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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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3
•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 [email protected]
Warehouse Real Estate, RegionsViacheslav Kholopov [email protected]
Retail Real EstateSergey Gipsh RegionalRetailDirector,[email protected]
Professional Consulting ServicesKonstantin [email protected]
Elite Residential Real EstateElena [email protected]
Financial Markets and InvestingEvgeniy [email protected]
Valuation ServicesOlga Kochetova [email protected]
Saint PetersburgNikolai Pashkov
KyivMikhail [email protected]
Marketing, PR, and Market ResearchMaria [email protected]
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© Knight Frank 2011
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