15 years on the Russian Retail Property Market

RUSSIAN RETAIL PROPERTY MARKET REPORT 2013 HIGHLIGHTS Retail Property Market Report by MAGAZIN MAGAZINOV 2013

The year of 2013, especially the end of it, was marked by the lowered consumption rate among Russian consumers. Anticipation of a new crisis wave and negative predictions for the year of 2014 lead to a significant decrease in the consumer confidence index, shifting the focus of consumer behavior from buying to saving. Nevertheless, it is still too early to forecast negative trends for the market. There needs to be a more careful analysis of the trend data gathered in Q1–Q2 2014.

In 2013 retail property market witnessed the unprecedentedly low amount of newly commissioned space with the unusually high amount of it planned for 2014. Provided that at least 50% of the space announced appears on the market in 2014, this will break the record of 2009.

Last year Tashir Group of Companies became the most active developer on the capital's market with the two new shopping centers having become the largest openings of 2013. These amounted for 60% of the total GLA commissioned in 2013.

Moscow retail property market demonstrates a clear cyclical pattern in the developer activity. Periods of recession - which usually last about 4 years - are followed by 1–2 years of active new retail space commission. Besides, for each new cycle the oscillatory amplitude grows larger. For example, after 4 years of stagnation and unprecedentedly low levels of new retail space development on the Moscow market (from 2005 till 2008), the next two years witnessed a burst of activity and record amounts of new retail space supply. From 2011 till 2013 there was a new recession, more serious than in 2005–2008. That was an all-time low. Meanwhile, according to the developers’ forecasts, the new surge in activity is going to outmatch the previous one.

Last year 26 new international brands entered Moscow market. Interestingly, the brands already present in the market did not undertake aggressive expansion: they opened 2.3 times fewer stores in 2013 than in 2012. At the same time, brands that are newcomers to the Russian market opened a lot of stores in Moscow.

In the street retail segment, a number of retail sectors kept disappearing from the traditional tenant pool. Home appliances and electronics sellers, children's goods stores, accessories stores, etc. prefer to open in shopping centers.

In 2013 high activity in street retail was demonstrated by "food boutiques" combining the concepts of a cafe and a food store. In 2013 these "food boutiques" accounted for a half of the demand in the "food" profile. Examples include Le Pain Quotidien bakery cafes, Karavaev Brothers delicatessen shop, Wolkonsky bakeries.

The city government activities aimed at creating a comfortable urban environment helped to develop specialization in the street retail segment. For example, in Kuznetsky Most Street and Nikolskaya Street, just as in Kamergersky Lany, with the creation of new pedestrian zones most of the tenants have become cafes and restaurants.

Just like in the capital, retail property market in other regions of Russia did not see any significant amount of new retail space supply, with 2013 hitting the unprecedentedly low level in terms of growth rate. More retail space was added to the market in various Russian regions rather than in Moscow. In 2014 developers are planning to commission 1.5 times more retail space in regional cities than in 2013.

Inspite of the relatively low amount of a new retail space supply, the geography is impressive: St. Petersburg, Syktyvkar, Krasnodar, Taganrog, Armavir, Irkutsk, Tyumen, Angarsk, Tobolsk, Kaliningrad, Ekaterinburg and others. Judging by the plans announced, developers are going to keep actively expanding in the Russian regions in 2014, with equally wide geographical coverage. RUSSIA Retail Property Market Report by MAGAZIN MAGAZINOV 2013

MARKET ENVIRONMENT CONSUMER CONFIDENCE INDEX DYNAMICS, Q1 2012– Q4 2013  Crisis anticipation on the part of the consumers Period 0 In Q4 2013 researchers noted negative trends in the consumer sentiment index, with a growing anticipation of a new crisis wave. In December 2013 the consumer confidence Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 index hit the record low level since early 2012 and dropped 4 points in comparison with -2 Q3 2013 to reach the index of -11. According to Romir, in Q4 2013 decrease in the consumption rates was for the first time observed both in the food market and the -4 basic goods market. The forecasts for 2014 remain conservative. The Global Barometer of Hope and Despair -6 by the research center Gallup International outlines that people's expectations in Russia are far below the level predicted for 2013. Consumer confidence index by the -8 sociological marketing company Nielsen marks growth in people's negative expectations, their concern about the state of national economy and a large number of -10 respondents thinking that today is not the best time for making purchases. -12  High level of credit load Source: Rosstat According to the Bank of Russia, the number of credits issued to individuals has been growing during the last three years and has increased by 4 times since 2009, whereas DYNAMICS OF CONSUMER LOANS, 2009–2013 the relative loan delinquency rate has been decreasing. It is important to note that the growth rate of the population's disposal income, as measured by Rosstat, is significantly 10 000 10% 12% lower than that of the consumer lending (2.5%, according to the results of Q3 2013). 9 000 This means that the amount of money that remains after loan repayments and that can 9% 8 778 10% be used for purchasing basic goods will become increasingly lower in the mid-term 8 000 perspective. It can be expected that the consumption growth rates demonstrated by 7 000 6 480 8% the population will slow down. 6 000 6% 5% 5 000 5% 6%

 Real Estate Tax 4 772 4 000 %

Another important factor of 2013 was the law on real estate tax which was passed in billion RUR 4% November 2013 and is in effect since January 1, 2014. According to the new federal 3 000 3 206 law, retail and office facilities and property of foreign organizations are taxed on the 2 000 2 334 basis of their cadastral value, if there is a corresponding regional law. As for now, laws 2% like this have been passed only in Moscow, the Moscow Region and the Amur Region. 1 000 By 2016 the tax rate in all regions of Russia will be 2%. This may result in a heavier 0 0% taxation with regard to owners of shopping centers, which may eventually lead to the 2009 2010 2011 2012 2013 increased rental rates for tenants. Volume of consumer loans, billion RUR Past-due consumer loans, % Source: The Bank of Russia SHOPPING CENTERS | MOSCOW SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 MARKET HIGHLIGHTS  At present, the level of retail market development in Moscow remains the highest MAIN INDICATORS OF RETAIL PROPERTY MARKET DEVELOPMENT IN MOSCOW of all the subjects and cities of the Russian Federation. About 8% of the country's Moscow's share population and 17% of the total retail turnover is concentrated in Moscow. Indicators, end of 2013 Moscow Russia in the all-Russian figures  About one third of the total space supply in quality shopping centers is located in Moscow. Besides, Moscow's retail space per person ratio exceeds by three times the Population, thousand people 11,979.5 143,300.0 8% Russian average and is 343 sq m GLA per 1,000 inhabitants. Retail turnover, bln rubles 4,017.0 23,668.4 17%  In 2013, Moscow accounted only for 9% of all the new space supply. Nevertheless, % of the last year, % 103.5 103.9 - according to developers, in 2014 Moscow's share in the all-Russian high-quality retail Dining facilities turnover, bln space growth rate will increase by 4 times to reach 36%. This is because in 2013 no big 165 - - shopping centers were commissioned in Moscow, whereas for 2014 the opening of rubles three large objects has been announced, each exceeding 100,000 sq m of GLA. % of the last year, % 107.6 - -

Total space supply in quality  Moscow also maintains its leadership among the Russian cities in terms of shopping centers, thousand sq 4,114.2 14,780.4 28% attracting international brands. According to MAGAZIN MAGAZINOV, 94% of all the m GLA international brands that are present in Russia are represented in Moscow. Traditionally, new brands willing to enter the Russian market choose Moscow as their Quality retail space per person launch pad. ratio, sq m GLA per 1,000 343 103 3.33 people

Quality retail space growth rate 125 1,350.9 9% per year, thousand sq m

Quality retail space announced 971 2,709.8 36% to open in 2014, thousand sq m

Number of international brands 400 427 94% (as of July 1, 2013) New international brands (Н2 22 27 85% 2012–Н1 2013)

Source: Rosstat, MAGAZIN MAGAZINOV's own estimations SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 SUPPLY DYNAMICS OF LEASABLE SPACES COMMISSIONING IN MOSCOW SHOPPING CENTERS In 2013 the Moscow market witnessed the appearance of 6 quality shopping centers* 2006-2013 with the total leasable area of over 125,000 sq m, which is less than last year (169,000 600,0 sq m). Accordingly, the growth of the total quality space supply in the Moscow retail property market reached 3%. 489,4 500,0 Two shopping centers were opened in Moscow by Tashir Group of Companies, RIO in 437,2 Leninsky Avenue and Raikin Plaza in Sheremetyevskaya Street. Among other arrivals are 400,0 370,4

Tropa shopping center (Odintsovo Service), Izmailovsky (Don Stroy) and two outlet 346,2 centers, the first phase of Vnukovo Outlet Village (Diona) and the first phase of Fashion 300,4 House Moscow Outlet Center (Fashion House Group). 300,0

The highest activity in the Moscow retail property market was recorded in Q2 2013 m sq ths 177,4 when 58% sq m GLA of the annual new space supply was commissioned. 200,0 169,8 125 Moscow outlet center market continues to grow. 2013 saw the opening of the two new shopping centers of this format, the first phase of Vnukovo Outlet Village and the first 100,0 phase of Fashion House Moscow Outlet Center. GBA of the first phase of Vnukovo Outlet Village located at Kievskoye Highway is 29,700 sq m, GLA is 16,600 sq m. The 0,0 first phase of Fashion House Moscow Outlet Center located at 2006 2007 2008 2009 2010 2011 2012 2013 has the GBA of 22,300 sq m and GLA of 15,700 sq m. The biggest projects of 2013 were two shopping centers opened by Tashir. The official opening of RIO shopping and entertainment center located in Leninsky Avenue took DYNAMICS OF LEASABLE SPACES COMMISSIONING IN MOSCOW SHOPPING CENTERS BY place in September 2013. GBA of the six-level shopping center is 75,000 sq m and GLA HALF-YEAR PERIODS, 2006–2013 is 40,000 sq m. Anchors include Green Perekrestok, M.Video, and a Cinema Star 500 multiplex. The biggest shopping center to open in H2 2013 was Raikin Plaza. It was opened on 400 September 19, 2013. Its GBA is 70,000 sq m and GLA is 35,000 sq m. There is a park lot

281,4 for 700 cars. 199,1 300 201,9 200 161,4 271,1 sq thsm 36,7 238,1 100 208,0 142,5 47,2 168,5 139,0 140,7 *Note. MAGAZIN MAGAZINOV - according to the Company’s methodology - does not 75,1 77,8 27,3 include specialized or low-quality shopping centers in the new supply stock. Moscow 0 retail property market refers to the existing shopping centers and shopping centers 2006 2007 2008 2009 2010 2011 2012 2013 schemes located in Moscow or in the neighbouring territories and primarily aimed at Volume of new suply in the first half of the year meeting the demand of Moscow inhabitants. Volume of new suply in the second half of the year SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 SUPPLY (CONTINUED)

DYNAMICS OF QUALITY RETAIL STOCK PER 1000 INHABITANTS IN MOSCOW, 2007–2013 As for the distribution of leasable space in quality shopping centers among administrative districts of Moscow, the leaders are the Southern (16.5% of the total 400 space supply), North-Eastern (14.2%) and Northern (12%) Administrative Districts. The 345 343 350 332 lowest supply level is observed in (0.2%), Troitsky and Novomoskovsky 304 Districts (3.2%) and the Eastern District (4.0%). The proportion is the same as during the 300

previous evaluation period. 259 people Comparing Moscow districts in terms of quality space per person ratio, the leader will 250 226 198 be the Central Administrative District followed by Troitsky and Novomoskovsky 200 Districts, as well as the Northern District. Zelenograd, Eastern and South-Western Administrative Districts have relatively low quality space per person indicator, which 150 means that these are districts with high potential for further shopping center

development. GLA m per1000 100 sq 50

0 2007 2008 2009 2010 2011 2012 2013

QUALITY RETAIL STOCK PER 1000 INHABITANTS IN MOSCOW, BY ADMINISTRATIVE BREAKDOWN OF LEASABLE AREA AT MODERN SHOPPING CENTERS, BY ADMINISTRATIVE DISTRICTS DISTRICTS 645 Zelenograd 700 Central 0,2% South-West 11,8% 600 New 513 7,4% Moscow 500 435 East 422 3,2% 391 West 4,0% 400 369 363 319 10,2% North

per 1000 per1000 people 300 219 12,0% 200

112 South-East m GLA GLA m

100 44 11,8% sq 0 North-East 14,2%

North-West South 8,6% 16,5% SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 DEMAND INTERNATIONAL BRANDS THAT OPENED THEIR FIRST STORES IN MOSCOW SHOPPING CENTERS IN 2013 In 2013 a number of leading international brands showed their interest in the Moscow Price Country of № Brand Retail Sector Location retail property market. The existing international retailers expanded their presence in segment origin the capital by opening new stores, meanwhile the brands that are new to the Russian Mega Belaya 1 Boardriders Clothing Medium France market opened their first stores and restaurants in Moscow. Dacha

In the year of 2013 26 new international brands entered the Moscow market, 18 of 2 Brooks Brothers Clothing Medium USA GUM them opened their stores in shopping centers*. The vast majority of these new brands in Moscow shopping centers are clothing retailers that function in the medium price Zolotoy Vavilon segment. 3 Nautica Clothing Medium USA (Prospekt Mira), Raikin Plaza According to the data showed in the table, the majority of new newcomers view the following shopping centers as their launch pad: 4 REDValentino Clothing Premium Italy GUM • Raikin Plaza (3 new brands); 5 SFIZIO Clothing Medium Italy Afimall City Medium 6 Sherri Hill Clothing USA Galereya Moskva • GUM, Atrium, Mega Belaya Dacha and Afimall City (2 new brands each). Plus

Vacancy rates fell by 0.2% in comparison with the level of December 2012. The reason Zolotoy Vavilon 7 Takko Fashion Clothing Economy Germany for that is the tenant demand for retail space in quality shopping centers remaining Rostokino stable and exceeding the space growth rate. Mega Belaya 8 The North Face Clothing Medium USA Dacha 9 APM Monaco Accessories Medium France Raikin Plaza 10 Serapian Accessories Medium Italy Modny Sezon Medium 11 Trollbeads Accessories Denmark Atrium Plus VACANCY RATE DYNAMICS IN HIGH-QUALITY MOSCOW SHOPPING CENTERS Kapitoliy in 12 Johnny Rockets Restaurants&Cafes Medium USA Vernadskogo 8% Avenue 7,2% 7% 13 Nathan's Famous Restaurants&Cafes Medium USA Atrium 6% 5% 14 Smoothie Factory Restaurants&Cafes Medium USA Aeroport Gallery 4% RIO in Leninsky 3% 3% 3% 15 The Noodle House Restaurants&Cafes Medium UAE 2,7% 2,5% Avenue 2% 1% Raikin Plaza, RIO 0% 16 Wetzel's Pretzel Restaurants&Cafes Medium USA on Dmitrovskoye Highway December December December December December 2009 2010 2011 2012 2013 17 H&M Home Household goods Medium Sweden Afimall City

18 Chicco Children's goods Medium Italy Gagarinsky * Note. For more information on the 8 new international brands that opened in the street retail format please refer to the section Moscow Street Retail. SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 RENTAL RATES AVERAGE RENTAL RATES AT SHOPPING CENTERS IN MOSCOW By December 2013 average rental rates at quality shopping centers in Moscow increased by 6%, as compared to December 2012. Average Rates, USD per sq m/year Average Floor Space, At present, rental rates for anchor tenants range from USD 180 to USD 600 per sq Type of Tenant sq m m/year (VAT and operating cost exclusive), depending on the unit size, retail sector and (excl. VAT and operating costs) other criteria. Lease contracts are signed for 10 to 25 years. Maintenance payments for larger anchors average USD 40 to 60 per sq m/year before VAT. Dec. 2012 Dec. 2013

Generally, the tenant types that experienced most noticeable changes in rental rates Food Hypermarket >8,000 150 – 280 180 – 320 were food hypermarkets (end-of-year rates USD 180 to 320 per sq m/year), city food hypermarkets (USD 300 to 400 per sq m/year), DIY hypermarkets (USD 220 to 280 per Food Hypermarket (City sq m/year), kids’ goods stores (USD 400 to 600 per sq m/year) and cinemas (USD 200 to 4,000 – 8,000 250 – 350 300 – 400 Format) 300 per sq m/year). Rental rates for fashion gallery tenants changed depending on the area. As of late 2013, average rental rates for tenants occupying the area of 700 to 1200 sq m ranged DIY >10,000 180 – 250 220 – 280 between USD 300 and 600 per sq m/year, for tenants with the area of 500 to 700 sq m average rental rates were USD 400 to 600 per sq m/year. Food Supermarket 1,000 – 4,000 400 – 600 400 – 600 Average rental rates also increased for fashion gallery tenants with the area of 100 to Electronics and Home 250 sq m (end-of-year rates USD 1200 to 1800 per sq m/year), 50 to 100 sq m (USD 1,500 – 4,500 300 – 600 300 – 600 Appliances 1800 to 2500 per sq m/year) and under 50 sq m (USD 2500 to 3500 per sq m/year). Contracts with fashion gallery tenants are typically concluded for periods of 3 to 5 Sports Goods 4,000 – 6,000 250 – 350 250 – 350 years. Maintenance costs for these tenants usually range from USD 200 to 250 per sq Sports Goods 1,200 – 2,500 350 – 550 350 – 550 m/year before VAT. Kids' Goods 1,000 – 2,500 300 – 600 400 – 600 Rental rates average USD 700 to 900 per sq m/year for restaurants, USD 1,200 to 1,800 Clothes 1,500 – 2,500 300 – 500 300 – 500 for cafés, and USD 1,800 to 2,500 for food court eateries. These tenants normally sign contracts for five years, with maintenance costs ranging from USD 170 to 250 per sq Multiplex Cinema 2,500 – 4,000 180 – 270 200 – 300 m/year before VAT. 700 – 1,200 300 – 600 500 – 800 500 – 700 400 – 600

250 – 500 800 – 1,200 800 – 1,200 Fashion Gallery 100 – 250 1,200 – 1,700 1,200 – 1,800

50 – 100 1,700 – 2,300 1,800 – 2,500

<50 2,200 – 3,200 2,500 – 3,500

Restaurant 300 – 600 700 – 900 700 – 900

Coffee Shop 150 – 300 1,200 – 1,800 1,200 – 1,800

Food Court 50 – 100 1,800 – 2,300 1,800 – 2,500 SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 FORECAST 16 quality retail property projects have been announced for 2014, with the total SHOPPING CENTERS TO BE COMMISSIONED IN MOSCOW IN 2014 leasable area of about 1 million sq m. This is a record-breaking figure in the history of № Name Address GBA, sq m GLA, sq m Developer Khoroshyovskoye AMMA the market. A comparable amount of space supply was announced to be 1 Aviapark 510,000 235,000 commissioned in 2009, but only 50% of that actually appeared in the market. In 2014 Highway, 38A Development Varshavskoye we expect a similar ratio between the announced and completed shopping center 2 Columbus 277,000 140,000 MIRS Highway, 140 schemes, i.e. 50%. Vegas at Crocus Moscow Ring 3 283,400 112,500 Crocus Group City Road, 66 km It should be noted that the leasable area of the three largest shopping centers to Kozhukhovskaya 7- 4 Mozaika 134,000 67,000 OST Group open in 2014 exceeds 480,000 sq m. For comparison, in 2013 only 6 objects were ya St., bld. 3А-5 Yartsevskaya commissioned, with the total leasable area amounting to only one-fourth of the area 5 Kuntsevo Plaza 114,300 63,600 Enka of the three largest shopping centers announced for 2014. Street, 19 Intersection of the 84th km of the Central The largest shopping center that is scheduled to open in Q4 2014 is Aviapark on 6 Vesna MRR and 126,000 56,000 Properties / Khoroshyovskoye Highway. The shopping center will have four levels and a two- Altufyevskoye Alto Assets storey car parking zone for 7,000 cars. Among other gigantic projects to appear on Highway Kashirskoye IMMOFINANZ the Moscow retail property market are Columbus on (GLA 7 GoodZone 120,000 56,000 140,000 sq m) and Vegas at Crocus City (GLA 112,500 sq m). Highway, 12 Group Kievskoye 8 RIO 70,000 45,000 Tashir Highway, 1.5 km The majority of the future shopping center schemes are located in the Southern Administrative District (it is the leading district in both the number of the announced Centralny Detsky Teatralny Proezd, Hals- 9 Magazin in 60,500 35,200 projects and their total leasable area). It is followed by the Northern and North- 5/1 Development Western Administrative Districts. Lubyanka Golovinskoye 10 Vodny 50,500 30,000 MR Group Highway, 5

Borisovskie Prudy 11 Brateevo Mall 34,000 21,000 Ferro Estate VOLUME OF NEW RETAIL SPACE SUPPLY AT MOSCOW SHOPPING CENTERS, 2006-2014 St., 26, bld. 2

1000,0 917,0 Kashirskoye 900,0 12 Moskvorechie Highway, 24, bld. 30,000 19,500 Garant-Invest 12

800,0 Pyatnitskoye Otrada, 700,0 13 Highway, 7 km, bld. 14,600 14,600 ELT 3rd phase 600,0 489,4 2 437,2 Miklukho-Maklaya 500,0 14 MC 15,700 12,400 Soyuz 370,4 346,2 St., 36 400,0 300,4 300,0 Intersection of ths sq sq thsGLA m 177,4 169,8 200,0 125 15 Alfavit Znamenskie Sadki 14,000 9,100 Christina NVN 100,0 St. and Polyany St. 0,0 Mosow , 16 Tvoy Dom 60,000 n/a Crocus Group 2006 2007 2008 2009 2010 2011 2012 2013 2014F 91 km SHOPPING CENTERS | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 STREET RETAIL | MOSCOW STREET RETAIL | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 HIGHLIGHTS

 In 2013 the Moscow City Government introduced a number of measures: ―Creating pedestrian areas to improve the urban environment. For example, in the vicinity of Sadovoye Koltso there are now 12 pedestrian streets with the combined length of over 6 km. Among others, Nikolskaya Street, Tverskoy Lane, Stoleshnikov Row became pedestrian-only in 2013, and Kuznetsky Most Street in late 2012. Pedestrian areas appeared in Bolshaya Dmitrovka Street and Krymskaya emb. as well as in the Zamoskvorechie district. Pedesterian spaces encourage walking and promote street retail. ― Other initiatives of the Moscow City Government include developing Moscow parks, where food retail mostly benefits from, banning unauthorized trade in underpasses and getting rid of kiosks and vending booths, introducing new requirements on shop signs and organizing paid parking zone around Sadovoye Koltso. These measures are aimed at civilising Moscow street retail and improving the city appearance. The paid parking zone may at first decrease the foot traffic, but once a culture of paid parking sets in, a better planned and comfortable city center will boost the street retail segment.

 Revocation of banking licenses. In 2013 the Central Bank of Russia revoked licenses of a number of banks, including MasterBank, Investbank, Project Financing Bank, Smolensk Bank. These companies together owned a fairly large number of offices in Moscow. Their dissolution leaves vacant properties for the street retail market. Some of the operational banks are experiencing liquidity problems and may lose licenses in the near future too, adding to the street retail real estate pool.

 Flagship stores. A large number of international brands opened flagship stores in 2013 in Moscow. The most important of these are: Hugo Boss and Tommy Hilfiger in Kuznetsky Most Street, Cartier in the Berlin House in Petrovka Street, Hyundai store in Novy Arbat Street (now at the fit-out stage). Middle-price brands such as Uniqlo and H&M are also considering opening their own flagships in the street retail format.

 Greater independence of international brands. International brands with some experience of working in Russia and a loyal clientele are choosing to develop on their own rather than through distributors. In 2013 the luxury brand Gucci was the most obvious example of this tendency. Gucci announced it would direct its retail business in Russia independently (and bypass Mercury Group, its previous importer). The brand's first independent store, over 1000 sq m in size, is to be opened in Petrovka Street. In 2013 other well-nown international brands such as Tommy Hilfiger, Tiffany & Co, Hugo Boss, Spriengfield and Women’s Secret chose to develop indepently in Russia. STREET RETAIL | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 DEMAND THE STRUCTURE OF DEMAND FOR STREET RETAIL SPACE Russian and foreign companies still consider opening stores and restaurants in BY RETAIL SECTOR Moscow shopping streets. But only certain segments show real interest in Moscow street retail. More than half of demand for street retail premises comes from Restaurants & restaurants, cafes, grocery networks and food boutiques as well as clothing and 25% 27% 30% 25% Cafes footwear companies. Clothing and In 2013 restaurants and cafes remained the major source of the demand. For several footwear 15% 18% 18% years in a row, their share of demand for street retail premises has stayed at 25% and 20% Grocery above. 11% 9% 9% 8% 6% 6% Demand from fashion operators has been declining for a few years now. Largest 6% 9% 8% 7% Banks international fashion companies with their flagship stores make up much of the 10% 6% demand for street retail premises. However, fashion retailers still tend to open the Furniture and majority of their stores at shopping centers. Besides, Moscow retail property market 35% 28% 30% 35% household goods supply still lacks high-quality premises capable of meeting the technical requirements Other of leading brands. That is why notable flagship store openings are exceptional. Grocery stores strongly drive up demand for street retail premises — very few 2013 2012 2011 2010 premises larger than 1000 sq m are on offer. Potential tenants of this retail sector include both chain supermarkets and convenience food stores (they require 1–1,5 thousand sq m on the average) and small delicatessen stores, bakeries, etc. (usually DYNAMICS OF DEMAND FOR STREET RETAIL PREMISES BY TOTAL AREA requiring 100–150 sq m). Last year saw an increase in demand from the latter category of companies. Banks are among the most active tenants of street retail premises. Banks' share of 12% < 50 sq m total demand has remained high in the last 3 years. In the second half of 2013 many 9% offices of dissolved banks (with the licenses revoked by the Central Bank of Russia) 50-100 sq m floated to the market. But these premises did not substantially increase overall 18% 100-150 sq m supply. They are usually well-placed and have short exposure times. 11% Tenants such as multibrand electronics stores, sellers of accessories and children's 150-200 sq m products are much less interested in street retail than before. They focus mostly on 200-300 sq m the expansion at shopping centers. 11% 300-500 sq m

16% 500-1000 sq m 13% 9% > 1000 sq m

Note. In 2013 MAGAZIN MAGAZINOV refined tenant classification criteria. For this reason the absolute figures have been adjusted with regard to those listed in the previous reviews. STREET RETAIL | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 DEMAND (CONTINUED) In 2013 eight new international chains have chosen to open their first stores in the NEW INTERNATIONAL BRANDS TO OPEN IN THE STREET RETAIL FORMAT IN MOSCOW street retail format*. For example, two newcomers to Russia opened their stores on (2013) Stoleshnikov Row: the Italian maker of premium-class women's clothes Agnona and Price Country of № Brand Retail Sector Location the legendary Swiss manufacturer of luxury watches Patek Philippe. segment origin MAGAZIN MAGAZINOV's study of foreign brands' development in Russia shows that 1 Agnona Clothing Premium Italy Stoleshnikov Row only 20% of all international brands' outlets in Moscow are in the street retail format (as of the end of Н1 2013). However, this speaks not of the underdeveloped street 2 Patek Philippe Accessories Luxury Switzerland Stoleshnikov Row retail but of strong demand for spaces at high-quality shopping centers. Debauve & Restaurants 1st Tverskaya-Yamskaya 3 Middle plus France International restaurant and cafe chains have been the most active in expanding on Gallais and cafes Street the streets. There are totally 21 foreign brands of this retail sector working in Restaurants 4 Krispy Crème Middle USA Nikolskaya Street Moscow, and street retail hosts over 40% of their stores. Interestingly enough, 4 out and cafes of the 8 new brands that entered the Moscow market in 2013 are also restaurants or Lavazza Restaurants 5 Middle Italy Prospekt Mira cafes. They are the French maker of exclusive chocolate Debauve&Gallais with its Espression and cafes first Moscow store in 1st Tverskaya-Yamskaya Street, the American donut vendor Marugame Restaurants 6 Middle Japan Pyatnitskaya Street Krispy Crème in Nikolskaya Street, the Italian coffee house Lavazza Espression in Seimen and cafes Prospekt Mira and the Japanese cafe Marugame Seimen in Pyatnitskaya Street. Restaurants 7 Shake Shack Middle USA Arbat Street and cafes

Books and United 8 WHSmith Middle Paveletskaya Square periodicals Kingdom

SHARE OF STREET RETAIL IN THE TOTAL NUMBER OF MOSCOW STORES BY RETAIL SECTOR, 2013

44% Restaurants & Cafes 13% SHARE OF 26% Electronics and STREET RETAIL telecommunication 14% IN THE TOTAL 21% Household goods NUMBER OF Accessories MOSCOW 26% 16% STORES BY Footwear PRICE 15% SEGMENTS, 30% Children's goods 2013 15% Perfumery and cosmetics 35% 11% Clothing 11%

* Note. F or more information on the 18 new international brands that opened at shopping centers please refer to the section Moscow Shopping Centers. STREET RETAIL | MOSCOW Retail Property Market Report by MAGAZIN MAGAZINOV 2013 RENTAL RATES RENTAL RATES IN MOSCOW'S KEY SHOPPING CORRIDORS Lease contracts for street retail are typically signed for 3 to 5 years. The rents are AS OF THE END OF 2013 adjusted by 5 to 10% annually. Shopping Corridor Average rental rates (150–200 sq m lot) As noted earlier, large electronics stores have almost stopped opening in the streets. They prefer to focus on developing electronic commerce. In street retail USD/1 sq m/year (VAT-exclusive) they are replaced by relatively small stores offering telecom services and technical devices, e.g. re-Store, Samsung, Svyaznoy, Bely Veter. December 2012 December 2013 Bolshaya Dorogomilovskaya 2,000 – 3,000 2,000 – 3,000 Street Kuznetsky Most Street 3,000 – 4,000 3,000 – 4,000

Kutuzovsky Avenue (from the city 2,000 – 3,000 2,000 – 3,000 center to the )

Leninsky Avenue (from the city 2,000 – 3,000 2,000 – 3,000 center to the Third Ring Road) Maroseyka Street 2,800 – 3,200 2,800 – 3,200 AVERAGE STREET RETAIL RENTAL RATES Myasnitskaya Street (from the city VS. THE PURPOSE (AS OF THE END OF 2013) center to Chistoprudny 1,800 – 2,200 1,800 – 2,200 Boulevard) Nikolskaya Street 2,500 – 3,000 2,500 – 3,000 Average rental rates in Average rental rates in December, 2013 Retail Sector Area, sq m July, 2013 *USD/sq Novy Arbat Street (from the city *USD/sq m/year (VAT- 2,500 – 3,000 2,500 – 3,000 m/year (VAT-exclusive) center to Novinsky Boulevard) exclusive)

Banks 100 – 300 1,500 – 2,500 1,500 – 2,500 Petrovka Street 3,500 – 4,500 3,500 – 4,500 Mira Avenue (from the city center < 100 2,000 – 3,000 2,000 – 3,000 1,500 – 2,000 1,500 – 2,000 Restaurants 100 – 300 1,300 – 2,000 1,300 – 2,000 to the Third Ring Road) 300 – 1,000 700 – 1,000 700 – 1,000 Pokrovka Street (from the city Clothes and center to Chistoprudny 1,500 – 2,000 1,500 – 2,000 < 200 1,200 – 2,000 1,200 – 2,000 footwear Boulevard) 1,000 – 3,000 400 – 600 400 – 600 Stary Arbat Street 2,500 – 3,000 2,500 – 3,000 Food 500 – 1,000 600 – 800 600 – 800 Stoleshnikov Row 4,000 – 6,000 4,000 – 6,000 Furniture and (even numbers 150 – 500 700 – 1,500 700 – 1,500 home decoration — from Okhotny Ryad to 5,000 – 7,000 5,000 – 7,000 Pushkinskaya Square) Services 30 – 100 2,000 – 3,500 2,000 – 3,500 Tverskaya Street (odd numbers — Electronics and 30 - 150 1,500 – 2,500 1,500 – 2,500 from Okhotny Ryad to 3,000 – 4,500 3,000 – 4,500 connectivity Pushkinskaya Square) Cosmetics and 200 – 400 1,500 – 2,500 1,500 – 2,500 perfumery Tverskaya Street (even numbers – from Pushkinskaya Square to 3,000 – 4,500 3,000 – 4,500 Children's products 500 – 1,700 400 – 600 400 – 600 Mayakovskaya subway station) * Note. The average rental rates are indicated for street retail schemes facing the streets within the Third Ring Road. SHOPPING CENTERS | REGIONS SHOPPING CENTERS | REGIONS Retail Property Market Report by MAGAZIN MAGAZINOV 2013 SUPPLY

According to MAGAZIN MAGAZINOV, at the end of 2013 Russian commercial property DYNAMICS OF LEASABLE SPACE IN MODERN SHOPPING CENTERS IN RUSSIA, 2008–2013 market was 14.8 million sq m of GLA in high-quality shopping centers. GLA increased by 16 000 10% YoY — the smallest increase in shopping space supply since 2008. For comparison, in 2012 supply grew by 14%. In absolute terms the market since 2008 has increased 1.9 14 000 1 351 times. 1 671 12 000 Russian regions remain at the center of developers' attention. A generally favorable 1 243 macroeconomic situation in most regions, conductive to consumption, and deficit or 10 000 1 351 plain absence of high-quality shopping centers attract developers and, finally, help 1 398 8 000 creating local retail property markets. In 2013 Moscow's portion among the newly 13 479 1 724 commissioned shopping centers was the lowest in six years: only 9.3% of the new GLA 6 000 11 808 was commissioned in the capital. 10 565 9 214 4 000 7 816 In 2013 Russia, not counting the Moscow region, totally witnessed the opening of 37 6 092 new high-quality shopping centers with the combined GLA of 1.2 million sq m. 2 000

The top three cities by openings in 2013 are as follows: 0 2008 2009 2010 2011 2012 2013 Total existing modern shopping centers as of the beginning of the year, ths sq m GLA •St. Petersburg: 6 new shopping centers with the combined GLA of 258,700 sq m. They GLA m sq ths Modern shopping centers commissioned during the year, ths sq m GLA include: London Mall (GLA = 61,300 sq m), Continent in Bucharestskaya (GLA = 52,300 sq m), first phase of Zhemchuzhnaya Plaza (GLA = 48,100 sq m), second phase of Continent in Zvyozdnaya (GLA = 40,000 sq m), third phase of Zanevsky Kaskad (GLA = 40,000 sq m) COMBINED GLA GROWTH AT HIGH-QUALITY SHOPPING CENTERS IN RUSSIA, 2008–2013 and Avenue (GLA = 17,000 sq m). 100% •Tyumen: 3 shopping centers with the combined GLA of 115,000 sq m: Kristall (GLA = 90% 75,000 sq m), Galereya Voyage (GLA = 21,000 sq m), Magellan (GLA = 19,000 sq m). 80% 70% 65% 68% •Ekaterinburg: 2 shopping centers opened, combined GLA of 98,000 sq m: Globus (GLA = 60% 80% 86% 90% 91% 84,000 sq m, the reconstructed Ekaterininsky shopping center) and the second phase of 50% Raduga Park (GLA = 11,000 sq m). 40%

30%

20% 35% 32% 10% 20% 14% 10% 9% 0% 2008 2009 2010 2011 2012 2013

Moscow Regions SHOPPING CENTERS | REGIONS Retail Property Market Report by MAGAZIN MAGAZINOV 2013 SUPPLY(CONTINUED)

In 2013 the largest new regional shopping centers were Akvarel in Volgograd (GLA LARGEST SHOPPING CENTERS OPENED IN RUSSIAN REGIONS IN 2013 90,800 sq m), Globus in Ekaterinburg (84,000 sq m), Planeta in Ufa (75,000 sq m), Kristall in Tyumen (75,000 sq m) and Aura in Yaroslavl (63,000 sq m). № City Name GBA, sq m GLA, sq m Developer

Volgograd's Akvarel, built by Immochan, became the largest shopping and 1 Volgograd Akvarel 121,800 90,890 Immochan entertainment center in the city. Auchan, Leroy Merlin and Decathlon opened their first Mallino Volgograd stores here. 2 Ekaterinburg Globus 158,000 84,000 Development The combined GLA of the two biggest regional shopping centers exceeds that of all RosEvro- 4 Ufa Planeta 154,000 75,000 Moscow openings in 2013. In 2013 Moscow experienced the openings of smaller, Development district-sized shopping centers, while the regions boomed with several huge high- quality schemes. 3 Tyumen Kristall 100,000 75,000 MDS Group The regional market's attractiveness to developers varies with the cities’ population — that is, the number of potential consumers. As a rule, the larger the city, the better its Renaissance commercial real estate market is developed and the better its population is supplied 5 Yaroslavl Aura 122,000 63,000 with high-quality shopping centers. Development

For example, St. Petersburg is currently one of the most saturated markets in the TOTAL LEASABLE AREA AT MODERN SHOPPING CENTERS (BY CITY GROUPS), 2013 country. It has 442 sq m of high-quality GLA per 1,000 inhabitants (or 2.1 million sq m GLA in absolute terms). For 1 million-plus cities the number averages 259 sq m per 4 500 15,1 16

1,000 inhabitants (the aggregated GLA of 3.9 million sq m). For cities with the 4 000 14 population of 500,000 to 1 million people the average figure is 172 sq m per 1000 12,6 3 500 inhabitants, for cities with the population of 300,000 to 500,000 people — 126 sq m 12,0 12

3 000 10 per 1000 inhabitants. 10 2 500 8 2 000 4 114 3 917 5,0

ths sq m GLA m sq ths 6

1 500 people mln 1 000 2 123 2 167 4

500 1 276 2

0 0 Moscow Saint Cities with Cities with 5 Cities with 3 Petersburg more than 1 ths - 1 mln ths - 5 ths mln people people people Total supply, ths sq m Population, mln people SHOPPING CENTERS | REGIONS Retail Property Market Report by MAGAZIN MAGAZINOV 2013 FORECAST

By the end of 2013 Moscow remained the city with the greatest available GLA — 28% LEASABLE AREA SHARES AT MODERN SHOPPING CENTERS (BY CITY GROUPS) of the total supply in Russia. Combined shopping space supply in all 13 cities with the population more that 1 million people came very near Moscow's figure by the end of 8,0% Other cities the year with 27%. The major portion of supply, however, comes from the cities under 16,6% 8,6% 1 million. 14,7% 12,2% Cities with 3 ths - 5 ths If all Moscow shopping centers expected for commissioning in 2014 open as scheduled, people the capital will surge ahead of the regions. Its share will be 36% of all shopping space 18,0% Cities with 5 ths - 1 planned for commissioning. It is worth noting that 47% of this planned-for-2014 space 26,5% mln people will be shopping centers in cities under 1 million people. Developers' attention 13,2% continues to shift away from gradually saturating markets in the capital and other 4,2% Cities with more than metropolises to smaller cities. 14,4% 1 mln people

In the regions, not counting Moscow, 43 shopping centers with the total GLA of slightly 35,8% 27,8% more that 1.7 million sq m are due for commissioning in 2014. This is almost 1.5 times the GLA delivered in 2013. The announced schemes are also quite large individually. Moscow The most spacious shopping center of 2014 in the regions should be Barnaul's Arena, Total supply as of 2013 To be commissioned in under construction by Concern SV with the GLA of 95,000 sq m. It will house the city's 2014 first Media Markt electronics store, Magnit food hypermarket, children's goods hypermarket as well as an entertainment center. LARGEST REGIONAL SHOPPING CENTERS TO BE COMMISSIONED IN 2014

№ City Name GBA, sq m GLA, sq m Developer

1 Barnaul Arena 150,000 95,000 Concern SV

2 Samara Ambar 118,000 90,000 Viktor & Co

RosEvro- 3 Novokuznetsk Planeta 140,000 73,000 Development

Greenwich, Obschestvo 4 Ekaterinburg 120,000 72,400 phase 4 Malysheva-73

Electronics Nizhny 5 Nebo 131,000 69,000 Group, Marins Novgorod Group CONTACTS

HEAD OF RESEARCH AND CONSULTING STREET RETAIL DEPARTMENT Andrey Vasyutkin Marina Markova [email protected] [email protected]

HEAD OF GEOMARKETING RESEARCH SHOPPING CENTERS DEPARTMENT Alexey Nikiforov Diana Zaznobina [email protected] [email protected] Narmina Gorina [email protected]

MANAGING DIRECTOR Dmitry Burlov [email protected] BUSINESS DEVELOPMENT Maksim Mankevich 40/2 Prechistenka Street [email protected] Moscow 119034 Russia Tel: +7 (495) 790 00 00 HEAD OF PR Fax: +7 (495) 725 26 65 Julia Mosolova [email protected] [email protected]