Moscow Residential Rental Market: Current Situation and Tendencies for 2009

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Moscow's residential rental market changed dramatically throughout the course of 2008 and this trend is continuing in 2009. The primary factor has been the economic crisis, which, due to corporate and private client cost cutting measures, has made it more tenant-focused.

Tenants now have higher levels of expectation and demands, which are usually applied at the higher end of the market, especially in connection to the rental rates and in the balance for quality and pricing. Simultaneously, landlords have become more amenable to those demands and flexible in their rental expectations.

One might argue that the economic crisis has had a beneficial effect on the Moscow residential rental market. Tamara Ayoub, IntermarkSavills client services director and a recently relocated expatriate herself, suggests that "the tenant now has greater influence throughout the rental process than ever before. In response, the landlord is required to be more accommodating to the demands of the tenant and to uphold the rules governing the rental negotiations and agreement."

An increase in availability has widened the scope of options and enabled those tenants in the market to have more choice in their decision-making process. We are now able to facilitate options such as a move from a central Moscow apartment to a larger house in an out-of-town location within the same budget parameters or a move to a more stylish and conveniently located apartment that may even be offered at a lower rental rate than is currently being paid.

It is now becoming easier to find an apartment with a rental level that is commensurate with quality and location expectations. Due to a reduction of tenants from the corporate sector and stagnation in the sales market (especially for properties that had been bought for investment purposes which are now being brought to the rental market) these factors are driving supply and further exacerbating the issue for landlords.

During January 2009 the number of rental properties available increased by approximately 10 percent in comparison to December 2008. We believe that this trend will continue. However, despite all of this, certain preferred locations have continued to display a disproportion between supply and demand. These locations include Patriarshi Prudy, Lubyanka and Kitai-Gorod, which are always in high demand among clients.

However, an offsetting factor to the continuing decrease in rental rates is the fact that the volume of supply of new build residential projects of premium and business class is decreasing due to halts on development and therefore we expect there to be a knock on effect due to the lack of injection of these properties into the rental market.

We are currently observing a reduction in the demand for top-level elite apartments (from $15,000 per month) and we expect this trend to continue. However, the rental sector of up to $6,000 per month is experiencing the greatest increase in demand, and the greatest concentration within this sector is among prospective tenants with budgets of up to $4,000 per month.

This can be attributed to an increase in the number applicants who are reducing their budgets to this level. This trend was caused by the transition of clients from higher end to lower end budgets. In the first month of 2009 more than 50 percent of demand was concentrated within the budget segment of up to $4,000 per month. However, at the end of 2008, the share of such clients was approximately 30 percent of the total volume of demand.

January 2009 has exhibited a strong tendency of concluding rental contracts in foreign currency. Thus, in January approximately 60% of the total number of transactions was signed in US dollars under the rate of the Central Bank. However, at the end of 2008 the share of such contracts was approximately 5 percent.