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. Last Updated: 07/27/2016

GUM Rents World's 3rd Highest

A leading British real estate firm has named Russian shopping mall GUM as the third most expensive site for retailers in the world, eclipsing rental prices on Paris' Champs Elysees and London's Oxford Street.

The average cost per square meter at GUM is about dollars 4,500 annually, behind the dollars 8,280 charged on Hong Kong's main street, Causeway Bay, and the dollars 4,844 price tag on New York's East 57th Street, according to an annual ranking produced by real estate firm Healey & Baker.

GUM's famous name and its location in the heart of Moscow have enabled the store to fetch premium sums from retailers with few alternative outlets. But the store soon may be forced to lower its rents, as shiny new shopping plazas begin cropping up all across Moscow, retail experts said.

Moscow Mayor Yury Luzhkov's beloved Manezh Square is opening in GUM's backyard, charging retailers dollars 1,500 to dollars 2,500 per square meter annually. And a recently completed dollars 20 million renovation at nearby TsUM will help that mall compete for low-end shoppers visiting GUM's less expensive stores, said Kim Iskyan, an analyst with Renaissance Capital who has studied Russia's retail market.

"As the number of retail options expand, I don't think GUM will be able to demand a premium," Iskyan said. "Manezh may have problems, but if you are a retailer choosing between paying some exorbitant sum to GUM or to a mall that looks good, is newer and more comfortable, where are you going to go?"

Nailing down GUM's exact rental price is tricky, said Guy Netscher, a property consultant with Healey & Baker. The store does not charge a straight rental fee but works with retailers through an agreement similar to a joint venture, purchasing the goods from the retailing company and reselling them in a store designed by the retailer. GUM is typically responsible for importing the goods and staffing the store, and takes a cut of the store's sales for its services.

The total cost to the retailer runs between dollars 3,000 and dollars 5,000 per square meter annually, depending on the location of the unit, according to GUM's head of investor relations, Anna Kaprina.

GUM's nontraditional approach relieves some retailers of the headaches involved with importing goods into Russia and dealing with operational hassles. But Netscher said he believes most retailers would prefer to have more control over their stores. "I think most international retailers there would rather not deal that way, but that's how GUM wants to do business," Netscher said.

"They have to work that way if they want to work with us. There is no other way," Kaprina said. "And they want to work with us." The mall has a waiting list, she said, adding that it does not market its space to potential tenants because tenants "come to us."

While Manezh still is not fully opened -- only one floor of the three-tier mall is open -- its managers appear ready to hustle for tenants and customers with lower rents and more aggressive marketing.

The shopping mall will launch a consumer-targeted ad campaign early next year, said Andrei Menkov, the nall's financial director.