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. Last Updated: 07/27/2016

Retail Space Costs on the Rise

Moscow retail space rents are still 20 percent below pre-crisis levels on average, but demand overtook supply in February after the market started picking up in September 1999, city real estate analysts say.

Rental costs will increase throughout this year, without any sharp jumps, analysts say. However, analysts disagree on how much growth the market can expect.

February showed a slight rise in demand following January's traditional seasonal slowdown, said Mikhail Vasiltsov, marketing manager at the Moscow Central Realty Exchange.

Irina Gliva, head of the Miel real- state agency's nonresidential department, was more positive in her analysis of the market.

"Right now, demand is several times greater than supply," she said. "We think rental prices will continue to grow."

Available retail space in Moscow is scarce, with quality space even more difficult to find, she said. "It usually takes three to four months to find a store, sometimes up to half a year," she said.

Purchase prices on retail property have dropped by 15 percent in the last six months, while rental rates have been holding steady at the same levels, said Maxim Naumenko of Nikom Realty.

This is because falling construction costs have lowered prices on the primary market, exerting downward pressure on the secondary market, he said. The reduced money supply after the 1998 ruble crash has also helped to squeeze purchase prices, Naumenko added.

The center of Moscow and adjoining areas, as well as real estate along Leningradsky, Leninsky and Kutuzovsky prospekts continue to fetch traditionally high prices; the city center naturally commands the greatest premiums.

However, the average rent of $645 per square meter per year for commercial space within the Garden Ring can be deceptive. Annual rents in this central area range widely from $250 per square meters to $1,500 per square meters, and can reach $3,000 per square meters.

A number of factors help determine commercial real estate rental rates, including customer traffic volumes, numbers of nearby competitors and the type and degree of equipment already available in a specific location.

Location and equipment are the first things that Perekryostok development director Alexei Rogozin considers when choosing a new location for the Perekryostok grocery chain.

"The most important thing is a store's location and whether we can format its sales floor to meet our standards," he said. Perekryostok has 20 stores around Moscow, ranging in size from 500 square meters to 1,400 per square meters.

Rogozin named several secondary factors that also influence his decisions, including a building's overall condition, how much investment it will require and whether a parking lot can be constructed. Warehousing space is also very important, even if the store will be supplied primarily from Perekryostok's central warehouse, he added.

Prices are quite high on spaces greater than 1,000 square meters in size. Nevertheless, smaller stores of 100 square meters to 200 square meters command the highest asking prices because available locations tend to be more difficult to find. Most small stores have already been purchased, or renters have no plans to vacate them.

Store size is usually dependent on a store's sales volume. Rogozin said rent usually accounts for between 3 percent and 10 percent of a store's expenditures.

Rogozin said Perekryostok focuses on new housing developments when determining where to open new locations. Most other retailers, especially those in the grocery business. are also focused on this development direction.

Miel Realty's Gliva cited increased interest among grocers in ground-floor space in new housing development.

The poorly developed retail infrastructure in these areas has caught grocers' interest, she said. Most real estate sales there take place on the primary market, through Moscow city government tenders and auctions, she said.

Low purchase costs of $150 to $350 per square meters are also a benefit to shops in a new housing development.


Moscow Retail and Warehousing Real Estate Prices

(average annual price per square meter)

Location Stores Warehouses

Rent Purchase Rent Purchase

Center* $643 $1,349 $106 $250

Northwest $340 $739 $56 $203

West $408 $833 $68 $233

Southwest $478 $716 $58 $243

South $280 $505 $56 $180

Southeast $258 $477 $54 $180

East $238 $525 $48 $180

Northeast $315 $615 $53 $203

North $352 $657 $60 $255

*prices for exclusive locations like GUM, TsUM, Petrovsky Passazh not included

Store prices derived from transactions conducted by the Inkom

and Miel real estate-agencies, and the Moscow Central Real-Estate Exchange. Warehouse prices derived from transactions conducted by Inkom and Miel real-estate agencies.