TAmong the opportunities available to developers today – are the cheaper services of architects, contractors, and advisers. Depending on a type of service and complexity of the project, the prices are 20–50% lower today. Not every company is prepared to announce reductions in prices publicly, but in the process of contract negotiations, practically all of them are ready for compromise. The main desire today is to get every order possible.

Fighting for clients

"To economize – you need be economical" – the developers are ready to write this old Soviet type motto into each contract. Experts unanimously note that all current market services in the real estate sector are showing negative trends.

Contractors, architects, brokers, advisers admit that there was an essential reduction in workloads, and accordingly, in incomes. An especially sharp drop in demand was felt in the first quarter of this year. Developers have no time. For the majority of the companies the main task is to survive, to re-structure debts and to complete current projects. "Many development projects have been frozen today, there are very few objects under active construction; accordingly, the number of customers for the services of architects, building contractors, and advisers has seen a steep decline," says Natalia Shmurina, Director, Marketing and Sales Department, AFI Development. “The higher levels of competition are forcing price cuts. The prices for services have decreased, and we are taking advantage of this opportunity.

In the present situation most companies working in the development sector have chosen a strategy of ultimate savings – they have started to reduce expenses, staffing, the spheres of operation that are not their highest priority, and some have even closed.

Experts are noting that today there is no uniform mechanism of pricing in services provided to development companies. Everyone is trying to secure the maximum advantage possible. If a company sees that their client is solvent, the prices for him will be a little higher than the average on the market. However quite often another situation develops – to retain very important clients, many companies are ready "to renounce their principles" and reduce prices. Thus, the prices charged today are 1.5 to 5 times lower than they were in the pre-crisis period.

"Today, just like during the pre-crisis period, the prices charged for works depend on their volume, terms and scale of the building project," says Evelina Pavlovskaya, the vice-president of consulting at GVA Sawyer. "In comparison with pre-crisis times, the cost of services rendered by architects, contractors and advisers are 20–50 % lower, depending on the requirements of clients and complexity of the project. Such fundamental price reductions are a result of the low number of orders coming into companies in this sphere and therefore the necessity of getting any possible orders."

Marianna Romanowska, deputy general director, TriGranit Development Russia, considers that it is very difficult to evaluate the situation in the construction subcontracting market, because all analysis requires some concrete data based on actual transactions – which hardly exist today. "The prices for subcontracting work, naturally, should correspond with the price of materials; however imported equipment has not become cheaper, therefore contractors can only achieve savings on their internal expenses and profit margins," says Marianna.

It is almost impossible to understand, what a fair price for any service should be today. The market operates on the principle of "who can pay what". Many companies calculating the price of their services start from the budget a customer has for such services. Seeing that the budgets of customers are significantly lower, the service companies charge them very modest fees. Either you agree to work for a modest amount, or you sit without any work – no other alternative. "The situation is especially difficult for those, whose compensation is based on commissions per transaction, because all can only dream about transactions now," underlines Romanowska.

Should we talk about discounts?

Today it is rather easy to receive discounts for services. The first arrangement is usually made at the stage of the initial telephone conversations. "Right at the early stages of negotiations, via the telephone, discounts start being offered since this is one of the first questions that customers ask," says Evelina Pavlovskaya. “At the stage of holding tenders, the cost of the services is of primary importance. The new trend of today is choosing the service provider according to the price offered and experience in the field; everything else fades into the background. In the course of negotiations it is possible to bargain a 50% discount compared to pre-crisis prices."

As noted by Natalia Shmurina, subcontractors are officially announcing lower prices for services to attract new clients, and are adjusting their pricing policies to maintain a regular flow of clients.

According to Marianna Romanowska, negotiations with advisers are always possible, though in most cases this concerns only changes in the terms of already concluded contracts (not new ones).

The officially declared reduction in the prices for services, according to the experts, is no more than 20%. The lowest prices, reflecting the maximum reduction that a company is willing to make, are not announced publicly. The real prices of services can only be seen during direct negotiations; everything will depend on the interest in the client and the project.

Our guys against the "outsiders"

With reductions in spending which every company is doing today, the first place everyone looks for is outsourcing – a category where most consulting companies belong. "When faced with the dilemma of securing the jobs for loyal employees, or prolongation of relations with an outside adviser, or the attraction of a new one, then as a rule, preference is given to 'our guys', instead of the 'outsiders'," says Marianna Romanowska. “However, sometimes the strategy of using one's own resources also has a flip side: companies are dismissing some employees only to later replace them with new ones, but for smaller salaries. The overflowing market of job applicants only supports this tendency."

According to Ms. Romanowska, the basic problem today is not the general cheapening of the services of advisers, but a more essential decrease (almost total absence) of new orders, as most companies, developers or the investors do not have the cash to spend. Furthermore, there has been a chain reaction from the “freezing up” of projects to the payments made to all advisers. Their expenses are considered to be soft costs: lawyers and real estate advisers (feasibility studies for acquisitions, legal examination and transaction support), architects (concept and project design) and "everywhere" else – up to the technical maintenance of already completed objects.

Who lives well in a crisis?

Together with the tendency towards reducing current prices, the market is seeing some services having no need to reduce their rates. This is especially true for real estate brokers, whose commissions for the attraction of clients have remained at the same level. "The fact is that broker support is one of the most demanded services today, and naturally, this is one of the most challenging engagements," explains Pavlovskaya. “Every day it becomes more and more difficult to lease or sell a property, and it is especially difficult to attract investors for a project at an early stage of construction. Therefore the work of brokers is compensated with good commission for each transaction."

According to Ms. Pavlovskaya, all types of broker support are in great demand today. This includes the sale and lease of facilities, assistance in negotiations with existing tenants and problem solving with rental rates. There is also a high level of demand for the services of appraisers (the same level as for broker support) both among the banks, and buyers who wish to purchase an asset, or proprietors who wish to appraise a property in order to see if the rental rate is adequate. In addition, there is demand for the services providing express analysis of a situation in order to reveal the most expedient course to follow in changing circumstances.

Lawyers are not suffering either. "From the early December, 2008 until April, 2009 there was a 15% increase in the quantity of client work projects in comparison with the similar period of 2008; the gain came to 10% in USD terms," says Yuri Borisenko, Real Estate, Land, and Construction Department, "Vegas-Leks" law firm. “At the same time, the types of services provided have changed, namely: the quantity of disputes (court trials and out of court settlements) has increased exponentially; a significant portion in the portfolio of law firms consist in collection and repossession activities for unpaid loans.

The land market in Moscow, growing so feverishly before, has now gone into hibernation: most developers are not ready to invest into land today, despite the fact that the window for privatization of land will shut at the end of 2009. Also more than 15 out of the 70 investment projects that had been 'packaged' into contracts with the help of my department in the last three years are in need of urgent 'unpacking' or 'repacking' – changes of conditions, changes in conceptual design etc."

Vitaly Mozharovsky, partner of Goltsblat BLP, commercial real estate practice, said that the greatest demand now is for services connected with debt re-structuring – transferring the ownership of assets in case of defaults, collecting pledged securities, updating the terms of rental agreements and preliminary rental contracts.

Early terminations of leases and prelease contracts, new rental contracts in connection with moving, or arbitration disputes. The prices for these services have not increased, but of course, there is no pressure for them to decrease. One interesting characteristic is that the majority of industrial projects have not been frozen – just the work on them has changed from an urgent mode to the normal one: without any time pressures. “And, just last month four new industrial projects, i.e. the projects begun after the shock in the market, came in my way. So life goes on!” explains Vitaly Mozharovsky. "It is indicative that this year almost no legal firms have announced their usual annual increases in the hourly rates they charge. However, during negotiations some savings still might be reached.

I am not talking about primitive dumping; I am talking about real possibilities for the client to receive more value and quality for money and at a lower price only because of optimization of the internal processes in law firms. In addition, the newly available spare time can be spent very profitably at free training courses, seminars, etc. provided for the personnel of our clients. And we do this with pleasure today."