Retail Sector Growth Drives Mall Construction

The new Mirage shopping complex near Kuzminki metro station, which opened its doors to customers Tuesday, is yet another sign that burgeoning retail growth in Moscow is pushing developers toward shopping center construction.

Sites at Sukharevsky Ploshchad and Rublyovsky Shosse and another 10 locations, are under development. Some are quite extraordinary: Recently a fish market was opened on Novokuznetskaya Ulitsa that from the street looks like a prestigious business center.

And bigger projects are planned.

Swedish furniture giant IKEA, which opened its first superstore in Moscow this year, has already acquired two colossal plots of land for new trading centers in the Moscow region and is tying up a deal for a site to build its fourth store.

The second store will be built close to the existing store at Khimki on a 54-hectare plot, and the third store will go up on a 53-hectare site on Kaluzhskoye Shosse near its intersection with the Moscow Outer Ring Road. The location of the fourth store will be disclosed once the final documents have been signed.

Stiles & Riabokobylko, IKEAs real estate consultants, said construction will take place gradually over several years. IKEA is looking for major retailers, preferably foreign, to serve as anchor tenants.

In Moscow big-time operators willing to set up shop in space of 15,000 square meters to 18,000 square meters are hard to come by.

By comparison, the Ramstore supermarket at Marina Roscha, which covers 7,500 square meters, is one of the biggest existing retailers in Moscow. The Turkish retailer has set aside 10,000 square meters for its supermarket in a soon-to-open Kashirskoye Shosse shopping center.

"IKEA opened its office here 10 years ago, but it was only this year that it built its first complex. The firm is prepared to buy land and wait for the right moment to begin building, which it will do once it has found a hypermarket to team up with," said Natalya Oreshina, a retail property consultant at Stiles & Riabokobylko.

Of the major foreign retail chains, so far, only Germanys Metro AG has announced that aggressive plans to enter the Russian market.

"There are forever rumors about other big retail companies, but this never gets any further than marketing and preliminary agreements," said Sergei Gipsh, director for retail with Colliers HIB.

Nonetheless, many operators are still counting on strategic partnerships with foreign companies.

Business activity in the retail sector is expected to double next year, according to Alexei Fedotenkov, marketing director with the Inkom real estate company.

The city of Moscow and the Moscow region have unveiled plans to improve retail infrastructure on their territories. For example, the Moscow region recently announced the Gubernskoye Koltso project to construct up to 20 hypermarkets near the main outer-ring intersections.

Anna Shiryayeva, general director of the Magazin Magazinov real estate agency, said she is skeptical about such ambitious plans and suggested that over the coming few years no more than five or six projects would be built.

"Shopping centers of this kind are aimed at the middle class who, despite sociologists optimism, are not yet prepared to drive off once a week or even every fortnight to do their shopping some distance from where they live," Shiryayeva said.

In the meantime, downtown Moscow continues to to be a strong draw for retailers.

The Arbat-Prestige company recently acquired a two-story, 3,300-square-meter store at Ploshchad Gagarina. The company, previously called M1, once sold expensive clothing but now has been given a facelift and relaunched as a perfumery.

The value of the deal has not been disclosed, but the shop had been up for sale for $3.2 million.

A City Hall drive to get rid of Moscows sprawling wholesale food markets and replace them with modern shopping centers is starting to bear fruit.

Special premises are being built near the Voikovskaya metro station to house the many soon-to-be-displaced market traders and stall-holders.

City authorities havent forgotten the social side of their retail projects.

Mayor Yury Luzhkov has announced that by the end of this year 67 specialized grocery stores are to be opened in Moscow. The shops will be granted a swathe of financial breaks in the hope that they will yield a profit, the mayor said. The privileges are similar to those offered under a city program that applies to about 300 stores that serve the poor.

Colliers HIBs Gipsh said domestic and certain foreign investors prefer to invest in the construction of retail centers in the more sparsely populated areas, especially those in the suburbs.

The Ramstore on Kasirskoye Shosse falls into that category, as does the 70,000-square-meter underground Yasenevo shopping complex in the south of Moscow that is nearing completion.

Investments in Yasenevo are entirely domestic and, based on the price of similar completed projects, could come to $1,000 per square meter. Total investments could reach $70 million.

Shiryayeva said demand to lease premises in suburban shopping centers is extremely high.

She said that potential tenants are thinking big. Tenants at one time sought areas of 100 square meters to 150 square meters, but they are now keen to get hold of 300-square-meter to 500-square-meter spaces, she said.

Meanwhile, a 30,000-square-meter hypermarket is expected to be opened at the end of next year close to the Otradnoye metro station. The main area will cover 9,000 to 12,000 square meters, and a search for an anchor tenant is now under way, Gipsh said.

Cyprus-based Wakelin Promotion Ltd. is investing in the project, which will include a multiplex cinema, fitness center and bowling alley.

A 7,000-square-meter discount center is being built despite massive competition in the retail-concentrated Kuntsevo district, Gipsh said.

Shiryayeva said clamor over discount chains has pretty much died down because prices in such stores have turned out to be only slightly lower than those in chains like Ramstore while service proved significantly worse.

Supermarket chains such as Perekryostok and Sedmoi Kontinent are hunting for free-standing buildings of about 4,000 square meters that are close to metro stations in the suburbs.

Soviet-era stores of 1,000 to 1,500 square meters that are located in the less busy parts of town appear to be of little use to anyone. Their layout does not meet the requirements of larger chains, and smaller enterprises find the space to be too big.

Prices for those shops rarely go above $400 to $500 per square meter.

Shiryayeva said buyers of such premises are most often foreigners from countries of the former Soviet Union who want to open family businesses in Moscow.

Alexei Fedotenkov, marketing director with the Inkom real estate company, said lease prices for retail premises are close to their levels before the 1998 financial crisis.

The cost of purchasing a store is equivalent to renting it for two to three years since there is a risk in purchasing a building outright, he said.