The growth in the purchasing power of the population has led to the further development of the Moscow retail real estate market. Indeed, the steady growth in earnings in the country and the actively developing consumer-credit market over the past few years have benefited the annual growth in retail sales turnover throughout the country. Accordingly, in Moscow where the population is more prosperous than in the rest of the country, the rapid development of the retail sector is even more noticeable.

Overview
The favorable economic indicators enable active growth in Russia’s consumer market. According to data provided by the State Statistics Service, retail-sales turnover for the first half of 2006 was nearly 3.9 trillion rubles, which is an 11.3% increase on the previous year for the same period. In Moscow, according to data provided by the Moscow Consumer Market and Services Department, retail sales turnover for the first half of 2006 reached 861.3 billion rubles, which, in real terms, was an increase of 13.8% over the same period of the previous year; but in comparable prices, retail-sale turnover rose by 6% compared to 5.6% for 2005. High-end shopping centers were also in demand by retail sales operators and buyers alike.

Among retail chains (both Western and domestic) entering the market recently, the following can be noted:

The French sporting goods chain Decathlon opened its first sports hypermarket in Russia in May at the 84-kilometer mark on the Moscow Ring Road between Altufievskoye and Dmitrovskoye highways;
The Israeli retail chain Home Center (which sells do-it-yourself goods) is set to open its first stores in Moscow and Yaroslavl by the start of 2007;
The Vester chain of grocery stores has opened a supermarket in Moscow, as well as its first hypermarket in Belgorod;
Castorama, the chain of home refurbishing stores, already has two stores operating in St. Petersburg and Samara, and plans to open a hypermarket in Moscow next year;
The Kazan chain Bakhetle, a grocery-store chain specializing in the sale of Tatar national delicacies, will open its first Moscow store by the end of this year on Altufievskoye Shosse; the chain also plans to open up to 10 hypermarkets in Moscow by 2010;
The ETO (Eldorado) chain of electronics hypermarkets just opened three hypermarkets in Moscow in August (in the L-153, Grand and Moskva shopping centers);
The British chain of department stores Debenhams will open its first store in Russia in the fall on Krasnaya Presnya. The Sports Fashion Group owns the franchise package of the British chain.

The market for retail premises over the past half year remained very attractive for Russian and foreign investors. According to an estimate by analysts at Cushman & Wakefield Stiles & Riabokobylko, the volume of investment in this segment was close to 49% of the total investment in Russia’s commercial real estate market. Indeed, steady foreign investor interest in quality Russian buildings is confirmed by two significant deals with foreign investor funds:

Meinl European Land, the large Austrian financial structure, bought two Mall Gallery functioning shopping centers and two land plots of 8 ha for construction from ST Development at the end of March;
ImmoEast, the Austrian fund, obtained two Golden Babylon shopping centers in Otradny and Yasenevo from Wakelin Promotion in June of this year.

According to data provided by CBRE Noble Gibbons, the average return on investment in the shopping-center segment is currently estimated at 10-12%.

The following are other significant events that recently occurred in the retail real estate market.
Pyaterochka Holding N.V. and Perekriostok Holdings Limited merged, becoming the largest Russian retailer. There are plans to open 130 Pyaterochka discount stores and 40 Perekriostok supermarkets in Russia by the end of this year.
On July 5 the Moscow City Duma passed the law Amendments to the Moscow City Law N29 Retail Activity in the city of Moscow, from December 9, 1998. Pursuant to the new law, the maximum square meters of retail points not requiring permission from the city government to construct was increased from 1,500 sqm to 3,100 sqm. This should simplify the procedure for obtaining permission to construct small shopping centers.

Supply
This year professional retail premises continued to replace the disorganized retail segment. According to estimates provided by analysts at Jones Lang LaSalle, the overall amount of retail premises (including markets, stands, etc.) in Moscow over the past five to six years has remained the same at around 5 million sqm – only the ratio of various types of retail premises have changed.
Market experts cite varying figures when estimating the overall amount of square meters offered in high-end shopping centers:

According to data provided by experts at Colliers International, there were 45 professional shopping centers operating in Moscow at the end of the first half of 2006 with around 2.218 million sqm of floor area and 1.253 million sqm of retail premises;
According to data provided by DTZ, the overall supply of modern shopping centers in Moscow at the end the last half year reached 2.75 million sqm;
According to estimates provided by analysts at GVA Sawyer, the amount of high-end retail premises now totals 2.92 million sqm, which is 53% of the overall supply (roughly 5.4 million sqm).

The discrepancies in estimating the area of high-end supply result from using various sets of criteria to assess the quality of shopping centers.
Market experts believe that high-end shopping premises in Moscow are distributed extremely unevenly, ranging from 300 sqm per 1,000 residents in the Central Administrative District to eight sqm per resident in the Eastern Administrative District (data supplied by Cushman & Wakefield Stiles & Riabokobylko). Accordingly, analysts at Magazin Magazinov state that when analyzing the available retail premises for the population, it is necessary to factor not only the number of residents, but also the average income of the residents in a respective district as well as the distribution of commuter traffic between various districts.
Thus far in 2006, only two new projects have added to the high-end supply:

Bibirevsky shopping center (18,600 sqm), 21 Bibirevskaya St.
Gorod shopping center (134,000 sqm), 2/2 Ryazansky Prospekt

In August of this year Golden Babylon II (20,800 sqm) in Yasenevo and Chas Pik (25,000 sqm) at the 87-kilometer mark on the Moscow Ring Road opened for operation (data supplied by Colliers International). According to data provided by DTZ, more than 20 shopping centers with a total area of 900,000 sqm are set to enter the market by the end of this year.
The low number of land plots for building construction in the center of the city is the reason for the development of underground shopping centers, such as the Pavelestky Square, Pushkin Square and Tverskoi Zastava Square. Additionally, new construction will be moved toward the periphery of the city and the Third Ring Road.

Demand
In connection with new operators entering the market, in addition to the expansion of existing retail chains, demand remains high on the part of tenants for high-end shopping premises. The amount of available premises depends on the quality of the shopping center. Consequently, according to estimates by analysts at Torgovy Kvartal, the amount of available premises in successful shopping centers does not exceed 1-3%, as there is a waiting list for tenants in such shopping centers. According to data provided by DTZ, the amount of vacant premises in the less successful – from the point of view of design and arrangement – shopping centers reaches 5%, while the average for Moscow is 4%.
According to DTZ estimates, floor area from 100-200 sqm is the most popular in shopping centers. Accordingly, there is a trend of enlarging retail premises at the request of gallery tenants, and demand is increasing for floor area of 350-500 sqm. Leeds Property Group also notes the steady growth of premises occupied by department stores and hypermarkets. Indeed, when designing a shopping center, it is necessary to take into consideration the rate of growth of potential tenants, as today’s demands could significantly change prior to the actual opening of the shopping center.

Lease rates
Many factors influence the lease rates in shopping centers, such as:

The overall success of a shopping center: lease rates increase for premises in shopping centers which are well designed, located and positioned. Furthermore, lease rates on aging or initially unsuccessful shopping centers can stabilize or even decrease;
The appeal of shopping-center tenants for consumers: the lease rate for anchor tenants can be several times less than the rates for operators of retail galleries. According to data provided by DTZ, for the first half of 2006 the lease rates for anchor tenants were $100-$550 (minus VAT and operating expenses). Furthermore, the leading retail operators can compete for comparatively low lease rates – although they are leasing relatively less premises – as they attract customers to the shopping center;
The tenant profile: lease rates for gallery tenants can vary considerably in one shopping center, depending on the earning potential of the retail segment. According to data provided by Leeds Property Group, average lease rates vary from $800-$2,500/sqm per year for small- and medium-size operators opening stores in shopping-center retail galleries.

Furthermore, lease rates based on the percentage of a tenant’s turnover are gaining in popularity. This scheme is more attractive to anchor tenants when a shopping-center owner is confident in the success of a project and is willing to divide the risks with the operator based on unrealized profits, which is typical for newly-opened shopping centers.
Overall the market today has not undergone significant changes in the average lease rates, although the significant range of rates complicates assessing the changing dynamics. As new shopping-center buildings enter the market, lease rates will increase. On the other hand growing competition between various shopping centers should eventually result in some stabilization of lease rates.

Current trends

The number of projects is rising in the commuter regions of Moscow and in the Moscow region itself. Moreover, the area of the Third Ring Road is being developed, as there is a scarcity of plots for building in the center of city. Additionally, this trend is explained by plans on the part of the Moscow government to reduce the amount of new construction in the central administrative district.
Underground space is being actively developed, which meets the need for the high consumer potential in the central administrative district, based on a shortage of buildings under construction in this region.
Increasing competition is causing significant concerns regarding the operation and further development of retail buildings on the market. Consequently, there is a trend to form a market of professional structures which are concentrated on separate business directions.
Operators of gastronomic boutiques are actively developing in Moscow. In line with this many retailers plan to open stores in 2006 and 2007: from the French chain Petrossian to the Italian Peck, Austrian Julius Meinl and the British Fortnum & Mason. Additionally, Globus Gourmet continues to grow. Accordingly, the demand on the market for such a format once again is attributable to the high spending power of population.

Forecast
In the upcoming years retail operators will remain interested in the prospective Moscow market. Indeed, lease rates are expected to rise for high-end shipping centers, while vacancy rates will likely remain low.
Furthermore, if the projects planned for 2006 year are completed on schedule, the supply of high-end retail premises should reach four million sqm by the end of the year. In Moscow construction has begun on the Fourth Ring Road. In turn this means that there will be another construction zone that is attractive based on its accessibility by transport.
However, people’s incomes must continue to rise at the same or a more intensive rate for there to be enough purchasing power for all existing and planned retail premises. Although there are no signals today indicating a downturn in the current economic situation, in the long term developers must take into account the possibility that a part of the retail premises could turn out not to be in demand among consumers.

Спецвыпуск: инвестиции