joining JLL, Yarova worked for Astera Group for eight years. Her professional suc-cesses include the attracting of retail portfolio holders as well as shopping center owners to the company and negotiating retail lease deals with such compa-nies as M.Video, O’STIN, ION Centre, Adidas and Renaissance

Credit Bank. She has concluded lease and acquisition deals for more than 200 retail outlets in Russia.

Knight FrankDmitri Vorobiev has been made key account director for the retail real estate department at Knight Frank Russia and the CIS. His responsibilities include managing relations with major developers, local authorities and the largest retail tenants in Moscow and the regions. Vorobiev will also initiate and lead sales of existing retail prop-


Q1 2012 APPOINTMENTS

erties as well as those still under construction. Vorobiev has been working on the commercial real estate mar-ket for more than 10 years. Prior to Knight Frank, Vorobiev was a managing partner at a major commercial real estate agency in the capital. He was respon-sible for business development, strategic solutions, attracting new business and working with key clients. He worked with a vast portfolio of regional projects in more than 15 of the largest Russian cities.

Alexander Obukhovsky has been appointed business development director for the retail real estate department at Knight Frank Russia and the CIS. Previously he served as com-mercial projects manager at IKEA Russia. Obukhovsky’s experience in retail real estate spans 11 years. He spent nine years at

Colliers International, having risen from consultant to director of the retail real estate department. He holds a diploma from the CCIM Institute (United States) and is flu-ent in English.

Julia Sokolova has been appointed director of shop-ping center leasing at Knight Frank Russia and the CIS. She is responsible for coordinating leas-ing efforts at shopping centers, working with owners of shopping centers and generally support-ing marketing and PR activities of the projects at different stages of development. Sokolova worked at the retail real estate department at Colliers International prior to her current post. In her capac-ity as an associate director, she was responsible for leasing out

retail space for the projects that the firm dealt with. Her achieve-ments include the realization of such properties as River Mall, M5 Mall, Golden Babylon Rostokino, Golden Babylon Rostov, Viva and Rechnoi Vokzal. Before that, she was a leading manager at IKEA Mos, where she worked with MEGA mall tenants in Russia.

Veles DevelopmentYevgeny Pavlov has been appointed director of the com-mercial leasing department at Veles Development. His respon-

sibilities will include creating and introducing concepts for shopping malls. Pavlov holds a master’s degree in international economics and has considerable experience working in the sphere of retail real estate for developers, as well as for major retail chains. Before coming to Veles Development, Pavlov served as a manager for the RIO shopping mall, part of the Tashir holding. Prior to that, he managed retail networks for the companies Mascotte and Zenden. Pavlov’s appointment will enable Veles Development to strengthen its position in the com-mercial real estate segment.

Kalinka RealtyOlga Kuznetsova has been named CEO of Kalinka Realty. She was previously deputy gener-al director of the construction firm Barkli. Kuznetsova has consider-able experience in managing the

commercial and marketing ser-vices of Russian and multinational companies such as Continental Management (a forestry holding that is part of Basic Element) and Polair, the largest producer of professional cooling equipment in Europe. She also served as a team director for Indesit, an Italy-based multinational with 15 facto-ries in Russia, Europe and China.

R.G.I. International LimitedAndrey Nesterenko has been named CEO of RGI International Limited. Nesterenko, 36, has extensive real estate development experience and has held senior positions at a number of international property companies. He joins RGI from Sistema-Hals, the commercial and residential real estate devel-opment company, where he was president and chairman of the board of directors. He was also CEO of Capital Group Holdings, a leading Russian property devel-opment company, and vice presi-dent of finance for Dixy Group, one of Russia’s leading food and grocery retailers.From the outset he will focus on the company’s extensive devel-opment program, which includes the $2 billion V Lesu residential community development. It is expected that Andrey will join the company’s board in due course.

Q1 2012INDEX

34

ABD Architects ..................................................................................10AECOM Design + Planning .............................................16Arkhnadzor .......................................................................................7, 8ARKS Investment and Financial Construction Company ...............................................................9Avanta.............................................................................................24, 25BASF .............................................................................................................19Bin Group ...................................................................................................7Blackwood ................................................................................................6 BREEAM ...............................................................13, 14, 15, 28BRT Rus ......................................................................................................13Capital Group ......................................................................................9 CBRE ............................................................12, 13, 15, 23, 32Clover Group.....................................................................................27Colliers International ..........................................................9, 23Cushman & Wakefield ............................................................32DekMos ........................................................................................................7DLH ................................................................................................................19Domina Hotel Novosibirsk .................................................24DSO Consulting ..............................................................................25Ducat Place III ...................................................................................13Dvintsev .....................................................................................................15Ernst & Young .........................................................................25, 30FIABCI ........................................................................................................32Four Seasons ..........................................................................................6 FREEDOM .................................................................................18, 19

Galereya Moskva ............................................................................6Green Building Council Russia ..............13, 18, 28Guta Development ..............................................................7, 16GVA Sawyer ...........................................................................17, 24Hilton ........................................................................24, 25, 26, 27Holiday Inn ...........................................................................................24Imperia Tower ....................................................................................10Ingeokom ....................................................................................................9InterContinental ................................................................7, 8, 11Jones Lang LaSalle ...................................14, 15, 23, 32Kalinka Realty ....................................................................................33Kempinski ................................................................................................24Knight Frank ..................................................................23, 32, 33Krasny Oktyabr ................................................7, 14, 16, 17Krasnaya Roza .................................................................................17LEED ..............................................................10, 13, 14, 15, 28Marriott ......................................................................................................24MEP Engineering ...........................................................................14Meridian Capital CIS Fund ...............................................23MISK ................................................................................................................9Morgan Stanley ..............................................................................23MosCityGroup .................................................................................10Moskva Hotel ........................................................................................6 National Hotel ......................................................................................9O1 Properties ........................................................................................9 Olympia Park .........................................................................13, 14

Onduline ..................................................................................................19Park Inn Novosibirsk ..................................................................26Philips ...........................................................................................................15Rezidor Hotel Group ................................................................26RGI International Limited .......................................................33River Park Hotel ...................................................................25, 27Sberbank .....................................................................................11, 15Sibakademstroi-Nedvizhimost ...........................25, 27Siemens .................................................................10, 13, 14, 15SKF Group.............................................................................................13SkyPort Hotel ..........................................................................24, 26Smart Finance Group ...................................................................9St. Petersburg Ecological Union ...................................13Strabag..........................................................................................................6SU-888 .........................................................................................................9Summit business center ....................................................7, 11Swiss Hotel ...........................................................................................24Trans-Blok ...............................................................................................26Urban Land Institute.........................................................14, 16Veles Development ......................................................................33Vivaldi Plaza ............................................................................13, 14VTB Bank .....................................................................................................9Welhome Real Estate Consulting ................................17Wirbel .........................................................................................................19V Lesu (In the Forest) ..................................................................11Z/Yen ..........................................................................................................16

Latest crop of offices grows greener

Redeveloping industrial areas to solve urban planning problems

Entrepreneur seeks to make energy-efficient housing affordable

Real Estate Quarterly

Q1 2012

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