Although bankers have been actively developing the branches of their divisions in St. Petersburg for more than three years already, their demand for new premises, especially in the central areas, continues to grow. Whereas banks previously sought offices mostly for their branches, last year many of them decided to change the location of their head offices. Indeed, there is a very sharp increase in transfers, reconstruction of old and the construction of new buildings for banks’ purposes. Also, most of the financiers queried by CRE did not call the situation on the banking real estate market as being a sharp dearth or really catastrophic.
Consumer Boom
The lively demand on the part of banks for offices in St. Petersburg has been noticeable since the beginning of 2000. Of course, several municipal banks and large branches of Moscow’s credit and financing had been developing a set of their own divisions even before the dawn of the new millennium. However, basically these offices were geared to serve corporate clients and oftentimes they were also accommodated in the administrative buildings of these clients, although, with the beginning of active development of St. Petersburg’s salary projects, any bank annually began to have hundreds of thousands of new clients, followed by consumer crediting, so the situation on the banking real estate changed quite a bit. Banks required new office space in the downtown, next to the subway or large transportation highway. For while small consumer loans could possibly be formalized at stores, full-service of potential borrowers intending to buy a car on credit compelled a bank to open its own office.
Specifically car loans began daily generating income for the financiers, so they began to announce about their plans to open new branches in the northern capital and additional offices were scattered about the city. Furthermore there is a less clear reason why the banks have been developing their retail division chains.
“Our bank and other large banks expand branch networks and open a large number of new offices. This is one of the main indicators when the value of one or another bank is figured by potential investors,” explains Sergei Scherbakov, manager of Svyaz-Bank’s regional branches in St. Petersburg. “If you own a small division chain, no-one will pay any attention to you. It has even come to the point where several banks simply take over any offices and open their branches there, not caring about the cost of these offices, or that it will not be possible to recoup expenditures.”
The shortage of banking offices has also led to the appearance of a rather original offer on the market. Indeed, the St. Petersburg company PNSK, one of the largest producers of filling stations, has completed a pilot project for the set-up of quickly constructed banking branches with three service windows, a safe room and four workstations for account managers. The cost of a square meter is $1,100, while the minimal cost for premises in the bedroom communities is around $1,500/sqm in 2006. However, bankers, who are known for being conservative, have not shown special interest in the project. First of all, there are not any vacant land plots in the city center.
Secondly, it is obvious that a pre-fabricated building is also quickly dismantled, so, being located in such office space, bankers run the risk of quickly earning a reputation of being unreliable, given that they theoretically at any moment could close down shop and vanish.
For Many Years
According to Elena Sheveleva, director of the St. Petersburg branch of Banque Societe Generale Vostok (BSGV), the main battle being waged now is for additional premises of 150-350 sqm in direct proximity to the subway. In this instance, banks must not only have to compete with each other, but also with retail stores.
In most cases, bankers prefer to register such premises for long-term leases, notes Ilya Zlunitsyn, director of Rosbank’s Northwest branch.
“This is not only because of the office equipment requiring large investment and being difficult to recoup expenses within one to two years, but also because bank clients are rather conservative,” explains Zlunitsyn. “If a client is accustomed to going to specifically this bank office, is it difficult to change this habit. And with the transfer of a recently opened branch, said client may change his bank as a result of the location of the offices.”
The lease range, according to Zlunitsyn, today is rather large: “Office space on Prospect Prosvescheniya costs around $430/sqm per year, while premises on the Petrograd side is $1,200/sqm per year, which, in our opinion, is unfoundedly expensive,” he explains. “The lease costs on Nevsky Prospect, on average, are $3,000-$4,200/sqm per year, but, naturally, there are other more expensive options depending on the conditions and location,” says Scherbakov. Leasing an office in the bedroom communities near subway stations today costs the banks $1,800-$2,400/sqm per year, while premises in the same regions located far from the transportation hub is $700-$800/sqm per year. Also, the latest banks are not very interested. “An additional banking office is like a store which is located 300 meters from Nevsky, where it is already quiet. On the other hand, a bank could operate successfully in such a location,” says Scherbakov. “Therefore, the location of an additional office is important.”
Strengthened Office
However, lease payments are not a bank’s most significant expenses when opening an additional office, and this is not only because a lot of buildings in the city center have not been repaired in a long time, but, rather, additional telecommunications and utilities must be installed to get a branch ready. Indeed, just one additional kW costs a bank around 40,000-45,000 rubles, while the average branch must have additional resources of 40 kW. “In our experience, preparing an office for opening a bank branch requires serious expenditures,” says Scherbakov. “This is, for example, 70,000 ruble/sqm.”
Recently, The Bank of Russia has slightly eased its opinion of turnover potential of banking offices. Indeed, on 1 January 2007, banks were not required to follow the Central Bank’s recommendations strictly in terms of technological securing of premises in the event that the office and its employees have been insured against robbery. However, given all of this, the main and most capital-intensivey requirement is for the thickness of the walls and the lay-out of the safe and cash centers, so that they are impenetrable.
Also, St. Petersburg bankers, during both official and unofficial discussions, agree that it is necessary to take the utmost measures to protect a banking facility. “A location where people work with money must be fully secure,” says Scherbakov. “People rob even automatic teller machines in Russia.”
Expensive Meters in the North
The boom in opening new branches naturally not only involves St. Petersburg, but also other regions in the Northwest. Banks are actively moving into Karelia and Komi republics as well as the Kaliningrad and Leningrad regions. “The main competition between banks in the Komi Republic is in Syktyvkar, which is the region’s main financial center, as specifically here banks recently have begun to make their presence known by actively buying up and registering leases for office space,” says Volokitin. “Ineed, just recently in the very center of the city a Trust branch opened, having already reserved a place for itself in the prestigious Raiffeisenbank Austria retail and office complex. The arrival of the national bank branches to the deficient office market of the distant regions is causing an increase in the cost of local real estate.
It is not surprising that banks actively take part in the financing construction of new business centers and shopping and entertainment complexes by offering credit resources. In this case, it is much easier for a bank to deal directly with the developer on the favorable location of its offices as well as a sensible price. “Two to three years ago, the problem with banking premises in Kaliningrad really became a big issue, and the situation today has improved a bit as a result of administrative and office complexes being actively built in the city,” says Elena Bronina, general director of Clipper Real Estate. “These complexes are being built also on bank loans.” Additionally, according to Bronina, recently, financial institutions, which have already been operating for some time in Kaliningrad, having begun to move into new offices. “Usually, a bank begins by leasing out several premises, then buys an entire floor at one of the buildings, and, in time, buys a separately standing building,” says Bronina.
“Typically, the financiers try to locate themselves in historical German houses in the city center, which are very presentable and are not considered architectural monuments, so banks must not seek permission to redesign them according to their needs. Naturally, there are only a few of such buildings remaining, but there are some.”
Total Relocation
It has also become popular to relocate a bank’s main office in St. Petersburg, with Bashcreditbank (currently Uralsib bank) being the first in the autumn of 2000, when it transferred its local branch managers from a modest office on Oborona St. to the area near Narvskaya subway station, in a restored building on Inzhenernaya St., and banks one after the other have followed suit over the past two years. KIT Finance has also relocated its main office, followed by Baltinvestbank’s relocation. Impeksbank has also relocated from the International Banking Institute on Nevsky Prospect to a business center on Sadovaya St. NOMOS-Bank has begun construction on a new building, and St. Petersburg Bank has received permission for the project to construct its own multi-story office building. VTB is also relocating and completing its own large-scale Nevsky Town Hall project.
Those who have relocated to historical buildings are able to generate value from the heritage. The best example is Rosbank, occupying a building based on a long-term lease on the Griboedov Canal in the First Credit Union building. There is also Svyaz-Bank whose branch operates in the Azovsko-Donskoi Bank building on Bolshaya Morskaya St., next to the General Staff arc. “Today we are finishing up the full-scale refurbishing of the building on the Griboedov Canal,” says Zlunitsyn. “Of course, the total refurbishing of a historical building is a very labor-intensive and expensive process, but the result is worth it and this is not only because the bank’s image is clearly strengthened, but also because our building is located in the very center of the city where there are a lot of people. In terms of the location for a bank office, the Griboedov and Nevsky Prospect intersection is the best area. Naturally, there are some issues with parking, but this has been partially resolved and in any case it is compensated for by the surrounding offices with large companies, couriers and employees who may reach the office by foot.
“Banks’ moving is a normal process, and this even occurred in pre-revolutionary Russia,” notes Scherbakov. “When Azovo-Donskoi Bank, in whose building we are currently located, moved from Taganrog to St. Petersburg, the bank initially had been offered a building at 62 Nevsky Prospect; however, the shareholders of the country’s third largest bank would like to be located in a unique banking building and be even closer to the Emperor’s Courtyard. Therefore, they bought a plot next to the General Staff building and constructed a building as per special project.”
In the Manner of the West
Additionally, according to Scherba-kov, not everyone agrees with the above-stated, and this particularly includes top managers from foreign bank subsidiaries which, typically, wish to be located specifically in business centers, and there are plenty of examples of this in the work history of Dresdner Bank, St. Petersburg. Initially, this bank was located in the building of the former German Embassy on Isaakievsky Square. However, the bank ran into a number of problems regarding re-equipping the building for its own use. At the time, Raiffeisenbank Austria had opened its own branch in a new business center on the other side of the square.
Furthermore, foreigners pay no less attention to image than Russian banks, and they try to render the premises unique in their own way. For example, the in-house standards of BSGV require that not only the offices be laid out according to corporate color patterns, but also, reddish granite must be used, being imported only from France, and the delivery is very expensive. However, the bank maintains its brand in every building in which the granite is used.
The very latest trend on the banking market is building modern buildings from the ground up and doing so quickly. “The banking business is developing quickly and the number of services is increasing as well as the number of personnel. Therefore, more space is needed to serve customers accordingly,” says Alexei Ponkratyev, manager of the NOMOS-Bank branch in St. Petersburg. “The new main office of the bank should have been completed last year. Owned personal building is much better than rented space.
The current class A business centers, typically, are completely occupied, and waiting for the completion of a new business center and assuming the risks connected with it , makes it more advisable to build one’s own facility or reconstruct a building.”
To all appearances, bankers today are feverishly seeking new facilities, and this situation is unlikely to change in the foreseeable future. This fact is attested to by CRE data, and even the Northwest Bankers’ Association, located in several premises in a modest single-story building opposite Apraksin Dvor and operating on the donations of members, has already, for more than half a year, actively been seeking new and more stylish offices.