Leasing office space in Moscow: 8 steps

Step I. Be sure you are prepared to make a decision

The market moves too fast in Moscow to wait for the usual corporate decision making processes. You have to prepare in advance to get the deal you want. The following are tips to speed your ability to make a decision and take advantage of the best deal you see:

• use professionals to understand key issues for your company (operational, legal, architectural);
  
• learn market parameters or hire an advisor to provide necessary information;
  
• be prepared with a knowledgeable lawyer.

Step II. Decide how you are going to use the services of brokers and property advisors - which to use for what?

Broker options - If you favor the use of a broker, you will have to decide among the following options:

• deal with landlord's broker;
  
• non-exclusive tenant representation;
  
• exclusive tenant representation.

Advisor option - If you like the independence and objectivity represented by an advisor, you will need to prepare to:

• manage search and selection process for your advisor;
  
• spend some time transferring complete information about your transaction needs.

Typical fees:

• Brokers: to lease; negotiated flat fee per meter (around USD 5-8 per square meter, depending on services to be included) or negotiable around 8-10 percent of the first year's rent.
  
• Brokers: to purchase; negotiable around 2-6 percent of the sale price.
  
• Advisors: hourly fees for advice and consulting work, negotiated flat fees for appraisals.

Step III. Determine your requirements

• Size: number of people, types of use, amount of common area, configuration.
  
• Growth considerations: options on additional space, lease and sublease.
  
• Location, type of building, quality: consider clients, employees, exposure value.
  
• Purchase or lease: depends on corporate asset strategy. In Moscow, most office facilities are leased, most production facilities are owned.
  
• Lease term: market conditions and future trends are important to consider.
  Budget: consider-

  • operating expenses (which are hard to predict, but typically range from USD 70 to USD 100 per square meter per year).
    
  • a management fee (typically 3-5 percent of the base rent).
    
  • fit-out (a one time charge of USD 300 to USD 800 per square meter).
    
  • taxes and insurance on the property to be placed in the space.

Other additional (one time) costs are:

• brokerage or advisor's fee;
  
• lawyer's bill;
  
• architect/office design fee;
  
• fee for project management of the fit-out;
  
• installation of telephone lines;
  
• furniture costs; and
  
• move expenses.

If forgotten or underestimated, all these additional costs can work to exceed a budget amount that initially appeared sufficient.

Step IV. Set a time frame

Latest possible move date + time to find office space + time for space design and fit out + lawyer processing time = Start search date

Typical Example:

X + 2-6 months + 2-3 months + 1 month = X + 5-10 months
Where X is the desired move date.

Step V. Carry out the search

• be ready to make decisions quickly;
  
• sign letter of intent.

Step VI. Legal due diligence

• the more experience the better.

Lawyer types:

• The in-house lawyer: Little experience no knowledge of Moscow and Russia. Even worse if he is in the "home" office headquarters. If you are forced to use this guy, you are in trouble.
  
  
• A Moscow law firm: Be sure it is experienced in real estate leasing, many are not. They also can be very slow and not responsive to your (or the landlord's) timing needs.
  
  
• The professional advisory firm with lawyers: This option puts the services and incentives in one hat and can often be the best option (Andersen International Legal in Moscow has 20 lawyers to support professional services for clients).

Step VII. - Arrange and complete the fit-out

• Hire a construction management firm.
  
• Separate architect, or included with the construction outfit.
  
• Make sure you have their attention.

Step VIII. - Anticipate move in problems

• furniture delivery.
  
• installation of telephone lines.
  
• use your real estate advisor's (or broker's) influence with these vendors to move things along.

This material is updated to April 2001, and was originally part of a September 1997 briefing given by the head of Real Estate Services in Russia for Andersen, Gere Gaige. The briefing was sponsored by the American Chamber of Commerce in Russia in cooperation with the U.S. Department of Commerce, Foreign Commercial Services.
Andersen Real Estate Services
Tel.: 7 095 755 9681
E-mail: [email protected]

Andersen has been active in the Russian market since 1991, with real estate experience from 1993. The concept of complete professional advisory services with legal, tax, real estate and other business consulting in one place, with continuity between each, is proven more cost effective than separate providers. With more than 500 experienced professionals in the Moscow office, and eleven other locations in Russia and the CIS, Andersen is prepared to assist your success also.