The provision of additional tenant services in business centers has become increasingly important. However not all real estate owners have not yet woken up to the long term benefits and social implications of providing a well balanced infrastructure.

Tenants First

Natalia is an executive at a leading international pharmaceutical firm. Her office is located in the highly modern and stylish Avrora Business Park near Paveletsky railway station in Moscow. She actively uses all the infrastructure services which have been included by the center’s owners, including: a City Bank branch, travel agency, dry cleaners, cafe and restaurant. The office canteen provides free meals but the queues are so long that it is simply more convenient to visit the cafe or restaurant. Natalia regards the prices in Kofeemania as excessive, for example a pot of tea costs 300 roubles. The restaurant is more expensive (average bill 700 roubles) but the food is very good. She even sometimes orders takeout to avoid having to cook at home. She thinks that the dry cleaning service is too pricey (like the cafe) and that there should be a pharmacy, supermarket and beauty salon which opens at 7 am. She would also love to see a fitness center in the building.

This is of course just one person’s opinion but input from end users is extremely important. It underlines the necessity of providing a service infrastructure for people who work in business centers. A few years ago Andrey Barinsky, general director of development firm, Forum Properties came to the conclusion that the service infrastructure in the Avrora Business Park should offer a minimal range of convenient services but there is, “no need for a broad range of services since soon additional services will open up nearby.” (CRE, February 2003). However four years later this has still not occurred.

“When creating a list of potential service providers you need to take into account the services on offer in the surrounding area. A building in the center of Moscow needs a smaller number of services than one located outside the MKAD,” says Daria Afanaseva, project manager at Storm Properties. This is hard to disagree with since there are virtually no standard services available outside the MKAD and even in the center they are insufficient. When an office building is located inside the Garden Ring its inhabitants still need a maximum range of infrastructure services including, for example, legal services, notaries and photo labs. The presence of a well developed service infrastructure in a business center can prove a significant advantage and provide a contribution to the service infrastructure of the city as a whole.

 Service Providers
Consulting firm, Fabrika Biznesa (Business Factory) provides services to manufacturers with starting capital ranging from $100,000 to 5 million. Its clients include the owners of restaurants, cafes, fitness centers and beauty salons. They regularly receive inquiries from large developers organizing the service infrastructures for business centers. Company representatives comment on an unfortunate disparity in the matching of the interests of real estate owners and tenants.
“Every modern class A business center should include a range of services including at the very least cafes, restaurants and preferably, a dry cleaners, fitness center and beauty salon. Developers often overlook this aspect at the design stage. In my experience I can think of only one instance when an owner decided from the outset to include a beauty salon on the first floor of a business center however it belonged to his wife. This kind of approach is clearly short-sighted. By 2010 Moscow will be saturated with office buildings, competition for tenants will increase and business centers with poorly developed infrastructures will lose out,” says Alexander Khodakov, specialist from Fabrika Biznesa.
“Even development firms with 10-15 years of experience are making terminal errors during construction. Sometimes the design makes it impossible to install modern electric stoves and ventilation in the premises,” says Andrei Petrakov, head of consulting services for cafes and restaurants at Fabrika Biznesa. Another problem is rental rates of $600-700 per sqm per year which is a hefty amount for owners of cafés, restaurants, fitness centers and beauty salons. You have to take into account that their client base is business center employees and visitors and so at the weekends there are very few customers. “If you want the average price of a meal in a business center canteen to be $4-5 then the rental rate must be between $200-300/sqm per year,” says Mr Petrakov. The same rental rate also applies to beauty salons.
All too often real estate owners focus on short term gains – profit at any cost. “I know of an instance when a building on Tverskaya changed tenants three times in five years. Every business owner that opened up in this highly prestigious location thought that their restaurant or cafe would be a huge success. However the rental rates were so high that they were quickly forced to close. The owners of the office building did not appear to mind, they reasoned that it was better to receive much higher rental rates even for a very short period,” says Mr Petrakov.
In his view, these types of infrastructure services take quite a while to develop (3-4 years) but then they show stable profits. The most important thing is an error-free start up. These types of services are very popular with tenants and they provide business owners with small but stable revenue. They are not very mobile and they take time to set up however they make a huge improvement to the life of a building and enhance the image of a business center.

Developers
Anton Smirnov, head of the marketing department at KR Properties agrees with a view shared by many developers that the creation of a service infrastructure should not present a problem, “Business centers should include cafes, restaurants, travel agencies, dry cleaners, stores selling flowers and souvenirs, pharmacies and fitness clubs. A recent trend for business parks is the inclusion of a minimart selling food products for employees who have to work late. These types of services are primarily aimed at office employees.”
Theses types of businesses usually rent small not very desirable areas on the first floor at discounted rental rates. If businesses opt for larger premium areas they have to pay the full rate. The most expensive areas in business centers are those used for ATM machines, coffee machines and automated payment systems and rates can be as high as $3,000 per month.
Employee canteens and restaurants are something of a special case. The presence of catering outlets constitutes a competitive advantage for business centers and so the rental rates are heavily discounted and for class A business centers average $400 per sqm per year.
Mr Smirnov comments that these type of service providers need an aggressive pricing policy, “The main problem for auxiliary businesses is a restricted client pool. Many businesses cannot survive in these conditions and are forced to close but the space is usually quickly filled. If a pharmacy closes you can, for example, open a travel agency or ticket kiosk. In the class B+ Krasnaya Roza (Red Rose) business center (metro station: Park Kultury) there is a training center for the Jacques Dessange luxury beauty salon chain. An ordinary beauty salon would be the wrong format for a class B business center and would be unable to cope with high rental rates.”
“Developers and real estate owners should be interested in the types of products and services which will be required by future tenants. These include catering outlets, travel agencies, couriers, dry cleaners, beauty salons, pharmacies and flower stores, etc. Tenants should be provided with an infrastructure which has been developed in accordance with the recommendations of marketing consultants and management firms and takes into account the reasonable requirements of anchor tenants. When it comes to canteens we hold public tenders. Storm Properties provides several different catering formats for its business centers – from cafes to restaurants which are managed by different operators to ensure a high level of service and provide clients with choice,” says Daria Afanaseva, project manager at Storm Properties.

Winning Formulas
Specialists from Fabrika Biznesa urge developers not to cut corners and instead opt for high profile service providers and adopt a long term perspective rather than focusing on instant profits. The city authorities could also play a role since the creation of a modern municipal service infrastructure is also in their interests. This could come in the form of tax incentives for real estate owners who provide the first floors of buildings for food outlets, laundry and dry cleaning services, copying centers, notary offices, photo studios, shoe and clothing repair and key cutting outlets and the like.
Perhaps in the future we will see the emergence of large chains. This has already happened in the corporate catering sector, examples include French catering firm, Sodexho and Russian chains, LunCH and Mega Foods Catering. “In Moscow region alone we provide services to 90 companies and prepare 21,000 lunches per day. We provide a full range from packed lunches to elite cuisine,” says Olga Schelkunova, head of the marketing group at LunCh. For large business centers we have developed a special brand, LunchHall which operates according to a free flow principle with a range of themed food stations: Standard Lunch includes four types of salads, three types of soup, four hot dishes and three side dishes (the menu is seasonal); Light Lunch is a diet and vegetarian selection including steamed meat and fish, herbal teas, and fruit juices; Green Lunch includes fresh vegetables, marinades, pickles and sauces (you can create your own salad); Inter Lunch includes pancakes, pasta and grilled and deep-fried dishes. Sweet Lunch offers baked goods, deserts, milk shakes and ice cream. There are no queues, everything is self serve and clients pay at the cash tills. This system also includes an open kitchen where a number of dishes are prepared in front of the clients.”
In 2006 LunCH won a tender for the first international business park, Krylatskye Kholmy. Over 1,500 people work in the business park and 900 of them are clients of LunchHall and LunCH restaurant. The average cost of a meal in the restaurant is 500 roubles and 200 roubles in LunchHall. Demand for the restaurant has exceeded expectations. LunCH also provides catering for banquets and corporate events, meetings and installs vending machines and water coolers.
When it comes to the advantages of using a catering chain, Ms Schelkunova comments that these include centralized purchasing, fast service, guaranteed quality and low prices. The advantage of using separate restaurateurs is that they can react quickly to client needs, for example, menus can be changed at short notice. The menu at LunCH restaurants is revised quarterly and the selection of dishes in LunchHall is changed every month.
LunCH is a division of Korpus Group which has was established in 1991 and operates in 28 regions of Russia and the Ukraine and Kazakhstan. As well as corporate catering Korpus Group also specializes in corporate cleaning services, transport logistics, laundry and dry cleaning services. Perhaps in the future it will offer a complete package of infrastructure services for business centers.
Service infrastructure shortfalls are a big problem for Moscow as a whole as well as for business center owners. By providing a full range of services for tenants developers are also improving the quality of life of hundreds of people as well as ensuring that in ten years’ time their buildings will still bring in excellent revenues without needing to be redeveloped.