In 2005, a “Mega” multifunctional complex opened in Kaliningrad. The retail-office complex is the city’s largest; its three interconnected structures measure nearly 100 thousand sq. meters. Size alone does not guarantee the center’s success, however, as some experts consider the object’s concept problematic.

Vremya and Park House
The developer of Park House was Vremya Group, which was established in 2000 in Samara for the construction of a shopping and entertainment center under the Park House brand. The project was realized in the developer’s home town and the center opened in 2002. Having realized of the excellent prospects for investment in retail real estate, the developer decided to apply the same approach in other large Russian regional cities. The Park House shopping and entertainment center in Volgograd was their second such project and bearing in mind the company’s location in Samara their first truly regional project. At the time Volgograd was not regarded as a priority city in the developer’s expansion plans. Their next project was intended to start in Saratov; however, that project failed to get off the ground. In Volgograd, Vremya was quickly able to locate a suitable lot and start construction.
The design for the center was developed by Vremya Ltd. and construction was managed by City, which appointed and supervised the contractor organizations. Both firms are affiliated to Vremya Group. Construction started in 2002 and was completed in December, 2003. The entire process, including design took 14 months. “The design work was carried out in stages. As soon as the ground work project received approval construction work began in parallel with the design of the first floor. Thanks to this continuous approach we were able to save a considerable amount of time and finish the project in only 14 months, which is very fast for Russia,” says Dmitry Baranov, chief analyst in the strategic planning and market research department at Mall Management.
The financing scheme used by the developer was at the time typical for the regional market and is still in use today. The co-investors were the anchor tenants and their share was proportional to the area they required, which they received into ownership at completion. It should be pointed out that in addition to their own funds the investors also obtained loans from Sberbank and Index Bank. “One of the conditions of the loans was that 50% of the investment must comprise direct investment provided by the co-investors – Vremya and the future anchor tenants,” explains Mr. Baranov who puts the overall volume of investment at $55 million.

Acquisition
At the start of 2005 the building was acquired by the Austrian holding company Meinl European Land, which is part of the Meinl Group (Austria). It was one of the first investment sales in the Russian commercial real estate market. The acquisition price has never officially been disclosed.
Under the terms of the agreement, the Austrian firm acquired the majority of the center with the exception of the entertainment zones, which remained under their previous ownership - InvestKinoProekt and Planeta Bowling. In order to complete the deal Vremya had to acquire areas from the anchor tenants, the project’s co-investors. “The co-investors agreed to sell their share of the project. Since the financing opportunities available in Russia have changed considerably today it is easier for retail operators to invest in turn over rather than real estate. Today all the original tenants are still operating in the center. In addition, they have obtained excellent rental terms in other Park House centers in particular in Togliatti and Yekaterinburg,” adds Mr. Baranov.
Today Vremya is still actively involved in the center, as Mall Management remains the manager of the property.

Volgograd Park House
The total area of the three-story shopping and entertainment center is 54,300 sqm – 38,000 of which comprise retail areas. The entertainment zone includes: an InvestKinoProekt 8-screen cinema, Planeta Bowling (7,410 sqm) and a food court area (2,335 sqm). The largest tenant is a Perekriostok hypermarket with an area 5,797 sqm not including storage and service areas. Other tenants include: Sportmaster (1,661 sqm), consumer appliance chain Technosila (2,536 sqm), Banana-mama (children’s goods) (2,833 sqm), Starik Khotabych (1, 681 sqm), a Carlo Pazolini shoe store (456 sqm) and Adidas (354 sqm).
“Our aim was to create a shopping center oriented towards a wide range of consumers and provide an environment not just for shopping but also for spending time with your family. The idea is very simply but at the time it was a completely vacant niche in the city. We also wanted to attract consumers who normally shop in open air markets and prove to them that a modern format shopping center does not always have to be expensive and inaccessible,” comments Mr. Baranov.
In order to make the transition smoother for consumers, at the opening the main anchor tenant, Perekriostok, offered attractive price reductions for food products. Thanks to this marketing approach the consumers who flocked to the food hypermarket also began to visit the center’s other stores.
The building is located close to the center on Bulvar 30-letiya Pobedy in the rapidly developing Syem Vetrov district (Dzerzhinsky region). According to information from analysts, Bazovy Aktiv, its main consumers are residents of the nearby district. “Syem Vetrov is a young district inhabited by dynamic consumers with relatively high spending capacity. In addition brands like Technosila, Technomarket and Perekriostok which are unavailable in the rest of the city attract shoppers from other regions,” says Denis Bykov, head of resource management at Bazovy Aktiv.
According to local market analysts, the population of adjoining regions is 390,000. “On average 20,000 people visit the center every day – 17,500 during weekdays and 26,000 at the weekend. The figures for transport and pedestrian flows are: 50,000 pedestrians per day along Ulitsa Simonova, Ulitsa Khorosheva and Bulvar 30-letiya Pobedy. There are 10 transport routes near Park House: 30,000 people per day. In addition the owners have organized van taxis to bring shoppers from all regions of the city: 4,000 passengers per day,” comments Mr. Baranov.
Vremya declined to comment on the precise rental rates for Park House, Volgograd commenting that they are slightly higher than the city average. “There is a big difference between the amount paid by the anchor tenant and, for example, the telecom operator whose office is on the first floor near the main entrance. The rental rate includes all operational expenses excluding telephone charges,” adds Mr. Baranov.
Despite the fact that Park House, Volgograd was built three years ago it still has no real competition. It is the city’s first and only modern large-format shopping and entertainment center built entirely from scratch. All the others are either modernized Soviet-era buildings or architectural cocktails – old buildings with modern extensions. A good example is the Diamant, which is housed in a modernized manufacturing facility. The Voroshilovsky shopping and entertainment center located in Voroshilovsky district comprises an older building with a recently built extension.
However as you would expect a number of new shopping and entertainment format centers are anticipated in the near future. The largest of these (whose name is not yet known) is currently being developed by the DVI-Group. Representatives of the group say, “The concept for the building is a mega-complex that will offer a new retail format for the city and region. Its target market is middle-class shoppers and so the center’s unique feature will be an attractive pricing policy.” The total area of the center will be 85,500 sqm of which 72,000 sqm will comprise retail areas. There will be parking for 2,200 cars including an under ground car park with 320 spaces. The main anchor tenants will comprise: a Karusel food hypermarket, an M. Video supermarket, a food court (8 concepts), children’s entertainment center, DVI-Cinema and Planet Bowling. The opening is planned for December, 2007.
“It is conceivable that some of Park House’s shoppers will go over to the DVI Project but I do not believe that this will critically impact Park House. In all likelihood these two centers will operate in different concept niches. The bulk of Park House’s consumers are residents of Syem Vetrov and shoppers from regions located further-out who are attracted by specific format stores like Perekriostok, Technosila, etc. As far as the DVI-Group center is concerned, its excellent location on Ulitsa Marshala Rokossovskovo, which is one of the main transport routes, will make it accessible to residents from all districts of the city,” says Mr. Bykov.
Market experts comment that Park House’s competitive advantages include spacious aboveground parking for 1,300 cars. “All the other shopping centers, with the possible exception of the Diamant, suffer from a serious lack of parking. By way of comparison the total area of the Dimant is larger than Park House, but the latter has more parking spaces,” says Mr. Bykov. Moreover Park House offers drivers easy access via traffic light intersections. Parking is available on all sides of the center serving different transport routes.
In addition to the retail and entertainment zones, the center has a small number of office areas. According to Mr. Bykov the developer was successful in separating shoppers from office-center employees, who have a separate entrance, lift and stairwell.

A young market
As for the project’s defects, Mr. Baranov comments that every unrealized idea is reflected in future projects. In particular Park House, Yekaterinburg which was built after the Volgograd center has a more well-thought-out concept in terms of the flow of shoppers with different product groupings.
Also as CRE discovered, many tenants are critical of the very high rental rates for particular brand stores occupying relatively small areas of 100-200 sqm. The rental rates for anchor tenants are considerably lower. The rental rates for smaller tenants are close to the top-price segment for the city. By way of comparison, the most expensive retail areas in Volgograd are those located in the city center. These comprise small stores on the first floors of residential buildings. According to market experts the rates are exceptionally high for Volgograd at $1800 per sqm per year. The reason for this is high pedestrian volumes and a shortage of available areas.
Another of project’s failings is the owners attempt to obtain revenue from every single square meter - the corridors, common areas and foyer are all rented out. The motivation behind this is understandable and while there is no real competition tenants will be willing to locate themselves wherever possible regardless of the rental rate. Market experts also comment on the high cost of tickets in the multiplex cinema.
Today the real estate market in Volgograd is still at the formation stage. It is still far too early to talk about healthy competition. The Park House shopping center was the pioneer in making the city’s consumers aware of all the many benefits offered by a modern shopping and entertainment center aimed at the entire family. While the project does have some minor conceptual defects, the absence of competition makes them imperceptible to shoppers who simply have no way of making a comparison.

Information:

Name: Park House Retail Center

Start of construction: 2002

Commissioning: December 2003.

Total area: 54 300 sqm

Developer: Vremya Group

Construction management: CJSC City

Managing company: Mall Management.

Owners: Meinl European Land (MEL), Planet Bowling, InvestKinoProekt.

Volume of investment: $55 mln

Major tenants: Perekriostok, Sportmaster, Tehnosila, Banana-Mama, Starik Khotabych, Karlo Pazolini, Adidas and many others

Average lease rate: $780 per sqm per year

Parking: 1 300 spaces.