|                                                                                                                                                                                     |  | St. Petersburg Commercial Real Estate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsCustomsCornerPublicationsSourcesof FinanceFinanceLinkLeadsand EventsExchangeRatesState ExportsOtherSources** |  | January 1999by Kendra CartwrightRenting or purchasing suitable office space is a key issue for U.S. companies interested
in establishing a presence in St. Petersburg, Russia.  The question of finding real estate
is not a complex one in St. Petersburg, even in light of the current economic crisis.  The
St. Petersburg real estate market has more than adequate options for any company,
large or small.  In addition, there are several new developments providing class "A"
space for those companies requiring a high prestige location and office space.  Less
visible business centers also offer space for those companies that do not require
Western standard refurbishment or a prime location.Location, Location, Location
When describing location for St. Petersburg commercial real estate, there are two broad
categories: the center and outside the center.  The center generally refers to Nevsky
Prospekt between the Admiralty and Ploshad' Vosstaniya and the side streets nearby. 
The real estate on Nevsky Prospekt is among the most expensive, with prices declining
as one moves farther from the center into greater St. Petersburg.  Western companies
tend to prefer to place their offices in the center;  as a result, the market is concentrated
there, and there is a lack of quality office space further away from Nevsky Prospekt. 
Currently, the business centers that offer office space near Nevsky offer only rental
terms.Most Western companies in St. Petersburg rent, as opposed to buy, office space,
primarily due to the perceived political instability in Russia.  Some companies, generally
those with large investments and holdings in Russia, do prefer to purchase their real
estate.  Coca-Cola St. Petersburg Bottlers, RJ Reynolds Tobacco International, and
Wrigley St. Petersburg have all either purchased or built factories and established
manufacturing facilities just outside of St. Petersburg.  
Unlike the residential housing market, which has suffered due to the Russian economic
crisis, the commercial real estate market at this point does not differ greatly from its
pre-crisis state.  While rent prices have come down slightly, the top three class "A"
sites, Nevsky 25, Moika 36, and White Nights House, have not reduced their rents. 
These three premises offer all the amenities of a high-end business center found in the
West.  Yearly rents for such prestigious property range from US$600 to US$800 per
square meter (US$60-80 per square foot).  An office of 100 square meters (1,000
square feet) costs between US$5,000 and US$6,000 per month.  The advantages to
these properties include a prestigious location, high-quality construction, Western
management and a completely legal and above-board way to pay rent.  While White
Nights House and Moika 36 are zoned only for office space, Nevsky 25 offers excellent
retail space as well.  Yearly retail rents on Nevsky Prospekt, the city's main
thoroughfare, usually range from US$1,000 to US$1,500 per square meter.Recently, there has been increased interest in class "B" office space.  These business
centers are often Russian owned and managed and do not offer the high quality,
western refurbishment of class "A" sites.  These properties are also generally located
slightly farther away from the city center.  The large supply of such spaces, combined
with the current economic crisis, have driven prices for these spaces down to US$300 -
500 per square meter per year.  In addition, payment requirements and lease terms on
class "B" properties tend to be more flexible than those in class "A" buildings.  As a
result, nearly all these premises are leased to a mix of Russian and Western
companies.Factors to Consider
In the past, offshore payment on Russian real estate was common practice.  Today, a
Russian company cannot receive payments offshore for property rented in Russia.  A
Western owner, however, can receive payments into an offshore account, provided that
the 20 percent withholding tax has been paid.  This tax is generally paid by the tenant. 
If the rent is paid in Russia in rubles, there is a 20 percent value-added tax (VAT)
charged, again to the tenant.  (If the tenant has representative office status, the rent is
exempted from VAT.)  The key difference between withholding tax and VAT is that a
company can reclaim VAT.  However, a company should keep in mind that rents are
generally quoted excluding VAT.  Another common extra charge not always evident
from the outset is "communal services."  This somewhat Soviet-sounding term may or
may not include electricity, security services, cleaning and upkeep of the premises, or
anything else the owner decides it includes.  Much like in the West, a tenant should be
sure to ask specific questions about the availability and quality of power supply,
communication lines, and parking.  Generally, in class "A" facilities, these issues are
never a problem.  Class "B" sites are somewhat more restricted in what they can offer
to companies.For a company new to St. Petersburg, it is wise to work with an experienced property
agency and Western law firm familiar with Russian law and the commercial properties
available.  Working with such firms can provide much assurance that they will find
suitable space with the least amount of complication.  Another advantage to this
approach is that the prospective tenant will have one contact person instead of having
to contact many owners of various sites.Companies tend to look to Moscow first when entering the Russian market, but one
should not forget that St. Petersburg offers many advantages over Moscow.  St.
Petersburg rents tend to be lower; the local government is actively planning tax
incentives for foreign investment; and St. Petersburg is a port city, making for easy
shipping access.  These advantages, along with the availability of quality offices and
standard rental practices, make St. Petersburg a relatively friendly environment for
foreign companies wishing to do business in Russia.For more information on doing business in St. Petersburg, visit BISNIS OnLine at
www.mac.doc.gov/bisnis/country/regions.html#Northern.Kendra Cartwright is a senior property consultant at Atlantic ONCOR in St. Petersburg,
Russia.This report is provided courtesy of the Business Information Service for the
Newly Independent States (BISNIS)