YOUR OWN OFFICE SPACE

Commercial property - shopping, office and other similar premises - has traditionally been one of the most profitable and desirable segments in the markets of countries with a rapidly developing economy.

The main difference between commercial property and residential is that many businessmen prefer to rent rather than buy premises. There are many reasons for this - high costs, the constant search for a more favourable location and the reluctance of businessmen to incur serious financial losses by encumbering property.

Nevertheless, the demands on the commercial property market are no less than with residential property, as may be judged by the multi-storey business centres, shopping malls and public catering and tourist premises that are springing up like mushrooms after rain.

Experts say that the overall amount of commercial floor space in Baku in 2015 will be in excess of 150,000 sq m, double the present figure.

"But in major cities 150,000 sq m is the size of one shopping centre. The Azerbaijani market needs no less than 15 shopping malls. I am talking now about "healthy", i.e. properly functioning and developing shopping centres. The largest shopping and entertainments centre in Baku at the moment is 28 Mall, with floor space of 23,000 sq m. This is a relatively small area. The local retail market is fairly small, and consequently we do not see in Azerbaijan enough world brands and well-known franchises covering different areas," the head of Azerbaijan's Franchising Association, Rasul Mammadov, believes.

According to the Azerbaijan Property Solutions consulting company, which prepares annual surveys of the commercial property market in the country, three class-A shopping and entertainment centres are currently being built in Baku, with an overall floor space of no less than 100,000 sq m. They are expected to open in 2017-2018.

The demand for commercial floor space in high-quality shopping centres is high, experts say. Rental rates in shopping centres vary depending on the leaseholder. That said, the average cost of renting one square metre of such premises in Baku is about 864 manats a year (plus VAT and operational costs). At the same time, it is cheaper to rent commercial premises in one of the streets of the city - on average its rent would be about 804 manats/sq m annually plus taxes. "A rental contract is frequently concluded for a 3-5-year term: long-term rentals are fairly rare," the company's survey points out. Premises may become vacant in shopping centres from time to time because of the reorganization of commercial premises or rotation of leaseholders.

The proportion of vacant premises on the streets of the city is 5-8 per cent. These premises become vacant because of poor internal layout or high prices which do not conform to the average level of existing rental rates for that part of the city in which they are located.

As far as office property is concerned, according to forecasts, the volume of office premises in Baku will increase by 13.97 per cent this year, or 56,400 sq m. At the end of 2013 there were 404,000 sq m of high-quality offices in Baku.

"Seven office buildings with a total rentable space of about 140,000 sq m were commissioned in 2013. More than half the buildings commissioned in 2013 were in Baku's embankment area, which coincides with the trend in demand - leaseholders more and more often want to rent offices along the Maritime Boulevard or adjacent areas," the APS survey says.

Last year the office premises market was lively, supply exceeding demand in all areas. This was reflected in the number of vacant premises in the capital - in class-A this was about 24 per cent, and class-B 15.4 per cent, experts note.

A record amount of new class-A and class-B office premises - over 140,000 sq m - was commissioned last year.  Of this amount 120,000 sq m came under class-A. Despite a significant increase in office premises in 2013, the rental rate of class-A and class-B business centres remained unchanged and the exposure period of office premises increased by 50 per cent to 12 months.

At the same time, last year the biggest deal on the capital's office market was the lease by BP-Azerbaijan of the North Tower in the Port Baku complex, the report points out. The size of the contract area was about 19,000 sq m.

The average base rental rate of class-A office premises excluding VAT and operational costs is 489 manats/sq m annually, and of class-B it is 280 manats.

Another important segment of the market are premises used in the sphere of tourism. This area is increasing from year to year thanks to the development of this segment in the country and the large-scale international events that are regularly held in Baku. There are currently 103 hotels operating in the country, including 22 five-star, 46 four-star and 26 three-star, as well as nine unclassified or state-owned hotels. Hotels in Azerbaijan are classified on the basis of certificates issued by the country's Ministry of Culture and Tourism. The department also carries out regular (once every three years) checks to ensure hotels meet the required standards. The average number of rooms in this segment is about 6,400, which is 12 per cent higher than the previous year's figure. At the same time, the average annual increase in the number of hotel rooms in Baku is about 8 per cent.

According to market research, the average room occupancy in the city's hotels in 2013 was 60 per cent: from 55 per cent in five-star and up to 65 per cent in three-star hotels. As far as accommodation costs are concerned, in the last 5 years the average price level in medium-class hotels went down by 10 per cent, and in "luxury"-class hotels by 15-17 per cent. The main reason for this was market congestion and the high level of supply, especially from high-class hotels.

In short, as in cases of buying and leasing houses, the main demands of customers approaching real-estate agents in search of commercial property are concentrated around cost, location, high-quality and convenient infrastructure and other important parameters that guarantee the demand for such premises. There are, of course, concerns that this will mean too many large buildings will congregate in the centre of the capital and this will have a negative impact on the transport and other infrastructures of the city, create problems for the residents of adjacent homes, and so on. In this connection, experts are placing great hopes that, with the implementation of the Greater Baku project conditions will be created for the development of commercial property in the outskirts of the capital, which will not only solve the aforementioned problems but also affect prices on the market.