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. Last Updated: 07/27/2016

Smolensky Passage Opens Doors to Shoppers

Mr. Pelege's hole has finally been filled in.

That is what Moscow real estate experts are saying after the Smolensky Passage department store and office complex threw open its doors on a downtown site. It was first planned 10 years ago.

Michel Pelege, a French developer who originally envisioned a building on Smolenskaya Ploshchad in the late 1980s, saw his design start to take shape in 1989 with funding from Bank CIC. But a quagmire of legal difficulties prevented the development from going beyond a gaping hole. The stalled project thus became known in real estate circles as "Mr. Pelege's hole."

But those memories were laid to rest Nov. 26 when the 38,000-square-meter Smolensky Passage celebrated its grand opening with its Finnish anchor store Kalinka Stockmann.

"It's the first department store in Moscow," said Michel Pascalis, partner at Jones Lang Wooton, the real estate agent leasing space in the building.

Constructed by Skanska of Sweden, Smolensky Passage offers 20,000 square meters of retail space and 20,000 square meters of Class A office space on four levels. A three-level underground parking garage has places for 450 cars.

Managers say the complex is owned by a company called Tema. But industry sources say that the Moscow city government and Sberbank are now the ultimate owners. The building is valued at more then $100 million.

The cream-colored building, which mixes modern and traditional Russian styles in its exterior, contains Moscow's first Western-style department store in Kalinka-Stockmann. This anchor tenant is something that other downtown malls in Moscow such as GUM, TsUM and the Manezh Square largely lack.

Kalinka-Stockmann takes up a whopping 6,700 square meters on three floors in the center of the glass and concrete complex. Some 5,000 square meters of the store are devoted to selling space.

The basement floor features a supermarket. Women's apparel and cosmetics make up the first floor and children's clothing, shoes and household goods finish out the second floor.

Kalinka-Stockmann's officials spoke enthusiastically about the opening of their first multilevel store in Russia and praised Smolensky Passage for its amenities.

"We have been dreaming about a department store in Moscow since we opened our first store here 10 years ago," said Maisa Hakola, director of the Stockmann department store. Stockmann also operates food and consumer goods stores elsewhere in the capital.

"It took us a while to find the right location," she said.

Stockmann was drawn to Smolensky Passage because of its Western standard, central location and its accessibility to various forms of transportation, Hakola said. The Garden Ring runs in front of the building and the Smolenskaya metro station is across the street.

The Finnish-owned store expects turnover of $58 million in the next 12 months and "several thousand" customers a day, she said.

Tema and Jones Lang Wooton counted on the complex's conveniences to help fill its 40 boutiques, and although a lot of empty space is still visible, they say that retail space is being snapped up quickly.

Several shops, such as a Tom Klaim clothing outlet and an Antares jeweler, have already opened, and Pascalis said a total of 30 shops will be open shortly. Other tenants include Jamilco, Collins Jeans, Scarlett and a large Pizza Express restaurant on 700 square meters.

Retail space ranges from 20 square meters to 250 square meters, and the average is about 100 square meters. Rent varies depending on the floor, location on the floor and amount leased. Rents average from $800 to $1,000 per square meter.

Available office space is going slower, however, due to the fierce competition from sublessors, Pascalis said. Smolensky Passage offers both fitted out and shell and core space, and rents for both average $600 per square meter a year.

Much of the 20,000 square meters has already been rented out to companies such as Reuters news agency and state-owned Sberbank but the remaining space is a tougher sell.

Subleased space is being offloaded by businesses that are downsizing during the financial crisis. The Moscow office market for class A space has been flooded by more than 30,000 square meters over the past three months, real estate experts estimate. Subleased space is completely fitted out and going for $550 to $625 per square meter.

"It is difficult to compete with this type of space," Pascalis said.