Kazakhstan is one of the most economically developed countries in the CIS and possesses one of the highest income rates per capita throughout the Central Asian region. However, at the same time, the development of specialized retail real estate in this country has been extremely slow up until recent times. But now the situation is improving as Kazakhstan’s open-air bazars are being replaced by multi-profiled retail centers.

Market Dynamics
Although the retail real estate market in Russia and Kazakhstan have much in common, there are still some basic differences. The similarities between the two include the fact that these states have the most potential in the CIS for retail development, and, on account of the increased extraction and exportation of the country’s energy resources, Kazakhstan is in second place behind only Russia for a its high standard of living and median income. Likewise, as is the case in Russia, Kazakhstan in many respects hinges on the dynamics of the world energy market, which is currently favorable for both states. Also, as in Russia, the average consumer in Kazsakhstan spends up to 60% of his wages on goods, which distinguishes both countries (and other states in the CIS) from Europe. However, Kazakhstanis spend significantly more than Russians on meat and flour products, which naturally affects the way that retail centers are designed in Kazakhstan; due to the popularity of certain food goods and the demands of Kazakh-stani consumers, it is even more imperative that centers incorporate departments with culinary and so-called private label products. However, the development of private label product sales in Kazakhstan is slow not only in comparison with Europe, but also in comparison to Russia. According to the director of the company Green House, Alexander Gribanov, there may not yet be enough logistics retailers and quality manufacturers to support the sale of private labels.
The main differences between the countries include the fact that Kazakhstan, though it covers a significant amount of territory, is more sparsely populated than Russia. As such, the population’s demand for retail real estate is lower. Furthermore, the gap between the incomes of urban dwellers and the provincial populations is more pronounced in Kazakhstan than in Russia. All these factors have meant that up until recent times, the retail industry has been unsatisfactorily developed and has been limited to the former capital of Almaty, dubbed the “Southern Capital,” where 30% of all Kazakhstani market trade takes place. Furthermore, Kazakhstan also lags behind Ukraine in terms of retail network development, even though Ukraine, which is more populated and has a more urban areas, lags behind Kazakhstan in terms of average income in CIS countries. Even when examining Almaty separately, the city’s retail development is equal to that of other major CIS cities, such as Minsk or Baku; however, the average income in
Almaty is more than double that of the populations in these cities.
The turning-point for the existing trends on the retail real estate market occured this past year, when a major mall was opened in Almaty and work began on the construction of similar malls in Astana and Shymkent. This year, several more network retail operators entered the Kazakhstani market, including Russian companies. Considering that the country’s largest cities have an inadequate supply of retail real estate (the statistics are low for even Almaty, to say nothing of Astana or Shymkent), market experts consider Kazakhstan to be a perspective market. However, the situation is complicated by the fact that Almaty suffers from a sharp deficit of large land plots that are suitable for the construction of retail centers.
During the design and construction of retail centers in Kazakhstan, as is the case in Russia, a large emphasis is placed on food retailers, who most often become the anchor operators in retail centers. The largest competitors in this segment are minimarts, which comprise 60% of the food retail market in Kazakhstan. Although it is true that in recent times, minimarts have ceded their competitive edge to hypermarkets and supermarkets, this phenomenon seems to be the case only in Almaty; even in Astana, the nation’s capital, neighborhood minimarts have held their ground. As such, the minimart sector interests network retailers, particularly the company ArLine, which is working to create a unified network of minimarts. The creation of minimart chains is especially suitable for so called sleeper neighborhoods, where such convenience stores already occupy a predominant position. Similar minimart networks successfully operate in medium-sized Russian cities, where there is not yet a demand for hypermarkets, while they are very developed in Ukraine and even more so in the US and Great Britain. However, for now, the chain convenience store retail format in Kazakhstan remains a black hole.
According to information from Jones Lang LaSalle, the most active operators currently on the market include local supermarket networks (Gros, SM Market, Interfood, City Plus), home appliance stores (Tekhnodom, Sulpak, Planeta Elektroniki, M-Technics), cosmetic stores (French House, Beauty Planet, Beautymania, Mon Amie), sports retailers (Megasport), restaurants (As-sorti, Entrecot, Dastarkhan), as well as multimedia retailers (Meloman).
There has long been a need for luxury retailers on Kazakhstan’s market, but this need has been better satisfied in comparison to the mid-level retail segment, which has a higher turnover. Although the luxury sector has been on the market for already 10 years, as Charles Raether, head of Jones Lang LaSalle Kazakhstan, notes, the most accurate indicators for the maturation of any market is the performance of the mid-level operators and brands, which have been dynamically growing on the Kazakhstani market. It has been easiest to attract Western clothing companies and brands, while the process of bringing in movie theater operators and DIY format hypermar-kets has proved more difficult. “Basically, Kazakhstan’s commercial real estate market is taking the same path that Russia’s took, only it has experienced a short delay of 3 to 5 years,” conclude the experts at Jones Lang LaSalle.

The Best Laid Plans of Foreign Investors
The most active company on Kazakhstan’s market at the present time is the Swedish conglomerate IKEA Group. In the next three years, the company plans to open two major family retail centers with an average area of around 320 thousand sqm each. One center will be located in Astana, the other in Almaty. The Swedes took a risky step by bringing in the MEGA brand, considering that Megacenter entered the Kazakhstani market a year earlier. The exact relationship between MEGA and Megacenter is not known, but the top-manager for Megacenter has already announced that the two companies will present competition for each other. Rather, IKEA’s grand entrance on Kazakhstan’s retail market is a result of the Swedes decision to change MEGA’s expansion strategy: now, rather than focusing on cities of over a million, MEGA will redirect its efforts to cities with a population of 500,000 to one million. In Kazakhstan, as it is know, there is only one city of over a million – Almaty, which earlier did not spark the interest of the Swedes, who have traditionally shown more interest in Russia and Ukraine. But, when dealing with cities of over 500,000, Kazakhstan has Almaty, Astana, and Shymkent to offer, giving it much more potential from MEGA’s point of view.
International operators (particularly European ones) are also actively looking to get into the game in Kazakhstan and are developing strategies for entering the market. As such, there now exists a choice of retail centers where tenants can set up shop and develop. “The truth of the matter is that there were practically no quality retail centers before the opening of the Megacenter last year in Almaty. Now, the number of them is growing every year,” reports Raether. Finn Flare and Adidas have opened representative offices in Kazakhstan with aggressive expansion plans: Finn Flare plans to open 18 stores and Adidas has plans for 40 shops. Stockmann is also investigating the possibility of opening their stores in Kazakhstan’s top retail centers, while Inditech has entered into negotiations in order to deliver their brands to the market.
The Russian retail chain Perekrestok plans to enter Kazakhstan’s market in 2008. Perekrestok’s strategy differs from that of IKEA in that they chose to operate in cities with a favorably developed economy irrespective of the size of the population. Such cities in Kazakhstan include the three major cities, as well as Karaganda, Aktobe, and the ports of Aktau and Atyrau on the Caspian Sea.
But according to Charles Raether, Russian chains are still not well represented on the market. The Pyaterochka network, for one, planned to diverge from their standard format of economy-class supermarkets by opening supermarkets with areas of 300-400 sqm in Kazakhstan; unfortunately, the endeavor was unsuccessful. “An attempt was made to launch the Pyaterochka network of supermarkets, but the company met little success in Kazakhstan,” notes Charles Raether. “After half a year of operation, all locations were closed, and 7’Я supermarkets are now opening in their place.” Raether argues that the most active and successful operator on the Kazakhstani market is the Rosinter restauarant network: the company’s first restaurant was opened in 2001 in Almaty, and now there are already more than 20 locations.
However, the largest success has been garnered by the company ArLine, which runs 1.5 thousand retail locations in Kazakhstan under the S.mile brand. The company works under a franchise format. This year, ArLine will conclude a contract with the company Gallagher Kazakhstan, in which will the latter will receive permission to advertise tobacco products into the store network: as it is known, it is illegal in Kazakhstan to advertise tobacco products outside or on television.
Another Russian network operator to enter the Kazakhstani market this year is Vester. The first Vester hypermarket, with a retail space of around 4 thousand sqm, will be located on the first floor of the Tair retail center in Karaganda. By 2014, Vester plans to develop its network to 23 stores in 12 of the country’s cities. Their total area will top 90 thousand sqm, broken down into medium-sized hypermarkets (of up to 7 thousand sqm). It is worth noting that Vester is the first network retailer that expanded onto the Kazakhstani market by first targeting the regions; before this, retailers began with Almaty or, more infrequently, with Astana. This decision was propelled by the advantageous geographical location of Karaganda, which is located in the center of the country and can serve as a distribution base. In fact, many network operators, such as Ramstore, are working to create distribution centers. According to the territorial sales director of the company group Turkuaz, Vadim Vedyanin, it takes over 40 thousand assorted items to satisfy the consumer demand. As such, Ramstore is simply obliged to import goods from outside, which are then stored in the distribution center,” reasons Mr. Vedyanin. Kazakhtanis view Ramstore as the distribution center for all of Central Asia.
Negotiations are currently being held with Russian movie theater operators (5-star, Kron-verk) and cosmetic shops (Arbat Prestige), which have long shown great interest in the Kazakh-stani market. The home appliance sector is represented by the company Eldorado, which owns an interest in the company Sulpak.
Likewise, the Ukrainian network operator Intertop entered the Kazakhstani market last year. The network has three existing locations in the Megacenter malls in Almaty, Astana, and Shymkent, while a second location is planned to open in Almaty.

Astana and Almaty
The total amount of retail space in specialized retail centers in Kazakhstan’s capital of Astana currently totals 165,180 sqm, which includes 31 retail centers. However, among these, there are few well-built centers, while only three premises meet international standards: Megacenter retail-entertainment complex, with an area of 30 thousand sqm; the Sine Tempore retail and office center, with an area of 10 thousand sqm, and the Astra retail-entertainment center, with an area of 9 thousand sqm. All three centers have been leased out almost to maximum capacity, further fueling the growing demand for space in quality retail centers.
The retail supply in Almaty currently totals 154 sqm for every 1000 residents, a ratio which is more than that of Astana, but less than the same figures for Moscow and Kiev, to say nothing of the European capitals. Almaty is home to what is the largest retail-entertainment center in Kazakhstan and the country’s largest retail premise – the Mega Center Alma-Ata, located in the western part of the city, in the Al Farabi-Rozybakieva district. The Megacenter’s area tops 80 thousand sqm, with 1,100 parking spaces available.
IKEA is also making its presence felt on the market and, as was early noted, is planning to construct a retail center with a familiar name – MEGA. Most likely, this center will be located outside of the city. If Megacenter is the largest center currently in Central Asia, then MEGA, in all likelihood, will be one of the largest retail centers in all of Asia, with an even greater area than the Cevahir mall in Istanbul. Currently, the title for the next largest premise after Megacenter goes to Ramstore Samal.
In contrast to these megastores, the MAXI hardware hypermarkets, with their do-it-yourself format, are considerably smaller, covering only 6 thousand sqm each. For Almaty standards, they are not even considered hypermarkets. This further underscores the fact that hardware hypermarkets are far less developed than food markets in Kazakhstan.
For now, the predominant format for specialized retail centers in Almaty has not yet strayed far from the traditional open market format. The Ritz Palace on Dostyk Prospekt, for one, was very poorly designed and built; it has too many minor anchor tenants and not enough major tenants, which does not allow the center to establish a successful profile, even though the entrances, parking and spaces were well designed. The only network operator that has shown interest in the project is the supermarket chain Gros, which is much more developed in Almaty. Gros also serves as the anchor tenants in several retail centers. The second most important network retailer is Dastarkhan, which acts as anchor for the Silk Way City retail center. Third place goes to Ramstore, which stands apart from other operators by the fact that this Turkish network operates in its own spaces.
Nevertheless, street retail in Almaty is still more developed than retail centers. The main street retail districts include Furmanova Street, Dostyik, Zheltoksan and Abylai-xana Prospekts, Siefullin, Gogol and Abaya Streets, as well as the area around TsUM. It is interesting to note that regardless of the fact that TsUM lags far behind new retail centers in terms of service quality, rent rates for boutiques near TsUM are the highest in the city. In fact, rent rates for street retail spaces are soaring all over. In the city center, landlords of street retail spaces charge no less than $70/sqm. A point was reached where owners of several supermarkets in Almaty were charging entrance fees for the opening of boutiques, though this practice has since died out in the capital of Astana.
Especially noteworthy retail centers currently under contruction include the underground retail center in Almaty under Republic Square, Mamyr-Mall and Esentai-Park.

Shymkent and the Region
Last year, the active development of retail projects began in the regions, beginning with retail real estate projects in Shymkent and Aktobe. However, in the opinion of many experts, such major projects in the regions are risky. Among the largest regional projects is the Megacenter Shymkent, with an area of 23 thousand sqm, located in the former building of Shymkent’s TsUM, which is currently owned by Astana Motors. The area of the center totals 22,550 sqm, while the anchor tenants include Gross, RosInter, Asstory, as well as representatives of the Sbarro, Clarks, and Calvin Klein brands. Shymkent’s city mayor also envisions the construction of several major retail entertainment centers along Kunaeva Boulevard – the central street of southern Kazakhstan’s district capital. The city’s mayoral office has focused much of its efforts on addressing the city’s retail real estate problem; in a city of 500,000, there are 150 markets (as such, Shymkent could very well apply for a spot in the Guinness Book of World Records.) Fortunately though, new retail centers are scheduled to go up in place of the markets. The mar-kets will be relocated outside of the city in a concentrated area, which may even resemble a type of mall.
In Aktobe, on a plot of 9.2 hectares, the company IB Group is construction a retail and entertainment center. Other promising projects are going up in Karaganda and Alturai. In particular, a Ramstore in Karaganda is already operating in full swing.

Some Last Key Statistics
In the last five years, household incomes have rapidly grown by an average of 15-20% per year, with the average annual income reaching $7,850 in Astana and $7,500 in Almaty. The GDP per capita totals $8,100 (compared to $11,100 in Russia.)
Retail turnover in Kazakhstan’s major cities considerably lags behind similar indexes for cities in Russia and Eastern Europe. According to data from Jones Lang LaSalle, the retail turnover per 1,000 residents in 2005 was only $1,050 in Astana and $3,460 in Almaty, while it was $5,131 in Moscow. These numbers are proof that there is still much room for growth on Kazakhstan’s market.