H1 2011 RETAIL REAL ESTATE MARKET - Knight Frank · 2014. 7. 13. · Food hypermarkets 100-200...

OVERVIEW

Knight Frank

EXECUTIVE SUMMARY• Currentandfutureslowdowningrowthofsupplyofretailspaceduetoslowerconstructionratesand

suspensionofretailprojectsduringthecrisis.

• Revivalofdevelopmentplansbyretailoperators,leadingtogreatercompetitionforretailspaceandreappearanceofwaitinglistsforpropertiesmostindemand.

• Increaseofretailrents.

H1 2011RETAIL REAL ESTATE MARKET Moscow

H1 2011RETAIL REAL ESTATE MARKET Moscow

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Key events

•Sinceautumn2010Moscowcityhallhasbeenreviewingcurrentinvestmentcontracts.Someofthemhavealreadybeenannulled,andseveralmajorretailprojectshavebeenrevised.ConstructionoflargeundergroundretailcomplexesonPushkinsquareandTverskoyZastavysquarehavebeencancelled.Inthelattercasethedeveloper,AFIDevelopment,wasabletoreachagreementwithcityhalloncompensationofexpensesalreadymadeforcreationoftheundergroundcomplex.Thecompensationmaycoverpurchasebythedeveloperofthecity’s25%

stakeintheAfimallCityretailprojectinMoscowCity(thecapital’snewbusinessdistrict).

•Investmentsintheretailsegmentsawanupturnduringthefirsthalfof2011,andretailemergedastheleaderamongcommercialpropertysegmentsbynumberoftransactions.Thetotalamountofinvestmentsinretailprojectsincreasedby10timesincomparisonwith2010.MajortransactionsontheMoscowmarketincluded:purchaseofthe57,000sqmKaluzhskyshoppingcentrefromMCG(owned

byPavelFuks)bystructuresunderthecontrolofthebusinessmenMikhailGutserievandMikhailShishkhanovforanestimatedpriceof$150-230million;andpurchasebyYuryandAlexeiKhotinoftheGorbushkinDvorandFilionretailcentresfromMTZRubin(thecentreshave60,000and128,000sqmofspace,respectively,andtotaltransactionvalueisestimatedat$400-500million).ItbecameknownearlierthatIMMOFINANZhadboughttheremaining25%oftheGoodzoneshoppingcentre,whichisbeingbuiltinthesouthernpartofMoscow.

RETAIL REAL ESTATE MARKET. MOSCOW

Main indicators. Shopping centres* Trend

Totalareaofhighqualityshoppingcentres(totalspace/GLA**),millionsqm 7.77/4.18

Totalareaofshoppingcentrescommissionedin1H2011(totalspace/GLA),millionsqm

0.26/0.15

Totalareaofshoppingcentresscheduledtoopenin2H2011(totalspace/GLA),millionsqm

0.31/0.17

Vacancyrate,% 3

Baserentalrates,$persqmperannum(notincludingoperatingexpensesandVAT)

anchortenants 100-400

retailgallerytenants 600-4,000***

Operatinalexpenses,$persqmperannum 80-255

Provisionbyqualityretailarea,sqmGLAper1,000residents

363

*Thetableonlyshowsdataforprofessionalshoppingcentres(aprofessionalshoppingcentreisdefinedas

onebuildingoragroupofarchitecturallyconnectedbuildingswithgrossleasablespaceinexcessof5,000sq

m,unitedbyasingleconceptandundersinglemanagement)

**Grossleasablearea

***Ratesforstoreswithspaceofabout100sqmonthegroundfloor

Source:KnightFrankResearch,2011

Julia DalnovaDirectoroftheRetailDepartment,KnightFrank

Strong growth of demand for premises from retail operators and slowdown in rates of supply growth make us expect intense competition for premises in the next two years, resulting in higher rent levels.

We also expect that the ban imposed by the Mayor of Moscow on construction of commercial property inside the Third Transport Ring will lead to rise in the value of functioning retail properties in the long term.

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•Thereweretwomajortakeoversofretailoperatorsinthefirsthalfof2011:thefoodretailerDiksyGroupboughttheVictoriaretailchain;andAlexanderZanadvorov,owneroftheretailerTheSeventhContinentboughtfourMosmartshoppingcentresinMoscow,whicharetoberebrandedasNashGipermarket.

Supply

TotalspaceatqualityshoppingcentresontheMoscowmarket*attheendof1H2011was7.77millionsqm,andGLAwas4.18millionsqm.QualityGLAper1,000populationinMoscowis363sqm,whichstillleavestheRussiancapitalbehindmostlargecitiesinEurope.

ThefollowingshoppingcentresopenedforbusinessinMoscowduring1H2011:

•AshoppingcentreaspartoftheMonArchmixedusecomplexatBld.1,31LeningradskyAve(16,000sqmtotalspace,10,700sqmGLA);

•PlanernayaInterchange(apublictransportinterchangewithretailpremisesatPlanernayametrostationwithtotalspaceof50,300sqmand11,000sqmGLA).

•AfimallCityshoppingandleisurecentreinMoscowCity(179,400sqmtotalspace,114,200sqmGLA).

•SevernoyeSiyaniyeshoppingandleisurecentreinNorthernButovo(partiallyopened,17,000sqmtotalspaceand10,000sqmGLA).

GrowthofshoppingcentresupplyinH12011was263,000sqmwith146,000sqmGLA.

EffectsofthefreezeinretailcentreconstructionduringthecrisisarebeingacutelyfeltinMoscowduring2011.About300,000sqmofnewspacewith167,000sqmGLAislikelytoopeninthecityduring2H2011,sototalgrowthofsupplyfortheyearwillbenomorethan560,000sqm(313,000sqmGLA),whichis

thelowestfiguresince2003,whennewGLAwasabout230,000sqm.

Nomajorincreaseintherateofretailspacegrowthisexpectedin2012,whenabout800,000sqm(350,000sqmGLA)islikelyto

open.Asignificantpartofnewsupplynextyearwillbeattwolarge-scaleprojectsinthecapital’ssouthernadministrativedistrict:RiverMall(258,000sqmwith88,500sqmGLA)andGoodzone(123,000sqmwith70,000sqmGLA).Bothprojectswereannouncedbeforethecrisisandtheiropeningwillreinforceleadershipofthesouthernadministrativedistrictbyvolumeofretailcentresupply(attheendofH12011thedistricthad600,000sqm,which

is14%oftotalsupplyontheMoscowmarket).Despitethis,thesoutherndistricttakesalowsixthplaceamongMoscow’sninedistrictsbyqualityretailspacepercapitaduetoitshighpopulation,whilefirstplaceistakenbythecentraladministrativedistrict,wherethelownumberofresidentsentailsnearly760sqmofspaceinqualityshoppingcentresper1,000population(notincludingstreetretail).

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0

800

700

600

500

400

300

200

100

0SAD NAD SEAD CAD WAD NEAD SWAD NWAD EAD

The central administrative district is the leader in Moscow by retail space per capita, and the eastern district is the last one by this indicatorSq m Sq m / 1,000 population

Source: Knight Frank Research, 2011

Total retail GLA at shopping centres (H1 2011)

Provision by quality retail space

2003 2004 2005 2006 2007 2008 2009 2010 2011П 2012П

Source: Knight Frank Research, 2011

1.2

1.0

0.8

0.6

0.4

0.2

0

12

10

8

6

4

2

0

We expect commissioning of new retail space in 2011 to be at their lowest level since 2003Mln Sq m %

Total space at new ly opened shopping centres

Vacancy rate at end of year, %

*Weincludelargeshoppingcentreslocatedoutsidethe

capitalbutneartheMKADintheMoscowmarketbe-

causetheyarefocusedmainlyonthecapital'sresidents.

H1 2011RETAIL REAL ESTATE MARKET Moscow

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Demand

Trendsinvisitortrafficatshoppingcentresmatchdevelopmentofretailturnover.FiguresfromRosstatshowgrowthofretailturnoverby5.3%in1H2011incomparisonwiththesameperiodof2010(growthofretailturnovery-o-yinthefirstsixmonthsof2010was4.6%).Severalretailchainsreportedy-o-yrevenuegrowthinthefirsthalfof2011,aswellasgrowthoftheaveragecheck.

Demandforretailspacehasrecovered,butshortageofnewpremisesinMoscowisholdingbackdevelopmentbyretailoperators.Recordvolumesofnewsupply,whichcameontotheMoscowmarketintheacutestageofthecrisis

in2009-2010,hadbeenalmostfullytakenupby2011.Successfulshoppingcentreshavewaitinglistsofwould-betenantsandnewcentreshaveleasecontractsformorethan80%ofspacebeforetheyopen.Nevertheless,thereareanumberofshoppingcentreswithhighvacancylevels(above15-20%).Thesearemostlyprojectsbuiltsometimeago,withpoorlocationandhighlevelsofcompetitionintheirvicinity.Manyofthemneedoverhaulsorfull-scalereconstruction.

Theaveragevacancyrateonthemarketisabout3%,andthereisnofreespaceforrentinsuccessfulshoppingcentres.Retailoperatorswhichannouncedlarge-scaledevelopmentplansintheMoscowareaattheendof2010

havebeenforcedtoreadjusttheirstrategytowardsregionalexpansionduetoshortageofavailablepremisesinMoscow.

Commercial terms

RentalratesatMoscowretailcentreshasbeenincreasingsincethemiddleof2010,butratesofgrowthhavebeenmodestdespitetheshortageofretailspace:increaseofrentalratesfromthestartof2011hasonlyslightlyoutpacedinflation(5-7%inrubles).AveragerentgrowthinUS$hasbeen8-10%.

Leasecontractsusuallyincludeannualindexationof10-12%andastep-rentmethodisincreasinglyused,bywhicharelativelylowrentissetfortheperiodoflaunchandleasingofpremisestotenants,andtherateisincreasedattheendofanagreedperiodorwhentheshoppingcentreachievesaspecificleveloftraffic.

Therangeofoperatingexpenseshasnotseenmajorchangesincethestartof2011andremainsintheregionof$70-255persqmperannum.

Rental rates at Moscow shopping centres, H1 2011

Type of premises Area, thousand sq m Retail profileRate, $ per sq m per

annum*

Anchortenantpremises

>5,000

Foodhypermarkets 100-200

Otherretailers 100-250

1,500-5,000 Foodhypermarketsandotherretailers 200-400

500-1,500 Foodsupermarketsandretailers 200-500

Retailgallerypremises

100

Children’sgoods 300–1,000

Clothes,footwear(groundandfirstfloors) 700–2,000

50Leatheraccessories,bijouterie,gifts,jewellery,mobile

telephones(groundfloor)1,300–4,500

*NotincludingoperatingexpensesandVAT(18%)

Source:KnightFrankResearch,2011

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Forecasts

Significantincreaseofrentalratesinthesecondhalfof2011isveryprobableinviewofimminentshortageofretailspaceontheMoscowmarket.WepredictriseofaskingratesinUS$bymorethan20%inthewholeof2011.

WeexpectthatdevelopersactivityontheMoscowretailrealestatemarketwillrecoverintheimmediatefuturefollowingsharpdeclinescausedbythecrisisandthenbyinitiativesofthenewteamatMoscowcityhall.NewprojectswillbeseenoutsidetheThirdTransportRing,intheformofbothstand-aloneshoppingcentresandretailprojectsaspartofnewresidentialdistrictsandmixed-usecomplexes.IntensiveconstructionofretailcentresisalsolikelyintownsinMoscowRegion,whichstillhaveanacuteshortageofmodernretailspace.

Assumingfurtherpositivetrendsintheeconomy,thebestopportunitiesfordevelopmentofretailchainsinthenextfewyearsareinregionalcitieswithpopulationsof300-500,000.RegionalexpansionbyretailerswillencourageareorientationofdeveloperactivityawayfromMoscow.

Shopping centres opened in H1 2011 and main openings scheduled in 2H 2011. GLA per 1,000 population by Moscow districts in H1 2011.

Source:KnightFrankResearch,2011

OVERVIEW

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Office Real EstateStanislav TikhonovPartnerstas.tikhonov@ru.knightfrank.com

Warehouse Real Estate, RegionsViacheslav Kholopov Directorviacheslav.kholopov@ru.knightfrank.com

Retail Real EstateSergey Gipsh RegionalRetailDirector,PartnerSergey.Gipsh@ru.knightfrank.com

Professional Consulting ServicesKonstantin RomanovPartnerkonstantin.romanov@ru.knightfrank.com

Elite Residential Real EstateElena YurgenevaDirectorelena.yurgeneva@ru.knightfrank.com

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Valuation ServicesOlga Kochetova Directorolga.kochetova@ru.knightfrank.com

Saint PetersburgNikolai Pashkov

GeneralDirectornikolai.pashkov@ru.knightfrank.com

KyivMikhail YermolenkoGeneralDirectormikhail.yermolenko@ua.knightfrank.com

Marketing, PR, and Market ResearchMaria KotovaExecutiveDirectormaria.kotova@ru.knightfrank.com

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© Knight Frank 2011

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