MOSCOW-This city has supplanted London as the second most expensive office location in Europe, but the new Moscow ranking only surpasses the overall London rents; London’s West End retains the top spot in new research by Oncor International and NB Real Estate. The NB report shows that Moscow “has leapfrogged the City of London to become the second most expensiveoffice location in Europe after rents there rocketed 46.2% in one year,” the NB survey states. Rents in Moscow have reached 1,025.9 euros per square meter per year, according to research by NB Real Estate and Oncor.

At the peak of its growth, the City of London rents reached 890 euros per square meter peryear. The West End of London remains the most expensive office district in Europe as rents rose 22.7% to hit 1,758.6 euros per square meterr per year. According to NB Real Estate, “Rental inflation in the Moscow office market is to a significant extent being driven by the Russian commodities boom, whereas London is much more dependent on the financial services sector, which has reduced its demand for space as a result of the credit crunch.”

James Gillett, director of City Agency at NB Real Estate points out that this is the firsttime office rents in Moscow have surpassed those in London, and “is illustrative of how Russiahas become a European economic powerhouse in recent years.” Many financial institutions in London have scaled back their requirements for new office space as a result of the credit crisis, and rents appear on their way to declining in London, he says.

According to NB Real Estate, there was very little development of new offices in Russia during the late 90s economic crisis. Since the commodities boom began in 2002, domestic and foreign demand for office space in Moscow has rocketed, and supply has failed to keep pace. According to Gillett, “Russian commodities companies are making record profits and this has intensified competition for scarce grade A office space. Occupiers are outbidding each other, which is creating an upward rent spiral. There is also tremendous demand for space from professional and financial services companies that support the resources sector in Russia.” He points out that developers in Moscow are even converting former industrial and research facilities to office space to meet demand, and the current moratorium on office development in Moscow city center is further exacerbating short-term supply problems.

By contrast, the amount of available office space in London has increased by 90% in the last year to 8.2 million sf, up from 4.3 million sf 12 months ago, according research by NB Real Estate Oncor International. Some 10.2% of all office space in London was vacant as of the second quarter, up from 9% in the first quarter of this year, as low demand for new space from financial services companies combines with a steady flow of new speculative office developments coming on stream.

The West End market has fared better, however, than the overall London market. The NB Real Estate Oncor figures show that vacancy rates across Central London have increased to 8.1% from 7.5% in Q1. In the West End vacancy rates are currently just 6.7% up from 6.1% in Q1 2008.

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