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. Last Updated: 07/27/2016

Mall Space Set to Double by '05

VedomostiConstruction of shopping centers, like Crocus City in northwest Moscow, is booming.
Shopping center floor space in Moscow will more than double by the end of 2005, as international retailers invest up to $2 billion in Russia over the next five years, according to a recent retail market profile by property consultants Stiles & Riabokobylko.

With retail trade remaining the best-performing sector of the economy, construction of shopping centers is booming and more than 900,000 square meters will be added to the 840,000 square meters of that currently exist across the 48 quality shopping centers in Moscow, the report said.

While 235,000 square meters in 15 shopping centers were built this year, the construction volume was less than expected as a number of large projects were delayed.

Although the planned 440,000 square meters in 2004 and 463,000 square meters in 2005 in 35 new shopping centers will increase quality shopping center stock to 1.8 million square meters, Moscow will still lag behind most of Europe in terms of retail space per capita.

The European level in 2003 stood at 147 square meters of shopping center floor space per 1,000 people, whereas in Moscow and the Moscow region the figure is 45 square meters.

"It will take Moscow two to three years to reach the current level of Prague or Warsaw, and it will take Russia up to five years to catch up with the Czech Republic and Poland," Natalya Oreshina, a director at Moscow-based Stiles & Riabokobylko, said.

Ilya Shershnev, director for development at Swiss Realty Group, agreed that it would not be too long before the Moscow retail market develops to the level of the former Communist bloc capitals with which it is often compared.

"Despite the relatively low figure of some 50 meters of shopping space per 1,000 inhabitants, Moscow and the region will very soon be neck-and-neck with East European countries. The level of Poland or the Czech Republic has almost been reached if we take into account all the planned shopping centers," he said.

The comparatively low spending power of the population is slowing down development and scares some potential foreign investors from entering the Russian market, experts say.

Yet only this year German do-it-yourself giant OBI opened two stores in Moscow and announced plans to open 30 more stores all over Russia in the next five years, while Sweden's IKEA began construction of the 230,000 square meter Mega 2 mall in northern Moscow and has recently said it aims to have as many as 22 stores in Russia within 15 years.

Germany's largest shopping center developer ECE Projektmanagement, which operates 74 shopping centers all over Europe, has recently announced it is going to expand into Russia in the next three years.

"If population income continues to grow at the same rate -- 44 percent this year -- the Moscow market will quickly reach the level of development of other European markets," said Natalya Sazonova, market research consultant at Colliers International.

The most aggressive retailers in 2003, the retail profile reported, were pharmaceutical chains, cinema operators and the retail banking sector. And as the retail market is getting more sophisticated, modern shopping centers are replacing traditional outdoor markets.

"Markets disappear step-by-step," said Jean-Christophe Cattin, head of retail department at Jones Lang LaSalle.

The combined floor space of the city's open-air markets has fallen from 1.6 million square meters in 1998 to between 600,000 square meters and 700,000 square meters today, Cattin said.

"Western-style shopping centers offer better service and are overall far more comfortable, while their prices do not differ from those in traditional markets," Oreshina said.

However, even though shopping centers currently appear to be winning the hearts of Muscovites, there will always remain a segment of the population who will shop in the markets, Cattin said.

High street retail was still subject to a limited level of supply of the right type and size of units, Stiles & Riabolkobylko reported. A number of preferable locations saw accelerated rental growth, albeit because many retailers were reluctant to take space in less preferable locations at higher rates unless the unit perfectly suited their needs.

In some locations rental levels almost doubled in 2003, in others, rental rates lost up to 30 percent. The rental rates for small stores in prime locations such as Tverskaya Ulitsa hit $5,000 net per square meter per annum.

The increasing professionalism of new shopping centers is also an important new trend in the retail scene.

Even though a number of shopping centers with poor concept development appeared in 2003, the number of unprofessional projects has been decreasing "noticeably," Colliers' Sazonova said.

"This tendency will continue, and very soon development of a new competitive retail project will become impossible without a team of professional architects, designers, concept developers, managers, and brokers," she added.

Swiss Realty Group's Shershnev also noted that standards for shopping center construction are quickly rising, which potentially may create problems for some developments that will be regarded as "second-rate quality."