High-rise business

вестник 05.03.2020

Office in an expensive skyscraper supports company’s goodwill. However, is prestigious address an indicator of success and solvency of a company?

Skyscrapers around the globe

The demand on skyscraper construction is increasing every year. Since modern high-rise business district is one of the indicators of investment attractiveness of metropolis and the country, major economies and global cities are in constant race for the tallest building.

Skyscraper is a freestanding building that is taller than 150 meters. Currently, there are 49 skyscrapers in Russia: 45 in Moscow, 3 in Yekaterinburg, and 1 in Saint Petersburg. Standing 462 meters tall, the Lakhta Center is the tallest building in Europe and the 13th-tallest building in the world.

Moscow leads by the total number of skyscrapers in Europe: there are 20 skyscrapers in London, 19 in Paris including La Défense, 16 in Frankfurt am Main, 8 in Warsaw, 5 in Madrid and 5 in Rotterdam.

Having 284 skyscrapers, New York yield the global palm to Hong Kong with 355 buildings. Anytime soon, another Chinese metropolis Shenzhen with 283 skyscrapers will be ahead of the Big Apple. Dubai, Shanghai and Tokyo having 200, 163 and 157 skyscrapers respectively, are worth to be mentioned. For all the 20th century, the USA used to be a leader in high-rise construction. However, the center for the construction of high-rises moved to Asia, and the United States gradually lose the monopoly.

The number of skyscrapers indicates the investment demand in the region, as well as engineering capabilities to construct and maintain the building, which is challenging without developed industries and professional capacities. Country area and population play a small part. For example, there is only one skyscraper in oil-rich Nigeria with 200 million persons.

Moscow City is the center of high-rise construction in Russia

Moscow is a financial and economic center of Russia. Gross regional product of Moscow is four times that of the following Saint Petersburg, and Moscow is 3,2 times ahead of Saint Petersburg by capital investment. It is no surprise that construction of skyscrapers is concentrated in the capital of our country, and Moscow City (or the City) is a countrywide demonstration project and one of the symbols of modern Russia.

Several thousand companies are located in the skyscrapers of the City. The very fact of purchasing or renting office there demonstrates the counterparty’s status. From the other hand, it can hide the weaknesses of the company to be examined before the conclusion of a contract.

Table 1 contains summary analysis of all active companies registered in three tallest business centers of the City. About a half of all active companies located at the Federation Tower were established less than three years ago; 674 companies have debts to the Federal Tax Service; 487 companies have a valid record on unreliability of data in the Unified State Register of Legal Entities; 40 companies faced to bankruptcy; 23 companies have bankrupted private person as a shareholder or director; 46 firms have shell company signs. In addition, one company can have several warning indicators.

Location of a counterparty is not always indicative of its success, financial stability and solvency. Despite high rental rates, the shining skyscrapers are attractive for shell companies and persons pretending to be accomplished entrepreneurs without real business history and high turnover.

Table 1. Comparison of companies in the tallest skyscrapers of Moscow City
  The Federation Tower, 374 meters The City of Capitals, 302 meters The Empire Tower, 239 meters
Address Moscow, Presnenskaya nab., 12 Moscow, Presnenskaya nab., 8 Moscow, Presnenskaya nab., 6
Largest companies JSC VTB CAPITAL JSC IC IT INVEST LLC SNS SERVICE
JSC CONCERN TITAN-2 LLC INTERMETGROUP JSC UCC URALCHEM
LLC NOVA GROUP LLC T-SERVICE LOGISTIC LLC DENTSU AEGIS C S
Active companies, total 2 275 1 005 592
INCLUDING THOSE WITH WARNING FACTORS
Established not earlier than 3 years ago 1 113
48,9% of total number
375
37,3% of total number
247
41,7% of total number
Minimum average number of employees up to 3 1 062
46,7%
475
47,3%
199
33,6%
Tax and dues debtors 674
29,6%
206
20,5%
137
23,1%
Executive documents cannot be enforced 552
24,3%
166
16,5%
126
21,3%
Valid record on unreliability of data in the Unified State Register of Legal Entities 487
21,4%
74
7,4%
56
9,5%
Frequently registered address, multiple registered shareholder and/or CEO according to the Federal Tax Service 225
9,9%
150
14,9%
81
13,7%
Shell company signs 46
2,0%
16
1,6%
9
1,5%
Bankruptcy of a company 40
1,8%
24
2,4%
10
1,7%
Pledges of movable property 39
1,7%
32
3,2%
21
3,5%
Bankruptcy of a shareholder / CEO 23
1,0%
3
0,3%
7
1,2%
Unreliable suppliers in procurement 7
0,3%
1
0,1%
1
0,2%
Disqualification of CEO 5
0,2%
2
0,2%
1
0,2%

Predominantly Russian companies are located at the towers of Moscow City. The share of domestic business renting offices in the business complex exceeding 70%. Unlike the City of London and La Défense in Paris, there are few transnational companies in Moscow City: KPMG, IBM, General Motors, Pfizer.

Recently, significant government structures and enterprises take an active interest in business real estate of Moscow City. In 2016, JSC TRANSNEFT acquired 79 thousand square meters in the Evolution Tower, and the Moscow mayor’s office bought 55 thousand square meters in the OKO Tower. In 2017, JSC DOM.RF acquired 74 thousand square meters in the IQ-quarter for the officers of the Ministry of Industry and Trade of Russia, the Ministry of Digital Development, Communications and Mass Media of the Russian Federation, the Ministry of Economic Development of Russia, the Federal Service for Accreditation, the Federal Agency on Technical Regulating and Metrology, the Federal Agency of Tourism, and Federal Agency for State Property Management.

The better business conditions are, the higher the demand on A-class offices is. Further plans on skyscrapers construction in Russia will directly depend on the economic development and attractiveness of the domestic market for foreign investors.