The Retail Raider’s Diary

23 Jan, 2007, BRUSSELS

Russia

Very few days go by without headline news popping up from the Russian commercial real estate market, which nowadays shows very healthy and very dynamic indeed. In a recent issue of our newsletter (August 2006), we had already mentioned the multiple Russian projects of the IKEA Group (five stores with a total GLA of 710.000 sq.m., and three mega-malls with a total GLA of 450.000 sq.m.), all of them being led in cooperation with Cushman & Wakefield Stiles & Riabokobylko, the Russian office of Cushman & Wakefield.

Since then, major facts in the Russian Market worth remembering include: a record figure of 1.5 million sq.m. new retail space (i.e. excluding extensions) due to open in 2006 and 2007, on the about 13.8 million sq.m. to open across Europe (major projects including Kashirsky Mall (200.000 sq.m., Q1 2008), Lotte Plaza (85.000 sq.m., Q2 2007) and Metropolis (205.000 sq.m., Q1 2008) ; the biggest office deal in Russian history completed by Cushman & Wakefield Stiles & Riabokobylko (the 31.600 sq.m. offices of the Hermitage Plaza fully let to VimpelCom, Russia’s largest mobile phone operator); Centurion Komplekt, a joint-venture of the French Auchan Group (13 hypermarkets in Russia) with the Russian Centurion Group, already pushing three major projects in the pipeline; and, last but not least, the appointment of Cushman & Wakefield Stiles & Riabokobylko by Gazprom Neft Invest, the oil subsidiary of Russian energy giant Gazprom, to advise on the preliminary construction concept of Gazprom City, a new business and administrative centre in St. Petersburg, including a 396 meter-high tower, which is to be one of the tallest buildings in Europe. Further on, the Garant-Invest Group is planning to invest more than 300 million $ into retail center projects in and around Moscow by the year 2009, and Karusel is planning to open 17 new hypermarkets in the regions by 2007.

Before the end of 2007, a business complex by the Korean Lotte Group is also due for completion in Moscow, with 18.000 sq.m. of retail at the junction of the Garden Ring and the Novy Arbat retail district where some of the most impressive rent prices are to be found (about 2.500$/sq.m./year). In Moscow, the average rent prices in prime retail corridors have increased by 3,3% in 2006, following the pattern of an upward trend since 2000. While street retail rents are rising, the growth rate is decelerating due to an increasing competition with shopping centers. Tverskaya Street remains the most expensive retail corridor in Moscow, with an average rent of 2.773$, and some significant growths of over 25% in 2006.

Major retailers in the Muscovite marketplace include Auchan, Spar, Leroy Merlin, Mothercare, Nike, C&A, Adidas, Intersport, Boss, Camaieu, Zara, Reebok, Sisley, Naf Naf, Benetton, Mexx, Etam, Ikea, Mark & Spencer, and Media Markt. As far as shopping centers are concerned, the supply remains very strong even though decelerating (with a growth of about 20% a year), which is sufficient to put Moscow way ahead of all European capitals. Nevertheless, Moscow is still short of qualitative retail space, which is consistent with a high demand, resulting in vacancy rates staying at zero level in the best locations. As Muscovites realize they can enjoy a more qualitative shopping experience in modern shopping centers, new developments will cope with their aspirations. Trends for 2007 in the Russian retail real estate market will be: a steady growth in quality shopping centers supply; new retail developments; a further segmentation of shopping centers and an increased competition; an increased role played by the regions in the Russian retail sector; and a shift of the developers’ focus from “millionaire” cities to smaller cities which remain extremely short of quality stock and clustered in regional macromarkets. The Cushman & Wakefield Stiles & Riabolobylko website can give you a deeper insight on one of the most astonishing retail markets on the continent.

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