Moscow’s little ‘city’ of big state structures
Russia built it, but they did not come.
Two decades in the making, Moscow City is finally filling up with tenants, just not necessarily the kind Russia had in mind when it conceived the glass-and-steel district as an international financial hub.
With the economy besieged by sanctions and some of its biggest companies becoming pariahs in western capital markets, Russia is cramming the high-rises with ministries and state firms. Now, the central bank is also discussing a possible relocation of some employees, according to two people familiar with the matter.
“What’s happening in City reflects the trend in the economy,” said Valery Vaisberg, the head of research at IK Region, an investment company in Moscow that manages 346 billion roubles (Dh21.66bn) in assets. “Many of the towers ended up with state banks because other tenants can’t afford such prices.”
Already home to two of the top state lenders, the sprawling development in western Moscow will soon be host to the oil pipeline monopoly Transneft, with the ministries of economy, communications and industry aiming to relocate there next year. Sberbank, the biggest bank, is in a tower less than a mile away.
The Bank of Russia may soon be VTB Group’s neighbour in one of Europe’s tallest towers, although no decision has yet been made, said people, who asked not to be named. The central bank is not planning to abandon its headquarters in a 19th-century mansion in central Moscow, they said. Moscow’s government has also bought a half of another tower.
The central bank’s press service did not confirm or deny plans, saying in response to a request for comment that it’s looking for ways to house its Moscow staff of more than 10,000 more efficiently.
It’s a reversal from Moscow City’s early days, when the likes of International Business Machines and KPMG snapped up the premises, with the share of foreign businesses peaking at 80 per cent in 2006. More than a decade later, Russian companies account for 71 per cent of the total space, according to Colliers International. The government and state-run firms make up a third.
The takeover began after the global credit squeeze almost a decade ago, when the failure of developers gave their creditors among state banks ownership of properties in the district. When Russia plunged into recession in 2015, and demand for new offices collapsed, lenders opted to use the space for their own needs, according to Alexander Bazhenov, an office-market analyst at Jones Lang LaSalle in Moscow. In 2015, vacancies in Moscow City reached 40 per cent, he said.
“Against that backdrop, financial institutions began to consider putting their own offices in buildings they wound up owning,” he said.
The transformation mirrors a shift in the Russian economy that accelerated in recent years but started years ago under the president Vladimir Putin. Instead of offering Russia’s answer to London’s Canary Wharf, the new city is becoming a monument to top-down state capitalism. In the decade after 2005, the state’s share in the economy doubled to 70 per cent of GDP, according to Russia’s anti-monopoly service.
The state takeover only intensified since a stand-off with the West escalated in 2014 and the crash in oil prices gutted the economy. As talk of reform remained muted, almost two years of recession left Russia with little to fall back on. That has allowed the government to muscle in.