Retail Centers of Russia – Unity in Uniqueness

The St. Petersburg market is one of the most highly developed retail real estate markets in Russia. According to Jones Lang LaSalle, the supply of retail area per 1,000 residents totals 286 sqm. The aggregate area of more than 200 major retail properties has already exceeded 4.2 million sqm, while the gross leasable area in these properties is 2.83 million sqm, according to GVA Sawyer.

Superregional centers account for 21% of total sales area (in 2005 their share did not exceed 3%), regional centers – for 29% (14% in 2005). The share of community centers has dwindled during three recent years from 54% to 41% and the share of neighborhood centers – from 29% to 9%. Towards this year’s end the commissioning of several large regional and superregional centers is expected, including such high-profile ones as the 192,000-sqm Stockmann, 93,000-sqm Galeria and 73,000-sqm Leto.

It’s very unlikely that the average level of rental rates will change during the next 6-12 months. In autumn 2010 the rental rates for anchor tenants and entertainment operators in shopping malls were 700-1,000 rubles/sqm/month, VAT inclusive. For retail galleries, rates fluctuate within the range of 1,500-4,500 rubles/sqm/month (source: ASTERA).

The vacancy rate is going down in the segment of shopping centers and does not exceed 5% for successful retail properties. In less successful projects the average vacancy ranges from 15% to 20% and reaches as much as 40% in a number of projects (source: ASTERA).

Kaliningrad

The aggregate supply of retail space in the city at large nears 420,000 sqm, according to Jones Lang LaSalle, including 89,000 sqm of quality premises, which translates to 210 sqm per 1,000 residents.

The most remarkable leap in retail space supply happened in 2006, when 73,800 sqm of retail areas were delivered to the Kaliningrad market through the inauguration of such shopping malls as Acropolis, Epicenter, Kaliningrad Plaza, Mayak, MegaCity and Mega-Center. The next serious accrual of retail areas took place in 2008 (almost by 38,000 sqm) after the first phase of Europe shopping mall and Clover Citycenter mixed-use had been commissioned.

Kaliningrad lacks classical “retail routes.” However Pobeda Square with nearly 50% of the city’s shopping centers concentrated around it might well claim the status of a “retail square.” GC Victoria and Vester stand out among the local retail operators.

At different times it was announced that work had begun on various projects with retail and entertainment functions (including Altstadt, Lebenicht, Lastadie et al). Yet these and other projects were frozen right after the beginning of the crisis. No construction on retail properties is anticipated in the mid-term outlook. However consultants point out that rebranding and renovation of the existing and no longer competitive retail properties is very likely.

According to GVA Sawyer, the average rates on central retail streets – Leninsky Avenue, Proletarskaya and Chernyakovsky – are 1,000-1,100 rubles/sqm/month. The rental rate at retail premises on Bagration, Ozerov streets and Sovetsky prospect with their intense human traffic patterns averaged 700-800 rubles/sqm/month. In early 2010, rental rates began climbing. Street retail premises at central streets cost at least 1,200-1,300 rubles/sqm/month. The range of rental rates is rather wide at large shopping malls – from 350-400 rubles/ sqm/month for “anchors” to 3,500 rubles/sqm/month for small shops in retail galleries. Even in big retail centers some areas are offered for lease over 11 months or even a shorter term – clear evidence that the retail real estate market has not fully recovered from the consequences of the crisis.

In terms of the sale of retail properties, the market offers both dumping and pre-crisis prices, the average selling price offered is 65,000-130,000 rubles/sqm in street retail districts.

Krasnodar

According to DSO Consulting, there are 1.4 million sqm of retail space in Krasnodar. The aggregate retail space supply in quality shopping centers of Krasnodar was 872,800 sqm (GLA – 662,400 sqm) as of the end of Q2 2010. For now the retail real estate market has not been fully saturated, but in the light of the much-expected delivery of 200,000-sqm OZ shopping mall, the situation may radically change on the Krasnodar market. The level of vacant areas in quality shopping centers delivered to the market before the crisis is reported by Core Group to be at the level of 8-10%, while in the properties commissioned during the past 18-24 months this figure could easily reach 60% at the time opening. The city has three major retail routes – Krasnaya, Severnaya and Stavropolskaya streets. Street retail premises along the central streets cannot be leased for less than $30/sqm/month.

In large shopping malls the rental rates range from 750 rubles/sqm/month for the anchors to 3,500-4,200 rubles/ sqm/month for the small tenants of shopping galleries. Krasnodar ranks first in Russia in terms of hypermarkets (12.7 hypermarkets per 1 million residents). A multitude of national, regional and international retail chains have opened their businesses in the city. Among them are such big ones as Magnit, Eldorado, Euroset, IKEA (Mega Adygeya Kuban), O’Key, Auchan, Leroy Merlin, Castorama, Lenta, M.video, MediaMarkt, Technosila, DOMO, METRO AG, Mosmart, Pyaterochka, Perekriostok, OBI, KIKA and many others. According to Core Group, the City Center mall is looking forward to the opening of four new boutiques – Marc Cain, by Malene Birger, Mariella & Harry and Russia’s second Trussardi Jeans boutique.

Noteworthy among the local chain operators are: Tabris (8 supermarkets), Vysshaya Liga (35 stores of sporting goods) and Sport Style.

Nine high-profile retail projects with a cumulative area nearing 532,000 sqm are under construction in Krasnodar, but only OZ is being actively built. The first phase of the OZ mall should open its doors by year end. Inauguration of the second phase is scheduled for spring of 2011. The gross built area of this shopping mall developed by AIM Property Development will reach 130,000 sqm. The mall will host about 280 stores. Other projects are either frozen at the moment or their developers gave them up (one example is KomsoMall developed by DVI Holding).

Nizhniy Novgorod

The supply of modern retail space in the city nears 900,000 sqm. The Nizhniy Novgorod commercial real estate geographical pattern is somewhat out of balance. Supermarkets, hypermarkets and department stores can be found in the heart of almost each major district and yet in some neighborhoods retail is quite underdeveloped. This can largely be explained by the fact that most mercantile businesses have traditionally been concentrated in the Upper City, where the purchasing power is higher. In particular, such elite shopping centers as the 22,900sqm Etazhi, 19,300-sqm Shokolad, 11,700-sqm Gagarinskym 56,000sqm Fantastika and others are located in the upland part of the city and the number of large stores is also higher here compared to other districts. The inauguration of several community centers is anticipated in the months to come in Sormovo and Moskovsky districts while the Moscow movie theatre is being redeveloped into a shopping and leisure center.

Street retail is developed in the historical part of the city – mainly along the pedestrian route Bolshaya Pokrovskaya. New retail walkways are also being formed along Gagarin, Lenin and Sovnarkomovskaya streets. Chain malls are represented only by a 100,000-sqm Mega. The food sector is dominated by the Magnit chain and EUROSPAR (developed on the basis of a franchising scheme). The indisputable leader in the home appliances and electronics sector of the local market is the Electronika chain.

The level of rental rates at quality shopping malls varies between 9,000 and 60,000 rubles/sqm/year.

Krasnoyarsk

The cumulative area of Krasnoyarsk’s shopping and retail-entertainment centers, according to DSO Consulting, nears 700,000 sqm while street retail premises add another 200,000 sqm. The commissioning of large and modern shopping malls in Krasnoyarsk peaked in 2008, when three biggest shopping and leisure projects were delivered to the local market: the 140,000-sqm Planeta developed by RosEvroDevelopment, 82,000-sqm June developed by Regions Development and 60,000-sqm Ogni developed by StroinRos Group. These three projects saturated the local commercial property market. Not a single large retail project (in excess of 10,000 sqm) was commissioned in 2009. A number of new retail projects planned during the boom years will never see light, to be sure. For instance, StroinRos planned to build two more Ogni malls in Krasnoyarsk (40,000 and 90,000 sqm). In this connection it is quite symptomatic that in mid-2009 IKEA publicly refuted information on its ostensible intention to develop a shopping and leisure center in the city.

The sale by Sberbank of 23 retail centers with aggregate area nearing 340,000 sqm (in Krasnoyarsk, Abakan, Novosibirsk and Kemerovo) handed over by the Alpi chain as collateral can rightly be considered the deal of the year. These properties are known to have been sold in February 2010 for 3.5 billion rubles (their collateral value was 6.5 billion rubles) to AMK-Farma (Regions Group).

The average rent rates and selling prices of street retail premises had dropped by 30-50% by 2010 in comparison with rates in late 2008. Today the average rent rate for a ground-floor premise along the city’s major retail routes (Prospekt Mira, Lenin and Karl Marx streets) can roughly be estimated at 1,000 rubles/sqm/month, including VAT and operating expenses, while the average cost of such a premise – at about 70,000 rubles/sqm. In the months to come the rental rates and selling prices of Krasnoyarsk’s commercial property will most likely be rising in view of a gradual recovery of the consumer demand. In the opinion of analysts from Magazin magazinov in association with CB Richard Ellis, the segment of retail real estate is well developed in Krasnoyarsk, although the market is not saturated yet. There is potential for realization of new shopping malls on the right bank of Yenisei River.

Novosibirsk

In 2009 around 70,000 sqm of retail and entertainment real estate were commissioned in Novosibirsk, but only two large properties: 14,000-sqm Metro Cash & Carry hypermarket and 9,000sqm Lenta hypermarket. Today the total area of quality retail properties alone amounts to 700,000 sqm, according to DSO Consulting. This figure does not include the properties of Alpi that went broke (five shopping centers with cumulative area of 57,000 sqm) and the multifunctional center of Varshavsky Group – a 50,000-sqm shopping mall on the grounds of Kuzmin Works. In 2010 Novosibirsk has seen the commissioning of the 40,000-sqm retail-office center Versailles on Marx Square developed by Novy Gorod – a subsidiary of Sobin-Bank (office space – 2,000 sqm), 4,600sqm Sportmaster hypermarket on 17/1 Shevchenko Street, 30,000-sqm shopping and leisure center Golden Park in Snegiri neighborhood developed by MC Uspekh, and this is not all. The 90,000-sqm retail and office center Sun City on Marx Square developed by Uchet LLC is slated for delivery at the end of 2010.

In late 2009 construction on Novosibirsk’s biggest 151,000sqm shopping mall Aura, developed by Sibstroyinvest, which bought this project from MC Uspekh, restarted. The project is due to be commissioned in 2011. Other giant projects developed by national players – 140,000-sqm Omega plaza on Marx Square constructed by RID Group and two projects on Kamenskaya artery (a 180,000-sqm project from Accent Real Estate and a 130,000-sqm project from Advantage Group) – will most likely never see light. As predicted by DSO Consulting, the gross built area of commercial property to be delivered to the Novosibirsk market in 2010 won’t exceed 100,000 sqm. The sale of the 5,700-sqm trade center Bonanza on Vokzalnaya artery became the biggest commercial property sale deal. The property was sold by local Trud to the national group Full House at the price of 150,000 rubles/sqm.

The average rental rates at street retail premises on the city’s major street retail routes have dropped since late 2008 by 3050% and currently range around 1,500 rubles/sqm/month, including VAT and operating expenses. The rates have some growth potential in view of gradual recovery of the consumer demand. The average selling prices of such premises have gone down roughly by 20% to about 200,000 rubles/sqm.

Yekaterinburg

As reported by RIC UPN, Yekaterinburg boasts of more than 60 quality retail centers with aggregate area in excess of 670,000 sqm. The commercial property market is close to saturation in Yekaterinburg. Both nationwide retail networks (Mega, Park House, DVI) and strong local retail properties (Greenwich and Carnival) are represented in the city. There is a huge number of retail centers in Yekaterinburg – both professional conceptual properties and “semiprofessional” neighborhood centers from 5,000 to 15,000 sqm. The luxury segment is also well-developed in the city. Yekaterinburg is Russia’s third city behind Moscow and St. Petersburg where leading luxury operators – Givenchy, Armani, Ferre, Chanel and Cartier – are represented. The city’s biggest trade centers are: KomsoMall (90,000 sqm), Mega, Greenwich, Carnival, METRO, Park House, Dirigible and NEBO. All major nationwide retail operators are active here. During the crisis Banana-Mama, a children’s goods operator, abandoned the market. According to ASTERA, more than 20 retail chains phased out their operations in Yekaterinburg and about 40 regional chains were put up for sale. Rental rates in the shopping galleries have dropped by 25% during the recession. But while the rates in regional and superregional centers sagged by 16-18%, in neighborhood centers the reduction was as much as 35-40%. As reported by Colliers International, the yearly rent of premises in Yekaterinburg’s shopping galleries (100-150 sqm) are $22,500-27,500. According to Magazin Magazinov in association with CB Richard Ellis, Yekaterinburg is presently one of the most saturated retail real estate markets compared to other cities with one-million-plus populations. As for large-scale projects, construction on the second phases of the Dirigible and Park House is planned in the foreseeable future. Considering the current situation as well as the anticipated delivery of extra retail areas in the city, one can forecast that during the next several years the demand for new retail centers in Yekaterinburg will be close to zero.

Kazan

As of today the total retail space in the city, according to Magazin Magazinov in association with CB Richard Ellis, amounts to about 900,000 sqm. Kazan’s retail stock is represented by 50 shopping and leisure centers. The fact that Kazan’s commercial property market is highly developed can be seen in the city’s retail space per capita figure: 695 sqm per 1,000 residents (source: Cushman & Wakefield), the highest such figure for all of Russia, including Moscow. Kazan’s biggest shopping malls include Mega (112,500 sqm), Park House (68,000 sqm), Tandem (67,000 sqm) and Koltso (46,800 sqm). Noteworthy among the projects under construction is the 104,000sqm MFC Clover Plaza at Shcherbakovsky Lane and the 40,000-sqm SC Frant on Fuchik Street.

Overall more than 167 national retail operators run their business in Kazan. In a number of retail segments strong local chains have been formed which are not inferior to many nationwide networks in terms of size and coverage: in the middle and upper-middle grocery segment this is Bahetle; in the low middle grocery niche this is Edelweiss; and in home appliances and electronics this is the DOMO.

Santa House, Chudo Dom, Mir, Banana-mama, Dixis and Betalink have folded under, unable to bear with the crisis. However, 11% of the total number of chain retail operators have increased the number of their stores in Kazan since the beginning of 2009. This became possible owing to newly vacated premises and the reduction of rental rates. Thus TsentrObuv (+ 5 retail outlets), Bon Joly (+3), L’Occitane (+ 2), Mexx (+ 2), O’Shade (+ 2), Befree (+ 2), Parizhanka (+1) and others have expanded their operations on the Kazan market. Because Kazan has one of the most saturated retail real estate markets in the country, as estimated by Magazin Magazinov in association with CB Richard Ellis, further construction of retail centers appears unpromising, especially in the near future.

Samara

According to Magazin Magazinov in association with CB Richard Ellis, the total retail space in Samara nears 480,000 sqm.

Noteworthy among the key retail properties are the 65,000-sqm Park House, 140,000-sqm Megacomplex Moskovsky, 130,000-sqm Kosmoport and 58,000-sqm MegaCity. Other remarkable shopping malls include the 35,000-sqm Aurora and 32,500-sqm Mega-City. Samara’s retail centers are mainly concentrated along the Moscow Highway. One of the most attractive retail centers located in another district is Viva Land at the intersection of Kirov Avenue and Pobeda Street and at the junction of two bedroom communities with total population in excess of 600,000 residents.

The gross built area of the mall is 70,000 sqm, GLA – 47,600 sqm. Construction on three other retail projects – 53,000-sqm Brand Hall, 35,000-sqm Most, and 30,000sqm Hippodrome – is also under way.

The aggregate area of shopping malls under design nears 200,000 sqm with the Planeta mall accounting for 120,000 sqm. Before the crisis developers planned to commission more than 700,000 sqm of other retail areas, but then the time of delivery was postponed for more than 70% of the said projects. A number of projects were frozen because of the crisis. Thus X5 Retail Group ceased construction on the biggest mall planned for the city (215,000 sqm) mall. The grand opening date of Ikea’s Mega has already been put off seven times or more because of problems with permits.

Samara has well-developed street retail, even though it lacks a continuous retail route. Earlier on this status might have been claimed by Leningradskaya Street, but after new shopping centers were delivered to the market Leningradskaya began losing the right to be called the number one street retail route of Samara. Now the formation of street retail on longitudinal arteries – Novo-Sadovaya, Gagarin and Pobeda streets – has been completed. The gap in rental rates is wide here, as they depend on the location and quality of a retail premise and may vary between $100 and $800/sqm/year.

The vacancy rate soared at the turn of the year. A number of national companies have already abandoned the Samara market – among them is the St. Petersburg-based Santa House (housekeeping goods) and Ginza Project, which gave up on its expansion plans and closed down its Yaposha restaurant. On the other hand, such chains as Auchan, X5 Retail Group, Castorama and Euroset are still active. The rent rates have gone down 20-30% to 600-1,500 rubles/sqm/month. The Samara retail real estate market is not yet saturated. In the opinion of Magazin Magazinov in association with CB Richard Ellis, the outlook for the development of new mid-size shopping centers (30,000-40,000 sqm) in bedroom districts is good enough, given that the pattern of retail development in the city – namely, concentration of major shopping malls around the Moscow Highway.

Chelyabinsk

The aggregate area of shopping centers in Chelyabinsk is approximately 550,000 sqm, of which gross leasable area roughly accounts for 380,000 sqm. Per capita provision of quality retail premises does not exceed 250 sqm per 1,000 residents. The following shopping centers with areas in excess of 50,000 sqm stand out among others:

– Gorki (GBA is about 53,000 sqm, GLA – about 36,000 sqm). The list of anchor tenants includes the 11,000sqm grocery hypermarket Nash, 3,000sqm hypermarket of home appliances and electronics Expert, 9-screen Cinema Park multiplex theater, 1,220-sqm children’s recreation center Crazy Park, and a 1,280-sqm Snezhnaya Koroleva store.

– Focus (GBA is 70,000 sqm, GLA – 40,000 sqm); anchor tenants: 2,500sqm M.video, 2,600-sqm Megamart, 3,200-sqm Sportmaster, 500-sqm media center Soyuz, 600-sqm L’Etoile, 830-sqm department store Vesh!, 1,500-sqm Snezhnaya Koroleva, 1,400-sqm Starik Khottabych. The mall is geared towards the middleclass consumers;

– Cuba mall marketed in 2008 (GBA – 50,000 sqm, GLA – 26,000 sqm);

– KS mall (GBA – 58,000 sqm, GLA – 53,000 sqm) Planned for delivery are retail and recreation centers Ural and Rodnik. Ural is built around the eponymous and functional movie theatre. The gross built area is 30,000 sqm, including 10,000 sqm of rentable spaces with a retail function. This three-level project is due to be delivered to the market in Q3 of 2011. The owner and investor is LLC Shkolnik. The project is developed by Entertainment Complex “Ural” Co.

The gross built area of Rodnik will be as large as 135,000 sqm, GLA – 58,000 sqm. The planned inauguration time is spring 2011. The project will be anchored by Auchan, DIY Castorama, a home appliances store, a sporting goods store, Kinomax multiplex theater with a bowling alley and a children’s fun center. The project is developed by Rodnik; the investor is Makfa. Many districts of Chelyabinsk still lack quality shopping malls and so experts say the outlook for the development of retail properties as quite good.

The average rental rate at Chelyabinsk’s retail centers has dropped by 30-40% as the landlords had to make various concessions to tenants, such as long rental vacations. Nevertheless, at some retail properties the rates did not see any significant reduction in times of crisis. The asking rental rates kept growing at some of the retail properties during several recent months. The range of rental rates in Chelyabinsk’s retail centers is rather wide; the average rate for small premises below 100 sqm is 21,500/sqm/year, for premises around 300 sqm – 10,500 rubles/sqm/year and for premises larger than 1,000 sqm – 3,700 rubles/sqm/year. For all that, a number of tenants have switched to rental payments based on a turnover percentage with a minimal fixed rent rate.