B-class offices lose clients in Nur-Sultan and Almaty

Tenants seek other options
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When tenants have started to leave the segment, why this happened and what locations have chosen investors for new projects

The market of commercial property in Nur-Sultan and Almaty is about to stall as developers prefer warehouses and retail property in regions, according to analysts of Property Management Grоup.

The biggest segment of commercial property in the country – class B, which accounts for 70% of all commercial real estate, is losing clients. Those tenants who have suffered from the war in Ukraine have cut their activity and are moving to C-class offices, while other, more successful companies are moving to A-class offices. Owners of B-class property are decreasing rental charges in a push to make their offices more attractive for potential tenants. They can no longer afford any upgrades to their buildings. As a result, this would accelerate the deterioration of property and lower investors’ interest in the property even further.

In- and outflow of tenants

In Nur-Sultan tenants started moving from B-class offices to A-class or C-class in the spring. The occupancy of B-class offices in the city dropped in the second quarter by 1.3% (from 95.43% to 94.12%), while A-class and C-class offices reported growth, according to Property Management Grоup.

“This trend means that tenants from B-class property want to save money by moving to C-class offices or instead they move to A-class offices because they want something better,” said Constantine Glushko, executive director of PMG.

As a result of tenants leaving the segment, the rental charges here have dropped by 4.3% while in other segments they have risen by 7.8% for A-class and 2% for C-class offices.

This trend is a bit blurry in Almaty where demand for commercial property is always high (95%, according to Colliers Kazakhstan. For comparison, in Europe and Moscow the rate is about 92.5%). However, some companies are trying to move to upper-class properties. In 2022, some pharmaceutical, financial and IT companies have already made the move, Colliers said.

“In Almaty, many offices are relatively old. Moreover, because of the shortage of land in the city center, there is a lack of new modern business centers that can meet the requirements of some big companies. Therefore, almost all A-class and B-class offices are occupied, PMG reported.

New projects on hold

The top priority for developers now is the completion of unfinished projects.

For example, about 57,000 square meters of commercial property called Esentai City were entered into service in the first quarter of 2022 in Almaty (+2.4% in terms of the entire market in the city). Next year it will be Deniz Park (47,000 sq. meters), the second stage Esentai City (38,000) and Nurly-Tau (6,000).

In Nur-Sultan unfinished projects include SAT Towers and the giant Abu-Dabi Plaza (107,500 square meters).

Concerning new projects, investors say that they are ready to consider only A-class property.

“Investors aren’t interested in B-class projects so much now because they aren’t sure that these properties will be attractive for tenants. A-class shows more stable results,” Glushko said.

Often investors avoid pouring money into business centers and prefer other segments of commercial real estate.

“The vast majority of investors prefer to invest in retail property and warehouses. Also, they are looking at regional projects. There are more than one million square meters of B-class offices in Nur-Sultan and 700,000 sq. meters of property in Almaty and now they are losing their tenants. Usually, these are the most vulnerable buildings that need investments in order to make some repair work. Otherwise, we will see their deterioration next year,” PMG executive director highlighted.

According to the Bureau of National Statistics, more than $116.9 million was spent on construction and repair work in the segment of office property in the first half of 2022. This is the lowest figure over the past four years. For example, last year property owners spent $167 million for the same purpose.  

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