STREET RETAIL MOSCOW
Q1 2020 2
KEY MARKET INDICATORS
Q1 2018 Q1 2019 Q1 2020
Total stock of street retail space on central 562.1 562.5 563.0 corridors, thousand sq m
Amount of retail space, number of units 3,074 3,110 3,129
Average size of leased units over 140 180 181
March2020 | Moscow International retail market 2020 | Q1 Moscow Colliers the period, sq m
Vacancy rate, % 7.0 6.0 6.4
* Based on the analysis of Moscow’s 90 streets.
SUPPLY
The average vacancy rate on central shopping streets in Moscow increased by 0.3 p.p. compared to the previous quarter, this was due to tenant rotation in these locations in Q1 2020. Premises are being vacated due to outdated concepts and changes in development strategy by some owners of retail chains and food & beverage operators. Nowadays, many business owners are focused on improving their business structure and modernising store concepts to attract more customers and visitors.
CHART 1: 12,0% 11,0% 11,0% Average vacancy rate 11,0% on Moscow’s central 11,0% streets, % 10,0% 9,0% 9,0% 7,8% 8,0% 7,5% 7,0% 7,0% 6,4% 7,0% 7,1% 6,0% 5,9% 6,0% 4,8% 5,7% 6,1% 5,0% 5,3% 4,8% 4,0%
3,0%
2,0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 2020
Source: Colliers International 3
MAIN STREETS IN MOSCOW ColliersMoscowQ1 2020 | retail market International 2020 | Moscow March
An increase in vacant premises in Q1 2020 was recorded TABLE 1: on pedestrian streets (3.9% versus 3.1% in Q4 2019), on Vacancy rates on main shopping streets in central corridors (7.4% versus 6.9% Q1 2019) and on Moscow, % Patriarch Ponds (6.1% versus 4.4 in Q4 2019). The vacancy growth is attributed to the closure of several stores, for example, the Kiko Milano cosmetics store on STREET Q1 2019 Q1 2020 Kuznetsky Most, the Goal Center sportswear store on Krasnaya Presnya, and Moskhoztorg home goods store Stoleshnikov Ln 6% 4% on Malaya Bronnaya and Krasnaya Presnya. In addition to stores, food & beverage operators were closed, such Kuznetsky Most St 5% 3% as Shake Shack on Arbat (the American fast food restaurant chain announced its closure in Russia in early Petrovka St 6% 5% 2020), Saxon + Parole, and Junk Food Bar closed on Patriarch Ponds. Banks are continuing to reduce their Myasnitskaya St 3% 6% branches in central locations due to services moving online. Arbat St 5% 5% The lowest vacancy rate on central streets was observed on Rozhdestvenka (0%), Kuznetsky Most (3%) and Novy Arbat St 4% 5% Stoleshnikov Lane (4%). Rozhdestvenka St 1% 0%
Pyatnitskaya St 1% 4%
CHART 2: Vacancy rates by type of retail corridor, %
10,0% 9,0% 8,0% 8,0% 8,0% 6,9% 7,0% 7,4% 6,5% 6,1% 6,0% 6,3% 6,2% 5,0% 5,4% 4,4% 3,9% 4,0% 4,5% 3,0% 2,0% 1,0% 0,0% Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
Central corridors Pedestrian streets Boulevard Ring Patriarch Ponds
Source: Colliers International 4 March2020 | Moscow International retail market Q1 2020 | Moscow Colliers
TENANT STRUCTURE
According to Q1 2020 results, the largest category of rented premises has decreased to 127 sq m) and by tenants remains food & beverage operators, which increasing their geographical range by opening of a amounted to 35% (the same figure as in Q1 2019) of large number of mobile locations in the coffee-to-go all leased space within the Garden Ring. The format and hybrid coffee shops in grocery stores. In segment has been the main growth driver of the addition to food & beverage, the presence of food street retail market over the past few years. retailers increased over the year by 1 percentage point (7% against 6% in Q1 2019). This increase In the year up to the end of Q1 2020, the top three in occurred due to the active expansion of grocery terms of food & beverage openings were cafes, chains such as VkusVill and Dobryninsky. The restaurants and coffee shops. On central shopping average leased area of grocery stores, including streets, restaurants and cafes accounted for 48% of non-chain outlets, on central streets was 184 sq m. openings, while coffee shops made up 20% (from the total volume of food & beverage openings). The In Q1 2020, the structure of other tenant profiles did coffee segment is undergoing rapid development not change significantly compared to Q1 2019: due to the emergence of new formats in Moscow. beauty and health (14%), banks and financial Coffee shop operators are reducing their costs every services (8%), fashion (8%), services (7%) and year and strengthening their positions in the Moscow household goods (2%). market by reducing rental space (the average size of 5
CHART 3:
Demand distribution ColliersMoscowQ1 2020 | retail market International 2020 | Moscow March in the rental market by retailer profile, % 7% 3% 2% 8% Accessories
Banks 16% 14% Beauty & health
Food & Beverage
7% Fashion
Grocery 8% Other 35% Household goods
Services
CHART 4: Structure of open food & Garden Ring 19% 11% 19% 4% 37% 7% 4% beverage operators for Q1 2019 — Q1 2020, by type Patriarch 31% 31% 15% 8% 8% 8% of operators, % Ponds
Boulevard 18% 21% 26% 6%3% 24% 3% Ring
Pedestrian 27% 47% 13% 7% 7% streets
Central 20% 29% 14% 2%5% 19% 3% 7% corridors
0% 20% 40% 60% 80% 100%
Restaurant Café Bar Pub Bakery Coffee House Pizzeria Bistro Food-court Canteen
CHART 5: Structure of open food & 5% beverage operators for Q1 22% 2019 — Q1 2020 by type of price segment, % 26%
Premium
Medium
Medium+
Economy 47%
Source: Colliers International 6
RENTAL RATES
Rental rates on several central shopping corridors and pedestrian streets have shown a multi-directional trend. In Q1 2020, the upper range of rates increased on Stoleshnikov Lane (3%), Petrovka (4%) and Bolshaya Nikitskaya (14%) compared to the figures Q1 2019. This increase is primarily due to the lack of quality space in these locations and the appearance of new expensive units, for example, due to the delivery of one block of large premises (218 sq m of 418 sq m) at 15 Petrovka St, the rental rates of the second block increased (200 sq m of 418 sq m). In addition, a new high-quality offer appeared on 24/1 bldg 1 Bolshaya Nikitskaya St. On other streets, rental rates decreased by an average of 10-15% due to an increase in vacancies and the entry of fewer quality premises on the market.
MAP 1: Rental rates on the central streets of Moscow, RUB/sq m/year March2020 | Moscow International retail market Q1 2020 | Moscow Colliers
Petrovka St 68,000–135,000 RUB/sq m/year
Tverskaya St Stoleshnikov Ln 65,000–110,000 RUB/sq m/year 180,000–251,000 RUB/sq m/year
Bolshaya Nikitskaya St Myasnitskaya St 70,000–133,000 RUB/sq m/year 86,000–138,000 RUB/sq m/year
Kuznetsky Most St 129,000–176,000 RUB/sq m/year Novy Arbat St 65,000–125,000 RUB/sq m/year
Arbat St 56,000–130,000 RUB/sq m/year
Pyatnitskaya St 58,000–75,000 RUB/sq m/year
Based on the analysis of premises from 100 – 300 sq m Source: Colliers International 7
MAIN AVENUES ColliersMoscowQ1 2020 | retail market International 2020 | Moscow March
Based on a study of 567 objects (85,700 sq m) on space on highways include the following categories: main corridors, the vacancy rate for the year on grocery (19%), beauty and health (18%) and food & Kutuzovsky (16%) and Lomonosovsky (4%) avenues beverage (15%). increased by an average of 2 p.p. An exception was Michurinsky (9%), where the rate decreased by 2 p.p. The average rental area on Kutuzovsky was 158 sq m, The increase in the vacancy rate on highways was on Lomonosovsky this was 140 sq m and on due to the closure of food & beverage operators, Michurinsky it was 153 sq m. grocery stores, bank branches and professional cosmetics stores.
The structure of tenants on main corridors is the opposite of the structure of tenants on central shopping streets. The top three in terms of leased TABLE 2: Indicators on main avenues
RENTAL RATE, AVERAGE AREA of LEASED VACANCY RUB/SQ M/YEAR PREMISES, SQ M AVENUE
2019 2020 MIN MAX 2019 2020
Kutuzovsky 14% 16% 23,500 83,200 159 158
Lomonosovsky 2% 4% 29,400 78,000 123 140
Michurinsky 11% 9% 35,100 82,000 150 153
CHART 6: Structure of occupied space by category of tenants on each of the avenues, %
Lomonosovsky Ave 13% 17% 19% 9% 19% 23%
0,5% 1%
Michurinsky Ave 14% 20% 18% 23% 24%
1%
Kutuzovsky Ave 16% 18% 10% 14% 15% 9% 11% 7%
0% 20% 40% 60% 80% 100%
Accessories Banks Beauty & health Food & Beverage Fashion
Grocery Other Household goods Services
Source: Colliers International 8
OPENINGS
In Q1 2020, an interesting opening was the new Greek restaurant Eva by Lucky Group. The restaurant with modern Greek cuisine was opened in premises on Bolshaya Gruzinskaya, where previously there were such restaurants as Go East by Uilliam Lamberti, Litro by Taras Kiriyenko, Yernik and Yulina Kitchen by Yulia Vysotskaya. It is also worth noting the new project of Alexander Oganezov, Pino Restaurant Bar, which is located on the site of the oldest restaurant-confectionery Donna Klara on Malaya Bronnaya. The menu of the new restaurant follows modern trends, which include a selection of raw food dishes and a sharing section intended for company. In addition, in Q1 2020 food service establishments opened such as as the vintage gastrobar Gahkek, Japanese bar-inaka Hachiko on Pyatnitskaya, the restaurant with Russian cuisine Repin on Sretensky Boulevard and St. Petersburg meat restaurant Smoke BBQ in the large two-story house on Trubnaya. The fashion and beauty segments have also been replenished with new openings: in early 2020, the first women's March2020 | Moscow International retail market Q1 2020 | Moscow Colliers store of the Dutch brand Suitsupply opened in Red October. The brand positions itself as a premium segment, which includes, in addition to classic suits made of Italian fabric, casual and outerwear and accessories. The store also has a CustomMade service, where customers can design the perfect suit for themselves, and tailor services are provided. Two Moscow brands opened in the same showroom on Chistoprudny Boulevard – Blizhe (underwear brand) and Cultura (glasses brand). For the Cultura brand, this is the first offline point in the showroom format, and for the Blizhe brand it is the first Moscow showroom in the street retail format (the brand was represented before in the Trend Island space in the Moscow shopping center Aviapark and the St. Petersburg showroom Porta 9). In January 2020, a new beauty project, Beauty Club Lume 21, opened. The format of the beauty club differs from its beauty salon predecessors: in addition to the usual services of stylists and cosmetologists, it offers a service with an emphasis on health. DIY retailers are continuing to experiment with new formats. In 2020, the first store in the street retail format by Leroy Merlin was officially opened in the south-west of Moscow. The new urban store is in a detached building with an area of 1.500 sq m. The move by the company was aimed at strengthening its position in the home repair and improvement goods market due to its convenient location and focus on customer service.
TABLE 3: Key openings in Q1 2020 on the Central streets of Moscow
NAME ADDRESS CATEGORY
Suitsupply Woman 8 bld 1Bersenevskaya Emb Fashion
Blizhe/Cultura 12 bld 4Chistoprudny Blvd Fashion
Leroy Merlin 1 bld 5 Novoyasenevsky Ave Household goods
Beauty Club Lume 21 21 1-st Smolenskiy Ln Beauty & health
Eva 69 Bolshaya Gruzinskaya St F&B
Pino Restaurant Bar 21/13 Malaya Bronnaya St F&B
Hachiko 25 Pyatnitskaya St F&B
Gashek 5 bld 1 Bolshaya Sadovaya F&B
Repin 6/1 bld 1 Sretensky Blvd F&B
Smoke BBQ 18 Trubnaya St F&B
Source: Colliers International 9 Moscow retail market Q1 2020 | ColliersMoscowQ1 2020 | retail market International 2020 | Moscow March FORECAST
• Most likely, we will see a temporary increase in vacancies in Q2 2020 due to recent events-COVID-19, the devaluation of the ruble, a decrease in the number of tourists in the capital, a decrease in trade turnover and a shortage of customers; • It is worth noting that tenants of retail premises whose business is focused on consumer (food) product groups and their sale have already benefited from a short-term increase in cash flow, as well as the pharmacy business; • A reduction in rates will still follow, in some cases from 30% to 50%, but this is a temporary reduction; • The current situation can also have a positive effect on the purchase and lease of retail premises. For buyers with earnings in dollars, it is a good time to actively invest in a ready-made business, and for a tenant with a stable financial position – to get a retail space on more favorable commercial terms.
The current situation with restrictions due to the spread of COVID-19 will seriously affect the street retail segment. The best solution in the current situation is if owners and tenants can agree on temporary terms for reducing the lease, so that neither side will be left without income. The worst-case scenario is if the owners and tenants do not meet each other halfway, and there will be a lot of vacant premises. Finding a new tenant on the same terms will be quite difficult. The new tenant will negotiate considering the new realities of the market, and it cannot be said that the terms will be more attractive than with the current tenant. However, there is a positive point - for buyers who have earnings in dollars, it is a good time to actively invest in a ready-made business, and for a tenant with a stable financial position to get/rent a retail space on more favorable commercial terms.
Larisa Eremina Deputy Director Street Retail Department CONTACTS
STREET RETAIL RESEARCH MARKETING AND PR DEPARTMENT Veronika Lezhneva Olga Bakulina Director Regional Director Stanislav Bibik +7 495 258 5151 +7 495 258 5151 Partner [email protected] [email protected] +7 495 258 5151 [email protected] Lolita Leontyeva Analyst Larisa Eremina +7 495 258 5151 Deputy Director [email protected] +7 495 258 5151 [email protected]
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