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. Last Updated: 07/27/2016

Mall Construction Shows No Sign of Slowing

For MTSynchronized swimmers performing at the Crocus City mall opening.
As the latest multimillion-dollar shopping mall opens in Moscow, the city continues to see a rapid rate of large-scale retail development from domestic and foreign investors.

While the total amount of international-quality retail space available in the city is still low compared to other European capitals, it is expected to double in 2002. Meanwhile, several major groups say they are preparing to complete more major projects over the next year.

Crocus City, which opened last week on the Moscow Ring Road, or MKAD, near Volokolamskoye Shosse in the city's outer northwest, includes two levels with a total of 180 luxury shops and boutiques, four restaurants and eight cafes. The new mall, 20 kilometers from the Kremlin, has a total area of 62,000 square meters, 3 kilometers of aisles, and adds to the neighboring 45,000 square meter shopping center opened by Crocus International last year. The company says a hotel and a 50,000 square meter exhibition center will be added in 2004.

Although many of the larger retailers have so far been encouraged by lower land prices and rent to open their stores on the outskirts of the city, experts say locating a store outside the center is not necessarily the best option.

"I think the location is completely wrong for the Crocus City concept," said Olga Ladorenko of international property consultant DTZ Zadelhoff Tie Leung. "The area around the MKAD is suitable for the medium range, but not for exclusive shops. Shopping for items like jewelry and clothes does not require the huge parking space that shops like IKEA and Metro do."

Yana Zinaidova of market research company Interactive Research Group also cast doubt on the wisdom of placing stores far out of the center. She said the relatively low number of cars per capita means people are less inclined to travel farther than is necessary to do shopping or load up their vehicle on a weekly shopping trip.

"Retailers use the MKAD because land there is cheaper and more accessible," she said. "It's natural when a store first opens that people come, but it doesn't mean they will continue to come in three months in the same numbers."

Yulia Nikulicheva, a senior research analyst with Jones Lang LaSalle, said Crocus City might have a hard time winning custom from established luxury malls.

"A location on the outskirts of the city is not good for high-end retail shops," she said. "There are plenty of wealthy shoppers in the west of Moscow, but most of them come to the center to shop, at places like Tretyakovsky Proyezd and Kutuzovsky Prospekt."

Meanwhile, large foreign retailers show no sign of slowing their rate of opening major new shopping centers, with several groups adding to their existing investments.

German wholesaler Metro opened its third Moscow store at the end of October near Varshavskoye Shosse to add to its others on Leningradskoye Shosse and Yaroslavskoye Shosse. The new store has a sales area of 10,600 square meters and cost 26 million euros ($26.36 million at the current rate or $25.55 million at October's rate) to set up. Now Metro says its Real division may also enter the Russian market.

"Metro is encouraged that Russia could also be an interesting market for other sales lines," Metro PR manager Yulia Belova said.

She said Real's market entry was under concrete consideration. "At the moment talks with politicians and administrative bodies in Russia are taking place. We cannot yet state in detail anything about investigation sums, number of stores or the date of the market entry."

She said Metro is planning to open several more stores per year, both in Moscow and St. Petersburg and regional cities with a population above 1 million. A letter of intent has been signed with the Nizhny Novgorod administration and the company wants to set up a store there in 2004, she added.

Swedish furniture retailer IKEA is due to finish extension work to its MEGA mall site in southern Moscow and open the center on Dec. 12. The development will boost trading space from the current 60,000 square meters to at least 150,000 square meters and bring in other retailers such as French giant Auchan as tenants. Renaissance Capital estimates the total cost of completing the site will reach about $250 million.

Last week IKEA's head and founder Ingvar Kamprad said the company is planning three new stores in Russia by 2006 -- two in Moscow and one in St. Petersburg.

IKEA spokeswoman Irina Vanenkova said the company is looking at two possible sites for new stores in Moscow, at Kutuzovsky Prospekt and in the city's east, and the existing IKEA at Khimki is to be extended to become a mega mall. IKEA prefers to open on the city outskirts because it needs large amounts of land for parking, she added.

Meanwhile, Auchan opened a 40,000 square meter hypermarket in the northern suburb of Mytishchi in August. The chain now says it will open another two outlets, at the IKEA MEGA mall in December, then at Mozhaiskoye Shosse in March 2003, and it intends to open a number of smaller stores in inner Moscow once its hypermarkets around the outskirts have been completed.

Turkish retailer Ramenka, which operates the Ramstore supermarket chain, opened its latest, 12,000-square-meter store at Belyayevo in September, and plans to open its biggest outlet yet, comprising 72,000 square meters, on Leningradskoye Shosse near the MKAD in December. Of the existing stores, 10 are supermarkets and four are hypermarkets or malls. Advertising manager Saba Karabey said the chain would open a number of stores next year both in Moscow and regional cities.

Moscow's supply of quality Western-style, covered retail space at the end of 2001 was around 430,000 square meters, according to a report by DTZ Zadelhoff Tie Leung, and another 438,000 square meters of such retail space is due to be completed by the end of 2002.

DTZ says statistics supplied by the Moscow government indicate the total retail area in the city stands at 1.9 million square meters, or 215 square meters per 1,000 people (although recent census results put the city's population at 10 million, which would make the figure 190 square meters per 1,000 people). However, it adds that data from other property consultants indicate a figure of only 50 square meters per 1,000 people of Western-quality retail space. The company cites comparable ratios for such space in Warsaw at 380 square meters per 1,000 people and Paris at 410 square meters per 1,000 people.

In a report earlier this year, Renaissance Capital cited Moscow as potentially the biggest and most concentrated retail market in Europe, with a population of 12 million including visitors.

"With about 8 percent of the Russian population concentrated in the capital, the Moscow retail market of $31.5 billion in 2001 accounted for about 30 percent of the entire Russian retail turnover," the report said. "We expect the Moscow retail market to grow by 25 percent in dollar terms in 2002."

Experts say the two main problems for groups wanting to open large-scale retail sites in the capital are finding a suitable location and simply having the necessary contacts among authorities.

One Moscow retail expert, who declined to be named, said the city authorities often fail to deliver on their promise to encourage supermarkets' gradual replacement of less regulated, outdoor markets. The city government last year announced a project calling for 300 shopping centers to be built over the next 20 years.

"The open markets are held by groups who don't want to give them up," she said. "To open a supermarket you need to have contacts in government. It is a feature of retailers that they announce plans but don't follow them through, as there are so many problems with opening stores. A lot of them complain that the government doesn't help."

Jones Lang LaSalle's Nikulicheva said the outlook for Western-style shopping malls in the city was generally positive, as some consumer habits are gradually changing in their favor.

"People with higher income prefer to shop at more modern centers where they like the concept, range of products and choice," she said. "At the moment the market is not saturated, so we will see more foreign groups entering the Moscow market. Russian retailers will find it hard to compete if they haven't thought their plans through carefully."

Among the first of Moscow's major Western-style retail and leisure complexes was the Okhotny Ryad complex at Manezh Square, with 70,000 square meters. A more recent addition is the Atrium mall, a $142 million project of 100,000 square meters by Kursky Station that opened in May.

Retail and office premises currently under construction include the Alfa Arbat Center, a 42,000 square meter project due for completion next spring, and the $22 million 31 Novinsky Bulvar, due to open around the same time.