Quest For New Malls Pushes To Regions, Outpaces Europe

Vladimir Filonov / MT

Russia has the largest population of any European country, far surpassing the United Kingdom and France in headcount, yet it has lagged behind those Western European countries in mall space. That is about to change, as additions to the country's mall stock hurtles Russia past the United Kingdom over the next year.

In Moscow alone, developers have opened about 150,000 square meters of leasable mall space thus far in 2013, with another 110,000 square meters to be added in the capital by the end of December, said CBRE research analyst Maxim Palt. A gargantuan mall project near the Dynamo metro station, Avia Park, would add another 230,000 square meters if it opens as planned in 2014. Meanwhile, St. Petersburg, Yekaterinburg, and Novosibirsk could see shopping centers of more than 65,000 square meters in coming months.

The increase in mall space occurs against a backdrop of strong retail spending that is growing more quickly than Russia's gross domestic product. Compared with 2008 figures, this year's GDP is expected be 5 percent higher, while retail revenue is expected to be 19 percent higher, said Alfa Bank chief economist Natalia Orlova.

While retail real estate is booming in Moscow, the trend is far from a capital-centric one. The retail market is already nearing or surpassing European levels in cities as far-flung as Krasnodar, Voronezh, Ryazan, Samara and St. Petersburg, according to figures from Cushman & Wakefield.

 Adding up the floorspace in malls across the country, Russia will surpass the United Kingdom next year, Cushman & Wakefield said in a forecast earlier this year. At that time, France had 16,950,000 square meters of leasable area in malls, followed by the U.K. with 16,480,000 square meters and Russia with 16,476,000 square meters, the real estate firm said. By the end of 2014, the Russian supply might increase by another 2,400,000 square meters, though the firm cautioned that "there remains a level of uncertainty over the completion dates for many of these" planned malls.

Some analysts are bullish on Russia's prospects for retail space, however. Palt pointed out that Moscow, considered a city dense with shopping options, in fact has less mall space per person than the European average: It has only 330 square meters per 1,000 citizens versus 400 square meters in Europe.

Comparing the level of retail options in Moscow to those elsewhere in Europe, Moscow is just nearing "this first phase of saturation," Palt said. He believes that the numbers will be more similar by 2015.

Maxim Karbasnikoff, the retail head for Cushman & Wakefield, said the market is experiencing its biggest resurgence since the global financial crisis. Though there were mall openings in 2009 and 2010, the rate and scale of launches since then is suggesting a new phase, he said.

Major projects in the pipeline include Avia Park, to be located northwest of the Garden Ring and near the intersection of Leningradsky Prospekt and the Third Ring Road. Amma Development, which is building Avia, says on its website that the mall will offer 230,000 square meters of entertainment and retail. It would be one of the biggest malls in Europe. Amma has scheduled the opening for the fourth quarter of 2014.

There is also Columbus, another Moscow mall that could have 140,000 square meters of leasable space. That would be three times bigger than the Yevropeisky Mall near Kievsky Station and even larger than the sprawling AFIMall City near the Moskva-City business towers. A launch is possible at the end of 2014, mall trade publication Moll Magazine has reported.

An active and aggressive player in mall development, Tashir Group, is banking on demand for more shopping and entertainment options in Moscow and the regions. Already the owner of five open malls in the capital, Tashir has added two more to its portfolio this year: the RIO mall on Leninsky Prospekt in southwest Moscow and Raikin Plaza near the Marina Roshcha metro station just north of central Moscow. Both buildings are short bus rides or drives from other large malls, but Tashir is confident of the need for more floorspace and stores.

"There isn't any question that competition is increasing; however, the retail real estate market in Moscow is still far from saturated in terms of quality sites," Tashir's press office said in response to questions about the market. "Projects that have locations with good potential will always be in high demand by renters" of shopping center space, it said.

With 24 malls already in operation throughout western Russia, plus two in Armenia, Tashir is planning to announce openings "in the near future" in Sochi, Kostroma and Tambov, it said. Current operations include malls in Rostov-on-Don, Nizhny Novgorod, Saransk and St. Petersburg.

The northern capital, as well as Krasnodar in the southwest of the country, Yekaterinburg in the Urals and Novosibirsk in western Siberia, already boast well-developed retail markets, said Yuliya Nikulicheva, head of the strategic consulting department at Jones Lang LaSalle. Calling St. Petersburg's market "very saturated" with shopping malls, she noted Zhemchuzhnaya Plaza and Galeria, which alone has 290 stores and 10 movie screens.

St. Petersburg will be getting another massive shopping option from developer Elis, which is building a mall named Gollivud, or Hollywood, Elis said at an October real estate conference hosted by Colliers International. It is supposed to include more than 200 clothing, shoe and accessory stores.

Yet Moscow is the most interesting market for both retailers and developers, Nikulicheva said. That is evidenced by the outlet villages launched in the Moscow region this year, such as Fashion House and the first phase of Vnukovo, which follow the recent launch of Belaya Dacha. Meanwhile, she noted, that developers in the capital proper are eyeing the roughly 70 metro stations to be opened this decade and situating their malls according to these future tranport hubs.