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Peter the Great, the founder of St Petersburg, conceived the city as Russia’s “Window on the West”. His new capital, built from scratch at the mouth of the Neva, was intended to replace Moscow with a new modern capital for his Russian Empire

Nathan North

The irony is that after the 1917 revolution Moscow was reinstated as the capital, and has remained so ever since. And while Muscovy has since burgeoned into a vast bustling metropolis and into the undisputed political and economic heart of the country, St Petersburg has been somewhat more anchored to the past, with Peter the Great’s monumental architecture seeming to act as an impediment to it developing into a modern business-oriented city.

Until, perhaps now. With the announcement that the city authorities have given the go-ahead to start construction work on the 403m Okhta Tower super-skyscraper – part of the large-scale Okhta Center business and mixed-use development – St Petersburg is now set to have a building to rival those currently going up in the capital itself. The investor behind the project (in partnership with the city council) is Russia’s biggest company and the world’s largest gas extractor, Gazprom, which intends to move operations from its headquarters in Moscow to the Okhta complex. But despite the addition of such an impressive scheme, the St Petersburg office market is still likely to continue to be dwarfed by that of the capital. As Andrey Federov, director of the office department of St Petersburg-based consultancy Maris Properties explains: “St Petersburg’s office market is very different to Moscow’s – foreign companies with offices of 4,000 sqm and more in Moscow regard St Petersburg as only worthy of a representative office of 200 sqm. Big Russian business is mostly located as close to political power as possible, and again that means Moscow.”

Parochial attitudes

And it is not only the scale of the market, but the make-up of the developers and office tenants which makes it quite different from that of Moscow. According to Alexey Fedorov: “The main developers are still mostly of Russian origin. There are a few foreign developers or investors in St Petersburg – the most notable of which is Renaissance Development – but at least 80 pct of the market is still locally owned. The same is true for tenants – despite many international companies being represented in St Petersburg, the main demand is from local companies.”

Nevertheless, total office stock in the city grew by 22 pct between the beginning of the year and the end of Q3 – according to the latest 
MarketView report on the St Petersburg real estate market by Maris Properties in association with 
CB Richard Ellis – with most of this being supplied by class ‘B’ office developments (no class ‘A’ office 
developments are scheduled for completion this year). The growth in supply would bring the total stock up to around the 1.7 mln sqm mark – but this is still some way behind the volumes recorded for other large cities in the CEE region. Nevertheless, the increase this year is considerable and a sign of growing interest from international 
companies in the city. It is unfortunate, however, that this new supply has not materialized during times of economic plenty. The credit crunch, 
naturally, has severely hit demand in St Petersburg – and this factor, combined with the new office stock, has resulted in a soaring vacancy rate: for class ‘B’ offices rising from 7 pct to 17 pct over the last 12 months, while for class ‘A’ projects there has been an even more dramatic corresponding rise from 4 pct to 24 pct. Surprisingly, rents, 
although they have been in decline since the 
onset of the crisis, have remained relatively steady since the spring, but this is more to do with the 
Russian government’s devaluation of the ruble than with any signs of stabilization taking place on the 
market. Currently, the average annual rent is 
USD 476 per sqm for class ‘A’ offices, and USD 307 for class ‘B’ offices – down by 26 pct and 34 pct 
respectively since the crisis started.

This is the environment into which the Okhta Center project is being launched. As well as the skyscraper centrepiece, the complex, which is located on a 77-ha site in a former industrial area of the Okhta valley, will contain a number of other office buildings, a concert hall, a museum and a sporting arena – all scheduled for completion in 2016. The designers of the project are British architects RMJM. So why is this being built here and why now?

The regeneration game

A spokesperson for the Gazprom subisidiary developing the project, Social and Business Center ‘Okhta’, explains the motivation behind the scheme: “The city of St Petersburg and the developer have decided to build Okhta Center to solve a number of important issues, such as the lack of world class office space in the city, problems with the public transport system and the urban infrastructure of Krasnogradeiskiy district in which it is 
located, as well as the modernization and refurbishment of the former industrial area and converting it into a modern social and business district. The initiators of the project want to make the city more modern, but will do so by carefully respecting the unique character of the city.”

Indeed, sensitivity to the city’s historic architecture will be needed, as the scheme has generated much opposition from public figures and local pressure groups concerned that it will spoil the city’s character, as well as prompting a warning from UNESCO that St Petersburg could be taken off the list of World Heritage Sites. A special dispensation has had to be given to this project by the city authorities, since the maximum height under local law for new developments is 48m. It is clear, therefore, that the city is showing the will to make this project go forward, and as Okhta’s spokesperson argues, the scheme could actually benefit the heritage of the city: “The new district will support the protection of the old, historic St Petersburg, by regenerating the whole of the city’s business activity. The new area will be the infrastructural base for Gazprom’s subsidiaries to develop. At the moment they are only based in St Petersburg in law, with their actual headquarters being in Moscow. The move will guarantee tax income for the city’s budget, and such substantial amounts of money will allow the city to invest in modernization, reconstruction and the protection of its historic heritage.” Another argument put forward by the Gazprom spokesperson is that the Okhta site is actually 2 km distant from the historic heart of St Petersburg – and it is in the latter location that offices have tended to be located up to now. The theory is that building a business complex outside the centre would thus solve congestion problems and help to further protect the historic character of the city.

Emotional attraction

Gazprom (or its subsidiares) will be occupying around 16 pct of the complex, with the rest to be leased to outside companies. But is it realistic to expect that the local demand will recover sufficiently to make it a success? Alexey Fedorov of Maris Properties is cautiously optimistic: “One needs to know if the demand is really spreading out from the centre. Today, even the suburban office centres are only slowly finding tenants, but the Okhta location is not that bad. Plus Gazprom or its subsidiaries will be the anchor for the building, attracting their contractors and partners. And last but not least, I can’t imagine that the first office skyscraper in the city will not become a fashionable location. Such emotional factors mean a lot – even for corporate tenants.”

In spite of some reservations about introducing such a scheme onto a market that is already currently over-saturated, Mr Fedorov is however quietly optimistic about the long-term effect on the city’s office sector: “I can imagine Okhta Center will not encourage but limit similar projects for a time – after all the public resistance to Okhta, the construction authorities are unlikely to approve anything in excess of city height regulations for at least until the project is completed. But in the future, I believe Okhta Center will boost high-rise construction in the city by making people understand that new buildings don’t necessarily ruin the historical heritage but can start a new chapter in St Petersburg’s architectural history.” ν