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. Last Updated: 07/27/2016

Local Market Bursting With Retail Potential

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The current supply of quality retail space in Moscow is approximately 170,000 square meters. The city remains severely under-provisioned in terms of modern retailing. With a city population of approximately 9 million and 16 million within the region, Moscow offers considerable untapped potential for retailers.

Open air markets and kiosks still account for the majority of retail trade. But, most major West European fashion brands are now represented in the capital. A relatively small but growing section of the population enjoys comparative affluence, which is driving demand for more traditional Western-style retailing.

Interest from foreign operators and investors is increasing. IKEA opened a 33,000-square-meter store in the western suburb of Khimki in 2000. In January, the third Ramstore mall opened, anchored by a supermarket with Benetton, Naf-Naf and TJ Collection outlets. Metro, Auchon and Spar are among a number of foreign retailers rumored to be actively seeking opportunities in Moscow.

Availability in Moscow has always been limited. Current vacancy rates in retail centers average around 5 percent, down from 15 percent in 1999. Average rents for quality retail premises, which fell by up to 50 percent after August 1998, have stabilized at around $1,400 per square meter. Increasing competition has led to many tenants signing lease agreements before the completion of construction. The City Star retail project, to be completed this year, will be the first shopping center to include leisure facilities and is proving popular with tenants.

In St. Petersburg, the small stock of Western-style retail space is centered almost exclusively on Nevsky Prospekt, the city's main thoroughfare. Last year witnessed an increase in demand for premises in this area. To date, however, planning restrictions on the historical buildings there have hindered the modernization of retail space. However, there has been relatively strong activity from medium-sized Russian retailers seeking premises of 100 to 700 square meters.

In 1999, St. Petersburg saw the beginning of the Nevsky International Center project, a 50,000-square-meter commercial and entertainment center located in the heart of the city. Given further commitment from Western retailers and eventual completion, the center will provide a much-needed boost to the St. Petersburg retail market.

Amanda Spring is the managing director of DTZ international property advisers in Moscow.