Serghey Igonin: Manager should love real estate!

Serghey Igonin, IB Group Managing Partner, Member of the GMD Council

Financial instability has impacted the real estate market. To stay afloat developers and managers had to cancel deals, reduce their budgets and lower rent rates. Serghey Igonin, IB Group Managing Partner is sharing his opinion about the situation on the commercial real estate market

Management companies on the falling market

Like the whole industry our companies experience the slump of activities. Practically all revised their development plans, and a large number of small companies have practically disappeared. New players do not come to the market. To keep tenants St. Petersburg business centers lower the rent rates, but some loose tenants anyway. Practically all started to nominate rent rates in rubles and froze them. Previously it was fixed in hard currency translated into the current ruble exchange rate. If we recalculate current rent rates into the hard currency, we will see that rent rates have fallen by 40-50%.0

Most dramatic period

The free fall lasted from October to February. The greatest input into the process was made by newly-available business centers. To get tenants their owners offered great reductions.

Measures of management companies to keep tenants

King measure – rent rate reduction. The rest are just supportive and stimulating measures, e.g. reduction of payment for parking place. For newly-built business centers the added value is also turn-key condition meeting the tenant’s demands. Today we have the market of tenants dictating their conditions. In this situation we need to learn the art of negotiations, be attentive to the tenants’ problems, have a better insight into their business, though by such empathy we reduce our profit and damage our own business.

Life will be easier… when?

In March the situation seems to have stabilized – the free fall of rent rates stopped. Of course it all depends on the economy. Some believe that the bottom has been reached, others expect another period of downslide.

Before the crisis many new commercial property projects were announced.

We can hardly speak about the overproduction of commercial property. Many projects got stuck at the early stage. The only one in real progress is Pulkovo-2 . The availability of all announced projects would result in the seller’s market transition to the buyers market. The rent rates would go down, but in a few years time, the crisis brought its corrections …

Downshift of high-class tenants to business centers of lower categories

I have not noticed such “mass migration”. It would have happened if the commercial property owners would refuse to negotiate with tenants. It happens that all categories reduce rates, so tenants stay where they are.

Western companies on the Russian management market– suffered more or less?

I believe Western owners and managers had same loss of revenues as Russians. In this situation the brand does not keep your tenants, concessions do the job.

Difference between Russian and Western management companies

Now there is no great difference. Russian property managers have learned to perform as efficiently as Western counterparts. We learn and improve continuously by direct exchanges. Speaking about the office management division of IB Group, we exchange know-how with best Russian companies and cooperate with world market leaders. In this case it is REMM Group from the USA. But Russian property owners still trust Western companies more than Russian ones, believing in their quality standards. Another illusion: Western managers bring successful Western tenants. Maybe in Moscow it works better than in St. Petersburg. One thing can be said for sure: the presence of Western partner makes it easier to get the bank credit.

Recently the Guild of Property Managers and Developers had another round-table discussion on self-regulating organizations. It happens that such profession as ‘property manager’ is not listed in the Russian legislation.

There is a notion and definition, but no standards.

One Finnish property manager mentioned that the main problem of Russian professionals is the absence of dedicated educational institutions.

Indeed, commercial property as such appeared in Russia only in early 1990s. With time we learnt by practice and following different training systems. Eventually we will come to the established system of multi-level education and professional standards. 

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